Sydney, December 04, 2012 -- Moody's Investors Service has assigned provisional ratings to notes issued by Perpetual Corporate Trust Limited as trustee of the Crusade ABS Series 2012-1 Trust.
Issuer: Crusade ABS Series 2012-1 Trust
...AUD 637.50 million Class A Notes, Assigned (P)Aaa (sf);
...AUD 37.50 million Class B Notes, Assigned (P)Aa2 (sf);
...AUD 22.50 million Class C Notes, Assigned (P)A2 (sf);
...AUD 15.00 million Class D Notes, Assigned (P)Baa2 (sf);
...AUD 14.00 million Class E Notes, Assigned (P)Ba1 (sf).
The AUD 23.5 million Seller Notes are not rated by Moody's.
This is an Australian prime ABS transaction -- a cash securitisation of receivables extended to obligors located in Australia. The transaction has a substitution period of 12 months, subject to certain amortisation triggers and portfolio parameters. The portfolio consists of consumer finance, commercial hire purchase, goods loan (chattel mortgage) and finance lease receivables secured by motor vehicles. All receivables were originated by St. George Finance Limited ("St. George") a wholly owned subsidiary of Westpac Banking Corporation ("Westpac"). This is St. George's fourth auto ABS transaction and the first since merging with Westpac.
The ratings address the expected loss posed to investors by the legal final maturity. The structure allows for timely payment of interest and ultimate payment of principal by the legal final maturity.
Crusade Series 2012-1 Trust is similar to structures seen in previous Crusade transactions sponsored by St. George. A notable feature of this transaction is the 12 month substitution period.
The portfolio includes a high percentage of loans to retail consumer obligors (66%). The transaction is exclusively backed by motor vehicles, predominantly passenger vehicles. Motor vehicles exhibit less pro-cyclical default patterns and, on average, higher recovery rates. As a result, Moody's views the Crusade ABS Series 2012-1 Trust portfolio as exhibiting similar characteristics to peer portfolios.
In order to fund the purchase price of the portfolio, the Trust will issue six classes of notes. The notes will be repaid on a sequential basis in the initial stages (until the subordination percentage increases from the initial 15% to 19%), and during the tail end of the transaction. At all other times, the structure will follow a pro rata repayment profile, subject to certain performance criteria such as no unreimbursed charge-offs on any class of note. This principal paydown structure is comparable to other structures in the Australian ABS market in recent years.
The substitution period is a feature not commonly seen within Australian term ABS transactions. The substitution (revolving) period of 12 months from closing allows available principal to be used to purchase additional receivables to replenish the pool.
The substitution period is subject to certain performance triggers which, if breached, will stop the Trustee from purchasing further receivables. These include, amongst others:
o charge-offs exceed 1% of the aggregate initial principal balance of all Notes;
o average 90 days delinquencies over the immediately prior 12 months is not greater than 3%.
During the substitution period, the Trustee may only purchase receivables to the extent they comply with the eligibility criteria and if, after the purchase, the portfolio continues to comply with the portfolio parameters. The portfolio parameters minimise the possibility of major deviation from the characteristics of the initial portfolio and include:
o the aggregate principal balance of receivables with balloon payments exceeding 55% must not exceed 5% of the aggregate principal balance of all receivables;
o the aggregate principal balance of receivables with a remaining term greater than 60 months must not exceed 15% of the aggregate principal balance of all receivables;
o the aggregate principal balance of receivables with a principal balance exceeding $150,000 must not exceed 1.5% of the aggregate principal balance of all receivables;
o the aggregate principal balance of receivables with balloon repayments must not exceed 35% of the aggregate principal balance of all receivables;
o the weighted average balloon percentage of receivables (which have a balloon payment) must not exceed 30%, based on the balloon percentage at origination and weighted by the current balance of the receivables; and
o the aggregate principal balance of consumer finance receivables must not exceed 75% of the aggregate principal balance of all receivables.
Moody's has assessed the impact of the substitution period on the credit quality of the portfolio and transaction structure. We have considered, amongst others, the effect on timing of defaults for receivables being sold into the trust during the substitution period, given the seasoned nature of the original portfolio. We have also considered the possible increase in default probability, to the extent receivables relating to poorer performing contract types may be sold into the trust during the substitution period.
Finally, if Westpac doesn't utilise all the monthly principal collections to purchase additional receivables, they may hold the monthly collections up to an amount equal to 25% of the initial note balance in cash. Given that such cash will not be included as part of the interest rate swap, we have factored into our analysis the possible negative carry that may arise during the substitution period.
Moody's base case assumptions are a default rate of 2.75% and a recovery rate of 30%. These imply a expected (net) loss of 1.93%. Both the default rate and the recovery rate have been stressed relative to observed historical levels of 2.2% and 42% respectively.
VOLATILITY ASSUMPTION SCORES AND PARAMETER SENSITIVITIES
The V Score for this transaction is Low/Medium, which is in line with the score assigned for the Australian ABS sector. Among other factors, we note the availability of a substantial amount of historical performance data in the Australian ABS market as well as on an issuer-by-issuer basis. Here, for instance, we have been provided with detailed vintage and individual default data for the 2001-2012 period. In addition, we observe that Australian auto ABS, and specifically past Crusade transactions, have to date been performing stably. Overall, the V score of Low/Medium allows Moody's to have a material degree of comfort with regard to assumptions made in rating the Crusade Series 2012-1 Trust.
V Scores are a relative assessment of the quality of available credit information and of the degree of uncertainty around various assumptions used in determining the rating. High variability in key assumptions could expose a rating to more likelihood of rating changes. The V Score has been assigned accordingly to the report "V Scores and Parameter Sensitivities in the Asia/Pacific RMBS Sector", published in March 2009. Parameter Sensitivities are designed to provide a quantitative calculation of how the initial rating might change if key input parameters used in the initial rating process - here, the expected loss and the Aaa credit enhancement - differed. The analysis assumes that the deal has not aged. Parameter Sensitivities only reflect the ratings impact of each scenario from a quantitative/model-indicated standpoint.
In the case of Crusade Series 2012-1 Trust, the model indicated rating for the Class A Notes remain investment grade when the default rate rises to 5.5% (double of our assumption of 2.75%) and recovery rates are reduced to 15% (half of our assumption of 30%); the model indicated rating for the Class A Notes drops 6 notches to A3. The model indicated ratings for the Class B notes drop 8 notches to Ba1 in the above scenario.
The principal methodology used in this rating was "Moody's Approach to Rating Australian Asset-Backed Securities" published in July 2009. Please see the Credit Policy page on www.moodys.com for a copy of this methodology .
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Dylan Bourke Associate Analyst Structured Finance Group Moody's Investors Service Pty. Ltd. Level 10 1 O'Connell Street Sydney NSW 2000 Australia JOURNALISTS: (612) 9270-8102 SUBSCRIBERS: (612) 9270-8100 Jennifer Wu VP - Senior Credit Officer Structured Finance Group JOURNALISTS: (612) 9270-8102 SUBSCRIBERS: (612) 9270-8100 Releasing Office: Moody's Investors Service Pty. Ltd. Level 10 1 O'Connell Street Sydney NSW 2000 Australia JOURNALISTS: (612) 9270-8102 SUBSCRIBERS: (612) 9270-8100 (C) 2012 Moody's Investors Service, Inc. and/or its licensors and affiliates (collectively, "MOODY'S"). All rights reserved.
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