(The following statement was released by the rating agency)
Link to Fitch Ratings' Report: Red & Black TME Germany 1 UG
Feb 27 - Fitch Ratings has assigned Red & Black TME Germany 1 UG's
(haftungsbeschraenkt) issue of class A and B notes ratings as
EUR513m class A notes, due January 2023: 'AAAsf'; Outlook Stable
EUR87m class B notes, due January 2023, unrated
Key Rating Drivers:
The ratings are based on Fitch's assessment of the originator's underwriting and
servicing procedures, the agency's expectations of future asset performance, the
available credit enhancement, and the transaction's legal structure.
The issuance proceeds were 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 portfolio equals EUR600m and consists of 19,497 loan contracts. The loans
are backed by nine types of collateral, the largest four being: trucks (roughly
32% of the portfolio notional), construction machines (26%), buses (11%) and
agriculture machines (10%). 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.
The agency ran various rating sensitivity scenarios to outline the effect on the
assigned ratings if the key rating parameters - default rate and recovery rate -
were stressed. An increase of 25% in the base case default rate and a decrease
of 25% in the base case recovery rate would result in a rating of 'Asf' for the
class A notes. Further sensitivities are outlined in the new issue report for
GEFA (NR) acts as servicer of the loans. While there is 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 new issue 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.
(Caryn Trokie, New York Ratings Unit)