(The following statement was released by the rating agency)
Oct 17 - Fitch Ratings has assigned Svensk Autofinans 1 Limited’s notes, backed by Swedish auto loan receivables originated by the Swedish branch (SCB Sweden) of Norwegian Santander Consumer Bank AS (SCB, not rated) the following expected rating:
SEK3,963m Class A, due August 2029: ‘AAAsf(EXP)’; Outlook Stable; Tranche Thickness (TT) 87.0%: Tranche Thickness Loss Multiple (TTLM) 45.5
The final rating is contingent upon the receipt of final documents conforming to the information already received.
The rating is based on Fitch’s assessment of SCB Sweden’s origination and servicing procedures, Fitch’s expectations of future asset performance, the available credit enhancement, and the transaction’s legal structure. SCB is a 100% subsidiary of Santander Consumer Finance, S,A. (SCF, ‘BBB+’/Negative/‘F2’).
Credit enhancement is provided to the rated notes by overcollateralisation and a cash reserve account funded at closing. The class A notes benefit from 16.0% credit enhancement (13.0% overcollateralisation, 3.0% cash reserve). Overcollateralisation is provided by the subordination of the Class B note (unrated) sized at SEK592m. The transaction is static and will amortise sequentially from closing.
At closing, the proceeds of the class A and B notes will be applied to purchase an amortising pool of Swedish auto loan receivables from the originator. The portfolio will be acquired by the issuer with a cut-off date of 22 September 2012 and a total principal value of SEK4,555m (approximately EUR540m) and comprising 51.216 loans with an average current balance of SEK88.941 (approximately EUR10,000). The pool contains 69.1% used and 30.9% new vehicles and obligors are 97.5% private individuals and 2.5% commercial borrowers. The weighted average (WA) original term was 64 months and the WA remaining term was 48 months.
Default rates in the originator’s portfolio have been stable over the past five years, with the lowest defaults coming from 2007 originations. SCB Sweden’s product mix has moved towards balloon contracts, with increased balloon payments, which have shown higher historical losses. Fitch has used a default assumption of 3.5% and a high stress (5.75x for ‘AAAsf’), which reflects the limited data history, together with the relatively late default definition (repossession) which typically occurs after 180 days past due.
Recoveries are lower than those observed for SCB in other Nordic countries. This is partially due to the non-recourse nature of hire purchase contracts with private customers in Sweden. If a vehicle is repossessed following loan default, recourse to the borrower is limited to excessive wear-and-tear and accrued interest. Fitch has used a recovery assumption of 45% and a high recovery haircut (55% for ‘AAAsf’).
Swedish household indebtedness has increased substantially in the past 15 years, with housing credit making up the bulk of the debt due to increasing prices. Therefore, the impact of house prices on household consumption is significant. The economy remains very sensitive to the housing sector. However, Fitch expects both unemployment and interest rates to remain stable during 2012-2013, with auto loan performance in line with historical levels.
The interest rate on assets is variable and determined by the servicer, based on the originator’s funding costs which are partially linked to STIBOR. The servicer will bill a minimum of 3.7% over STIBOR according to transaction documentation. Fitch has considered historical funding costs, asset margins as well as margin sensitivity, testing for margin compression in its cash flow modelling.
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: Svensk Autofinans 1 Limited