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June 5 (Reuters) - (The following statement was released by the rating agency)
Fitch Ratings has assigned Scandinavian Consumer Loans IV's (SCL IV) notes final ratings, as follows:
NOK934.5m floating rate Class A, due January 2037: 'AAAsf'; Outlook Stable
NOK210m floating rate Class B, due January 2037: 'AAsf'; Outlook Stable
NOK357m floating rate Class C, due January 2037: 'Asf'; Outlook Stable
NOK210m floating rate Class D, due January 2037: 'A-sf'; Outlook Stable
SCL IV is incorporated in Sweden as a special purpose vehicle with limited liability and is wholly owned by Nordax Finans AB (publ) (Nordax, the originator, seller, and servicer).
The issue proceeds were used to purchase a portfolio of Norwegian unsecured consumer loan receivables towards Norwegian individuals. Pool data for the initial portfolio was provided to Fitch with a cut-off date of 22 May 2014, when the pool totalled NOK2,119m and comprised 12,196 loans with an average current balance of NOK173,779.
The ratings are based on Fitch's assessment of Nordax's origination and servicing procedures, Fitch's expectations of future asset performance, the available credit enhancement, and the transaction's legal structure.
KEY RATING DRIVERS
High Historical Default Rates
The underlying loans are unsecured consumer loans that historically have experienced high default rates. This risk is mitigated by the high recovery rates and yield the portfolio generates. Fitch used the default multiple to include an element of stress, including the potential portfolio migration during the 24-month revolving period.
Based on this approach, Fitch applied a weighted average (WA) default base case of 16.2% and a stress of 3.8x at the 'AAAsf' level. The agency has used a WA recovery assumption of 43.9%, which was stressed with a high recovery haircut (50% for 'AAAsf') to reflect the unsecured nature of the underlying receivables.
As a SPV wholly owned by Nordax, the structure is unusual relative to securitisations in most other European jurisdictions; however, Fitch is confident in legal opinion that an insolvency of Nordax will not cause the SPV to be consolidated or forced into insolvency. Fitch's confidence is reinforced by the successful use of this type of SPV structure in previous Swedish securitisations.
Asset Outlook Stable
Norwegian household indebtedness has increased substantially in the last 15 years, with housing credit making up the bulk of the debt due to increasing prices. Therefore, the economy remains sensitive to the housing sector. Fitch expects unemployment rates to remain stable in Norway and the agency does not expect interest rates to change significantly in the medium term. Overall, Fitch expects asset performance to remain stable relative to historical levels.
Unexpected increases in the default rate and loss severity on defaulted loans could produce loss levels higher than the Fitch's assumption could result in rating actions on the notes.
Rating Sensitivity to Increased Default Rate Assumptions Class A/B/C/D notes
Current ratings: 'AAAsf'/ AAsf'/'Asf'/'A-sf'
Increase in default rate by 10%: 'AA+sf'/'AA-sf'/'A-sf'/'BBB+sf'
Increase in default rate by 25%: 'AAsf'/'Asf'/'BBB+sf'/'BBBsf'
Increase in default rate by 50%: 'AA-sf'/'A-sf'/'BBB-sf'/'BB+sf'
Rating Sensitivity to Reduced Recovery Rate Assumptions Class A/B/C/D notes
Current ratings: 'AAAsf'/ AAsf'/'Asf'/'A-sf'
Decrease in recovery rate by 10%: 'AAAsf'/'AAsf'/'Asf'/'A-sf'
Decrease in recovery rate by 25%: 'AAAsf'/'AAsf'/'Asf'/'A-sf'
Decrease in recovery rate by 50%: 'AAAsf'/'AAsf'/'A-sf'/'BBB+sf'
Rating Sensitivity to Multiple Factors Class A/B/C/D notes
Current ratings: : 'AAAsf'/ AAsf'/'Asf'/'A-sf'
Increase in default rate by 10%, decrease in recovery rate by 10%: 'AA+sf'/'AA-sf'/'A-sf'/'BBB+sf'
Increase in default rate by 25%, decrease in recovery rate by 25%: 'AAsf'/'Asf'/'BBBsf'/'BBBsf'
Increase in default rate by 50%, decrease in recovery rate by 50%: 'A+sf'/'BBB+sf'/'BB+sf'/'BB+sf'
The transaction features a 24-month revolving period unless terminated earlier following an early amortisation event. After the revolving period has ended, the notes will start amortising in sequential order. A step-up date occurs 12 months after the scheduled amortisation date whereby the note margins will double.
The seller acts as initial servicer, with a hot back-up servicer in place from closing (Emric Finance Process Outsourcing AB). The issuer bank accounts are held with Nordea Bank AB (AA-/Stable/F1+) and the reserves are held with Citibank N.A., London branch(A/Stable/F1).
Excess spread provides the first layer of protection against losses. The initial credit enhancement for the notes is provided by overcollateralisation and the credit enhancement reserve. The class A, B, C and D notes have 57.5%, 47.5%, 30.5% and 20.5% credit enhancement, respectively.
Key Rating Drivers and Rating Sensitivities are further described in the new issue report, which will be available at www.fitchratings.com.