Link to Fitch Ratings' Report: Red & Black TME Germany 1 UGJan 23 - Fitch Ratings has assigned Red & Black TME Germany 1 UG's
(haftungsbeschraenkt) upcoming issue of class A and B notes expected ratings as
EUR513m class A notes, due January 2023: 'AAAsf(EXP)'; Outlook Stable
EUR87m class B notes, due January 2023, unrated
The expected ratings are based on Fitch's assessment of the originators'
underwriting and servicing procedures, the agency's expectations of future asset
performance, the available credit enhancement, and the transaction's legal
The final ratings will be contingent upon the receipt of final documents
conforming to the information already received and a satisfactory review of
legal opinions to support the agency's analytical approach.
The issuance proceeds will be used to purchase a German portfolio of loan
receivables backed by trucks and other moveable equipment originated by GEFA
Gesellschaft fur Absatzfinanzierung mbH (GEFA), a wholly owned subsidiary of
Societe Generale ('A+'/Negative/'F1+'). The loans are granted entirely to
The transaction is static and will start amortising after closing.
The preliminary portfolio equals EUR600m and consists of 19,432 loan contracts.
The loans are backed by nine types of collateral, the largest four being: trucks
(roughly 33% of the portfolio notional), construction machines (26%),
agriculture machines (11.5%) and buses (11%). Fitch notes that the assets are
not standard assets seen in typical auto ABS transactions.
The debtors are SMEs. Portfolio concentrations by debtor and industry in this
transaction are higher than in typical auto ABS securitisations. At the same
time, recoveries are usually obtained from the sale of the financed object,
which is a characteristic of an ABS transaction.
Hence, in the agency's view, the transaction contains elements of both an ABS as
well as a SME securitisation. Fitch, therefore, used a combination of these
rating approaches when analysing the transaction.
When deriving its portfolio default risk assumptions, Fitch applied its Criteria
for Rating Granular Corporate Balance-Sheet Securitisations (SME CLOs), dated
November 2012. To size the risk of default, the agency used its proprietary
Portfolio Credit Model (PCM). This resulted in a base case portfolio default
rate of 3.9% over the transaction's life of 17 months, which is higher than the
base case default rates typically assumed for other auto ABS transactions rated
Fitch applied its EMEA Consumer ABS Rating Criteria, dated July 2012, when
deriving base case recovery rate assumptions. The agency observed that
historical recovery rates have been high compared to typical auto ABS
transactions. Fitch assumed a base case recovery rate of 80% for the overall
portfolio, in line with the long-term average.
The agency further assumed a recovery stress haircut between median and high,
e.g. 55% in 'AAAsf'. This haircut reflects the agency's concern that the
second-hand market for collateral securitised in the portfolio can be less
liquid and more volatile than, for example, the used car market. Furthermore,
the portfolio consists of nine different collateral types, which can have
significantly different recovery prospects.
GEFA (NR) acts as servicer of the loans. While there will be no back-up servicer
in place from closing onwards, the transaction foresees the appointment of a
back-up servicer in case of deterioration of Societe Generale's credit quality,
even before a servicer termination event occurs. In this case GEFA will continue
servicing the loans, while the back-up servicer will be standing by and ready to
take over the servicing in case the original servicer does have to be replaced.
This procedure is viewed positively by Fitch.
A presale report, including further information on transaction related stress
and sensitivity analysis, and material sources of information that were used to
prepare the credit rating is available at www.fitchratings.com.
Additional information is available at www.fitchratings.com.
The ratings above were solicited by, or on behalf of, the issuer, and therefore,
Fitch has been compensated for the provision of the ratings.
Sources of information used to assess these ratings were the originator,
arranger and transaction legal documentation.
Applicable criteria, 'EMEA Consumer ABS Rating Criteria', dated July 2012;
'Criteria for Rating Granular Corporate Balance-Sheet Securitisations (SME
CLOs)', dated November 2012; and 'Counterparty Criteria for Structured Finance
Transactions', dated May 2012, are available at www.fitchratings.com.
Applicable Criteria and Related Research:
EMEA Consumer ABS Rating Criteria
Criteria for Rating Granular Corporate Balance-Sheet Securitisations (SME CLOs)
Counterparty Criteria for Structured Finance Transactions