(The following statement was released by the rating agency)
Feb 15 - Fitch Ratings has assigned E-Carat, Compartment No. 5’s upcoming issue expected ratings as follows:
EURTBD class A notes, due November 2020: ‘AAAsf(EXP)'; Outlook Stable,
EURTBD class B notes, due November 2020: ‘AAsf(EXP)'; Outlook Stable,
EURTBD Subordinated Note, NR(EXP)
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 structure.
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 issuance proceeds will be used to purchase a portfolio of loan receivables originated by GMAC Bank GmbH (GMACB; ‘BB-'/‘B’/Rating Watch Negative) within Germany. The transaction is static and will amortise from closing in sequential order.
The credit enhancement for class A and class B is 12.4% and 6.9% respectively. It is provided by asset overcollateralization through the discounted asset balance of the preliminary pool cut of EUR590m in excess of the class A and class B notes, and the liquidity reserve of 2% of the outstanding class A and B notes.
Both class A and class B notes bear a fixed interest rate. Due to the fixed rate assets and the fixed rate notes, the structure does not face interest rate mismatches and is not exposed to swap counterparty default risk, which Fitch sees as a positive.
The liquidity reserve can be used to cover shortfalls for the payment of senior items and interest on the A and B notes. The liquidity reserve also provides credit support to the notes, since amounts released through its amortisation can be used to cure potential principal losses during the life of the transaction. The liquidity reserve is also available to amortise the notes once all the assets are matured. In addition, the transaction benefits from excess spread in excess of 4% p.a.
The preliminary portfolio consists of 52,753 loan contracts. The share of new car loans is 89.2%, while used car loans make up 10.8% of the preliminary pool. 88.2% of the pool (by balance) is exposed to private clients, whereas 11.8% are corporate clients. A significant portion of the total pool balance consists of balloon loans (84.3%) that contain a balloon payment to be paid at contract maturity.
Fitch has identified and analysed four sub-pools with different performance behaviour: balloon loans for financing new cars, balloon loans for financing used cars, amortising loans for financing new cars and amortising loans for financing used cars. The agency has derived one historical loss base case of 0.60% that is based on the total book loss data in consideration of the portfolio composition. Fitch grossed up this historical loss rate by means of a conservative recovery rate of 70% which resulted in a default base case of 2%. Subsequently, the agency applied a base case recovery rate of 50% which resulted in an expected loss base case of 1% for the life of the transaction.
Fitch has also considered the additional risks arising from the balloon loans. Considering the share of the balloon portion of 43% of the preliminary pool, the agency derived expected balloon loss amounts of 1.9% in an ‘AAAsf” and 1.3% in an ‘AAsf’ scenario.
Fitch notes that 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 is currently in charge of the servicing of GMACB’s loan portfolio for up to 120 days in arrears and in Fitch’s opinion the appointment of Sitel as a servicer would not have any major impact on loan collections.
E-Carat S.A. is a Luxembourg-based securitisation vehicle. Compartment No. 5 is the fifth compartment of the issuer. This is the second E-Carat S.A. securitisation to be rated by Fitch in Germany.
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 5