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Fitch Assigns Final Ratings to OSCAR US 2017-2
September 26, 2017 / 2:04 PM / 3 months ago

Fitch Assigns Final Ratings to OSCAR US 2017-2

(The following statement was released by the rating agency) TOKYO, September 26 (Fitch) Fitch Ratings has assigned final ratings to the notes to be issued by OSCAR US Funding VII LLC. The transaction is ultimately backed by a pool of auto loan receivables originated by Orient Corporation (Orico) in Japan. The final ratings are as follows: USD62.0 million Class A-1 notes (initial credit enhancement (CE): 86.7%*): 'F1+sf'; USD89.3 million Class A-2a notes (initial CE: 48.1%*): 'AAAsf'; Outlook Stable USD90.2 million Class A-2b notes (initial CE: 48.1%*): 'AAAsf'; Outlook Stable USD92.1 million Class A-3 notes (initial CE: 28.4%*): 'AAAsf'; Outlook Stable USD85.7 million Class A-4 notes (initial CE: 10.0%*): 'AAAsf'; Outlook Stable JPY500.0 million A-5 senior Beneficial Interests (BIs): 'NRsf' JPY3,000.0 million Class M loan: 'NRsf' JPY1,604.7 million Subordinated BIs: 'NRsf' *Subordination ratios are calculated using the following formula: (A+B)/C A: subordinated BIs (excluding the portion corresponding to the cash reserve) B: senior BIs ranked junior to the rated debt and Series M Loan C: total principal balance of the underlying auto loan receivables As of the cut-off date, the collateral pool consisted of auto loan receivables with a total principal balance of JPY51.1 billion. All loan receivables are fully amortising with equal monthly instalments and a weighted-average remaining term of 56 months. KEY RATING DRIVERS Sufficient Credit Enhancement: OSCAR US 2017-2 incorporates sufficient CE so that all classes of the rated notes can withstand Fitch's 'AAAsf' stress scenario with its base-case cumulative default of 1.55%. In addition to the CE, excess spread available in the trust interest distribution will provide additional credit support to the transaction. Stable Auto Loan Performance: Orico's auto loan portfolio has performed well throughout the observation period since 2009, especially in the recent vintages - due to stronger origination quality and the improvement in the Japanese economy. Stable Origination and Servicing: Orico demonstrates adequate abilities as originator and servicer, as evident from its historical portfolio performance. Adequate Liquidity: Liquidity support is provided by the cash reserve. The reserve is initially funded on the closing date by the entrustment of cash. This covers expenses for servicer replacement, a four-month interest rate payment and ongoing transaction costs. Transfer and Convertibility Risk Mitigated: The notes are issued in a foreign currency, hence the transaction is potentially exposed to transfer and convertibility (T&C) risk. However, this risk is sufficiently mitigated in the transaction structure, as BNP Paribas S.A. (A+/Stable/F1), the swap counterparty, receives yen payments from the issuer in Japan and makes US dollar payments directly to the note-paying agent in the US. RATING SENSITIVITIES An unexpected increase in the cumulative default rate and decrease in the asset yield could produce loss levels higher than Fitch's base case, which could in turn result in negative rating action on the notes. Fitch has evaluated the sensitivity of the ratings to an increased cumulative default rate and decreased asset yield. Rating sensitivity to increased cumulative default rate: Increase base case cumulative default rate by 10% / 25% / 50% Class A-1: F1+sf/ F1+sf/ F1+sf Class A-2a and A-2b: AAAsf/ AAAsf/ AAAsf Class A-3: AAAsf/ AAAsf/ AAAsf Class A-4: AAAsf/ AA+sf/ AA-sf Rating sensitivity to decreased asset yield: Decrease asset yield by 10% / 25% / 50% Class A-1: F1+sf/ F1+sf/ F1+sf Class A-2a and A-2b: AAAsf/ AAAsf/ AAAsf Class A-3: AAAsf/ AAAsf/ AAAsf Class A-4: AAAsf/ AA+sf/ A+sf Rating sensitivities under a combination of mild, moderate and severe stresses on the cumulative default rate and asset yield are as follows. Increase base-case cumulative default rate by 10% and decrease asset yield by 10%: Class A-1: F1+sf Class A-2a and A-2b: AAAsf Class A-3: AAAsf Class A-4: AA+sf Increase base-case cumulative default rate by 25% and decrease asset yield by 25%: Class A-1: F1+sf Class A-2a and A-2b: AAAsf Class A-3: AAAsf Class A-4: AA-sf Increase base-case cumulative default rate by 50% and decrease asset yield by 50%: Class A-1: F1+sf Class A-2a and A-2b: AAAsf Class A-3: AA+sf Class A-4: BBBsf A foreign-currency note can exceed the Country Ceiling of the country of the assets or the issuer by up to four notches if T&C risk is mitigated in the transaction structure. Japan's Country Ceiling is currently 'AA'. A downgrade of the Country Ceiling to 'A' or lower would result in a downgrade of the notes. USE OF THIRD-PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G-10 Fitch was provided with Form ABS Due Diligence-15E ("Form 15E") as prepared by PricewaterhouseCoopers Aarata LLC. The third-party due diligence described in Form 15E focused on the existence and eligibility of the assigned receivables. Fitch took this information into consideration in its analysis, and it did not have an effect on Fitch's analysis or conclusions. REPRESENTATIONS, WARRANTIES AND ENFORCEMENT MECHANISMS A description of the transaction's representations, warranties and enforcement mechanisms (RW&Es) that are disclosed in the offering document and which relate to the underlying asset pool is available by accessing the appendix referenced under "Related Research" below. The appendix also contains a comparison of these RW&Es to those Fitch considers typical for the asset class as detailed in the Special Report titled "Representations, Warranties and Enforcement Mechanisms in Global Structured Finance Transactions," dated 31 May 2016. DATA ADEQUACY Fitch reviewed the results of a third party assessment conducted on the asset portfolio information, which indicated no adverse findings material to the rating analysis. Overall, Fitch's assessment of the asset pool information relied upon for the agency's rating analysis according to its applicable rating methodologies indicates that it is adequately reliable. SOURCES OF INFORMATION The information below was used in the analysis: Historical performance data provided by Mizuho Securities Co., Ltd. on delinquencies, defaults and prepayments up to June 2017 Transaction documentation provided by Mizuho Securities Co., Ltd. Contacts: Primary Analyst Hitoshi Hibino Associate Director +81 3 3288 2631 Fitch Ratings Japan Limited Kojimachi Crystal City East Wing 3rd Floor 4-8 Kojimachi, Chiyoda-ku Tokyo 102-0083 Secondary Analyst Atsushi Kuroda Senior Director +81 3 3288 2692 Committee Chairperson Ben McCarthy Managing Director +61 2 8256 0388 Media Relations: Leslie Tan, Singapore, Tel: +65 67 96 7234, Email: leslie.tan@fitchratings.com; Wai-Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: wailun.wan@fitchratings.com. Additional information is available on www.fitchratings.com Applicable Criteria Global Consumer ABS Rating Criteria (pub. 25 May 2017) here Global Structured Finance Rating Criteria (pub. 03 May 2017) here Structured Finance and Covered Bonds Counterparty Rating Criteria (pub. 23 May 2017) here Structured Finance and Covered Bonds Counterparty Rating Criteria: Derivative Addendum (pub. 23 May 2017) here Structured Finance and Covered Bonds Country Risk Rating Criteria (pub. 18 Sep 2017) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here ABS Due Diligence Form 15E 1 here Solicitation Status here#solicitation Endorsement Policy here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE. DIRECTORS AND SHAREHOLDERS RELEVANT INTERESTS ARE AVAILABLE here. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE. Copyright © 2017 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. 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