Euro 1,030.1 million of German Auto ABS Notes rated
Frankfurt am Main, October 25, 2012 -- Moody's Investors Service has assigned the following definitive ratings to notes issued by VCL Multi-Compartment S.A., Compartment VCL 16:
Aaa (sf) to the EUR 1,000 million Class A Floating Rate Asset Backed Notes due July 2018
A1 (sf) to the EUR 30.1 million Class B Floating Rate Asset Backed Notes due July 2018
The transaction is a static cash securitisation of auto lease receivables extended to obligors in Germany by Volkswagen Leasing GmbH (A3) ultimately owned by Volkswagen AG rated A3/P-2. This public securitisation continues the series of VCL transactions sponsored by Volkswagen Leasing GmbH. The previously Moody's rated VCL transactions are generally performing in line with or better than initial expectations.
The portfolio of underlying assets consists of auto lease instalment receivables. Underlying lease contracts are distributed through VW Group auto dealers. These lease contracts finance new cars (95.4%) and used cars (4.6%) to mainly commercial customers (99.6%). As at September 2012, the portfolio consists of 93,566 non-delinquent contracts. The lease receivables were mainly originated in 2012, with a weighted average seasoning of 7.7 months and outstanding discounted lease balance of approx. EUR 1,075 million.
According to Moody's, the transaction benefits from credit strengths such as the granularity of the portfolio, financial strength and securitisation experience of the originator, and good performance of past transactions. However, Moody's notes that the transaction features some credit weaknesses such as commingling risk and a high degree of linkage to Volkswagen Leasing GmbH. Various mitigants have been put in place in the transaction structure, such as performance related triggers to switch to sequential amortisation and a tax event trigger to fund an additional tax reserve. Commingling risk is mitigated by (i) the automatic termination of collection rights in case of a servicer insolvency, (ii) a rating trigger to change the cash flow sweep mechanism and (iii) a pledge of non securitised residual value cash flows.
True sale risk may materialise in the securitisation of German lease receivables in case of an originator insolvency due to non-compliance with criteria of Sec. 108 German insolvency code. This is mitigated in line with the majority view among law firms with portfolio eligibility criteria that reflect the criteria of Sec. 108 German insolvency code as well as other aspects. Potential lessee set-off and contract termination risks related to service components in lease contracts are mitigated by the strong incentive to continue services also in a servicer insolvency due to a post German insolvency restructuring scenario. In addition, enforcement of such lessee rights is uncertain.
Moody's analysis focused, amongst other factors, on (i) an evaluation of the underlying portfolio of leases; (ii) historical performance information of the total book and past ABS transactions; (iii) the credit enhancement provided by subordination and reserve fund; (iv) the liquidity support available in the transaction by way of principal to pay interest and the reserve fund and the (v) structural and legal integrity of the transaction.
Moody's assumed a mean loss rate of 1.5% for the securitised pool. A coefficient of variation of 45.0% is used as the other main input for Moody's cash flow model ABSCORE.
The V-score analysis for the transaction is Low/Medium. Only the analytical complexity is considered medium as the repayment mechanisms of the transaction lead to higher complexity on modeling the priority of payments. V-Scores are a relative assessment of the quality of available credit information and of the degree of dependence on various assumptions used in determining the rating. For more information, the V-Score has been assigned accordingly to the report "V Scores and Parameter Sensitivities in the Non-U.S. Vehicles ABS Sector", published in January 2009.
The principal methodology used in this rating was Moody's Approach to Rating European Auto ABS published in November 2002. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.
Other factors used in this rating are described in The Lognormal Method Applied to ABS Analysis report published in July 2000.
The ratings address the expected loss posed to investors by the legal final maturity of the notes. In Moody's opinion, the structure allows for timely payment of interest and ultimate payment of principal with respect to the Class A notes and Class B notes by legal final maturity. Moody's ratings address only the credit risks associated with the transaction. Other non-credit risks have not been addressed but may have a significant effect on yield to investors.
Provisional ratings were assigned on 04 September 2012. Investors should note that the portfolio amount and Euro amount of each tranche has changed from that of the provisional ratings. However, this aspect did not fundamentally impact the ratings as credit enhancement and portfolio credit features are still consistent with the analysis performed for the provisional ratings.
Moody's used its cash-flow model Moody's ABSCORE as part of its quantitative analysis of the transaction. Moody's ABSCORE model enables users to model various features of a standard European ABS transaction -- including the specifics of the default distribution of the assets, their portfolio amortisation profile, yield as well as the specific priority of payments, swaps and reserve funds on the liability side of the ABS structure.
In rating auto lease ABS, loss rate and loss volatility measured as coefficient of variation (CoV) are two key inputs that determine the transaction cash flows in the cash flow model. Parameter sensitivities for this transaction have been tested in the following manner: Moody's tested nine scenarios derived from a combination of mean loss: 1.5% (base case), 1.75% (base case + 0.25%), 2.0% (base case + 0.50%) and CoV: 45% (base case), 50% (base case + 5%), 55% (base case + 10%). The results for Class A under these scenarios vary from Aaa (base case) model output to A1 model output where the mean loss is 2.0% and CoV is 55%. Parameter sensitivities provide a quantitative/model indicated calculation of the number of notches that a Moody's rated structured finance security may vary if certain input parameters used in the initial rating process differed. The analysis assumes that the deal has not aged. It is not intended to measure how the rating of the security might migrate over time, but rather how the initial model output Class A might have differed if the two parameters within a given sector that have the greatest impact were varied.
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Schajan Abbas Associate Analyst Structured Finance Group Moody'sDeutschland GmbH An der Welle 5 Frankfurt am Main 60322 Germany JOURNALISTS: 44 20 7772 5456 SUBSCRIBERS: 44 20 7772 5454 Alex Cataldo Associate Managing Director Structured Finance Group Telephone:+39-02-9148-1100 Releasing Office: Moody's Deutschland GmbH An der Welle 5 Frankfurt am Main 60322 Germany JOURNALISTS: 44 20 7772 5456 SUBSCRIBERS: 44 20 7772 5454 (C) 2012 Moody's Investors Service, Inc. and/or its licensors and affiliates (collectively, "MOODY'S"). All rights reserved.
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