Jan 15 (Reuters) - (The following statement was released by the rating agency)
Fitch Ratings has assigned E-Carat, Compartment No. 6’s class A notes and class B notes expected ratings, as follows:
EURTBD class A notes, due September 2021: ‘AAA(EXP)sf’; Outlook Stable
EURTBD class B notes, due September 2021: ‘AA-(EXP)sf’; Outlook Stable
EURTBD Subordinated Note, NR(EXP)
The final ratings will be contingent upon the receipt of final documents conforming to the information already received to support the agency’s analytical approach.
The ratings reflect the pool’s expected asset performance, available credit enhancement for the class A and B notes, the transaction’s legal structure and the sound origination and servicing procedures of GMAC Bank GmbH (GMACB; BB+/Positive/B).
Credit enhancement for the class A and B notes is 9.0% and 5.0%, respectively. It is provided by subordination of the subordinated note for the class B notes, and by the class B notes and the subordinated note for the class A notes.
Additionally, the transaction benefits from an amortising reserve fund of 1.90% of the initial portfolio balance and substantial initial excess spread. Both provide credit enhancement in case losses are recorded in the principal deficiency ledger. The liquidity reserve can also be used to cover shortfalls for the payment of senior items, senior swap payments and interest on the class A and B notes. At legal final maturity, the remaining liquidity reserve will be used to redeem the notes.
Fitch assumed a base case loss rate of 1.0% from the total book loss data it received from GMACB. The agency concluded that the observed loss rates of post 2008 vintages were low compared with peers. In the absence of GMACB-specific static default and recovery data, the agency set the loss assumption slightly below the worst-performing 2007/2008 vintages. The loss rate is still at the lower end of the expected loss rates assigned to peer transactions.
Fitch has also considered the additional risks arising from the balloon loans. Considering the share of the balloon portion of 42% of the discounted preliminary pool balance, the agency adjusted its default rate multiple in the ‘AAAsf” and ‘AA-sf’ scenario to account for this risk.
The transaction benefits from an appointed back-up servicer (Sitel), which commits to act as the replacement servicer upon termination of the servicing agreement. In practice, Sitel currently services GMACB’s loan portfolio for up to 120 days in arrears. In Fitch’s opinion, the appointment of Sitel as a servicer reduces the risk of any significant servicing disruption in the event of GMACB’s insolvency.
The transaction’s performance is sensitive to increased defaults in the portfolio. Fitch considers unemployment the main default driver of fixed rate auto loans with private customers, which make up the majority of the pool. Fitch expects German unemployment to remain at historical low levels over the transaction’s life. Fitch has applied a high default stress multiple of 6.7 to account for the impact of unexpected economic deterioration on the portfolio and to capture refinancing risk arising from balloon contracts.
The ratings would also be sensitive to recoveries from defaulted loans being significantly lower than expected, e.g. in case of a severe downturn of the German used car market.
Unremedied counterparty risk e.g. in the case of unhedged interest rate risk following the swap counterparty’s default or lost funds following a default of the account bank can also create downward pressure on the ratings.
This transaction is a true sale securitisation of German auto loans originated by GMACB. GMACB’s two holding companies, previously owned by General Motors Financial Company, Inc. (GMF), were acquired by GM Europe Service GmbH (GM Europe), an indirect wholly-owned subsidiary of GM, in December 2013. GMACB continues to be managed by and consolidated under its former parent, GMF. The class A notes and B notes are euro-denominated and pay a floating rate. Due to the fixed rate assets, an interest rate swap is in place to hedge the mismatch between the assets and the liabilities. This is GMACB’s sixth public securitisation of German auto loans. The preceding deal was rated by Fitch in March 2013.
The transaction is static and will start amortising from closing. The preliminary portfolio as of December 2013 consists of 44,415 loans, with an outstanding aggregate discounted principal balance of EUR484.6m. 19% of the pool balance consists of amortising loans, balloon loans account for 81%. The vehicles financed are new cars (82%) and used cars (18%).
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.
Link to Fitch Ratings’ Report: E-CARAT S.A., Compartment 6