Advertisement
U.S. markets close in 1 hour 44 minutes
  • S&P 500

    5,253.72
    +5.23 (+0.10%)
     
  • Dow 30

    39,788.08
    +28.00 (+0.07%)
     
  • Nasdaq

    16,382.60
    -16.92 (-0.10%)
     
  • Russell 2000

    2,124.20
    +9.85 (+0.47%)
     
  • Crude Oil

    83.02
    +1.67 (+2.05%)
     
  • Gold

    2,242.60
    +29.90 (+1.35%)
     
  • Silver

    25.00
    +0.25 (+1.02%)
     
  • EUR/USD

    1.0797
    -0.0033 (-0.30%)
     
  • 10-Yr Bond

    4.2020
    +0.0060 (+0.14%)
     
  • GBP/USD

    1.2623
    -0.0015 (-0.12%)
     
  • USD/JPY

    151.4010
    +0.1550 (+0.10%)
     
  • Bitcoin USD

    70,921.81
    +2,347.55 (+3.42%)
     
  • CMC Crypto 200

    885.54
    0.00 (0.00%)
     
  • FTSE 100

    7,952.62
    +20.64 (+0.26%)
     
  • Nikkei 225

    40,168.07
    -594.66 (-1.46%)
     

Azure Finance No.2 plc -- Moody's assigns definitive ratings to Auto ABS issued by Azure Finance No.2 plc

Rating Action: Moody's assigns definitive ratings to Auto ABS issued by Azure Finance No.2 plc

Global Credit Research - 28 Jul 2020

London, 28 July 2020 -- Moody's Investors Service ("Moody's") has assigned the following ratings to notes issued by Azure Finance No.2 plc:

....GBP126.421M Class A Floating Rate Notes due July 2030, Definitive Rating Assigned Aaa (sf)

....GBP26.415M Class B Floating Rate Notes due July 2030, Definitive Rating Assigned Aa1 (sf)

....GBP16.982M Class C Floating Rate Notes due July 2030, Definitive Rating Assigned A3 (sf)

....GBP5.661M Class D Floating Rate Notes due July 2030, Definitive Rating Assigned Ba1 (sf)

....GBP7.076M Class E Floating Rate Notes due July 2030, Definitive Rating Assigned B1 (sf)

....GBP6.132M Class F Floating Rate Notes due July 2030, Definitive Rating Assigned Caa1 (sf)

....GBP12.265M Class X1 Floating Rate Notes due July 2030, Definitive Rating Assigned Caa2 (sf)

Moody's has not assigned a rating to the GBP6.604M Class X2 Floating Rate Notes due July 2030.

The transaction is a static cash securitisation of agreements entered into for the purpose of financing vehicles to obligors in the United Kingdom by Blue Motor Finance Limited ("Blue") (NR). This is the second public securitisation transaction sponsored by Blue. The originator will also act as the servicer of the portfolio during the life of the transaction.

The portfolio of receivables backing the Notes consists of Hire Purchase ("HP") agreements granted to individuals resident in the United Kingdom. Hire Purchase agreements are a form of secured financing without the option to hand the car back at maturity. Therefore there is no explicit residual value risk in the transaction. Under the terms of the HP agreements, the originator retains legal title to the vehicles until the borrower has made all scheduled payments required under the contract.

As of 30 June 2020, the portfolio of underlying assets totalled GBP 188.7 million and consisted of 22,799 agreements mainly originated between 2019 and 2020 financing the purchase of predominantly used (98.7%) vehicles distributed through national and regional dealers as well as brokers. It has a weighted average seasoning of 5.7 months and a weighted average remaining term of 4.4 years. The pool's current weighted average LTV is 97.6%.

RATINGS RATIONALE

The transaction's main credit strengths are the significant excess spread, the static and granular nature of the portfolio, and counterparty support through the back-up servicer (Equinity Gateway Limited trading as Equiniti Credit Services (NR)), interest rate hedge provider (Barclays Bank PLC A1 (cr)/P-1(cr)) and independent cash manager (Citibank N.A., London Branch Aa3 senior unsecured/P-1; Aa3(cr)/P-1(cr)). The structure contains tranche specific cash reserves which in aggregate equal 1.4% of the pool, and will amortise in line with the Notes. Each tranche reserve will be purely available to cover liquidity shortfalls related to the relevant Note throughout the life of the transaction and can serve as credit enhancement following the tranche's repayment. The Class A reserve provides approximately [6] months of liquidity at the beginning of the transaction. The portfolio has an initial yield of 13.72%. Available excess spread can be trapped to cover defaults and losses, as well as to replenish the tranche reserves to their target level through the waterfall mechanism present in the structure.

However, Moody's notes some credit weaknesses in the transaction. First, the pool includes material exposure to higher risk borrowers. For example, some borrowers may previously have been on debt management plans or currently be in low level arrears on other unsecured contracts. Although these features are reflected in the originator's scorecard, and exposure to the highest risk borrowers (risk tiers 6-8 under the originator's scoring) is limited at 7.20% of the initial pool, the effect is that the pool is riskier than a typical benchmark UK prime auto pool. Second, operational risk is higher than a typical UK auto deal because Blue is an unrated entity acting as originator and servicer to the transaction. The transaction does envisage certain structural mitigants to operational risk such as a back-up servicer, independent cash manager, and tranche specific cash reserves, which cover approximately [6] months of liquidity for the Class A Notes at deal close. Third, the structure does not include principal to pay interest for any Class of Notes, which makes it more dependent on excess spread and the tranche specific cash reserves combined with the back-up servicing arrangement to maintain timeliness of interest payments on the Notes. Fourth, the historic vintage default and recovery data does not cover a full economic cycle, reflecting Blue's short trading history (it began lending meaningful amounts in its current form in 2015). The data cover approximately five years that Blue has been originating.

In addition, the underlying obligors may exercise the right of voluntary termination as per the Consumer Credit Act, whereby an obligor has the option to return the vehicle to the originator in reasonable condition as long as the obligor has made payments equal to at least one half of the total financed amount. If the obligor returns the vehicle, the issuer may be exposed to residual value risk. The potential for additional losses due to these risks has been incorporated into Moody's quantitative analysis.

Moody's analysis focused, among other factors, on (i) an evaluation of the underlying portfolio; (ii) historical performance information; (iii) the credit enhancement provided by subordination, by the excess spread and the tranche reserves; (iv) the liquidity support available in the transaction through the tranche reserves; (v) the back-up servicing arrangement of the transaction; (vi) the independent cash manager and (vii) the legal and structural integrity of the transaction.

MAIN MODEL ASSUMPTIONS:

Moody's determined portfolio lifetime expected defaults of 12.0%, expected recoveries of 35.0% and a Aaa portfolio credit enhancement ("PCE") of 32.0% related to the borrower receivables. The expected default captures our expectations of performance considering the current economic outlook, while the PCE captures the loss we expect the portfolio to suffer in the event of a severe recession scenario. Expected defaults and PCE are parameters used by Moody's to calibrate its lognormal portfolio default distribution curve and to associate a probability with each potential future default scenario in its ABSROM cash flow model.

The rapid spread of the coronavirus outbreak, the government measures put in place to contain it and the deteriorating global economic outlook, have created a severe and extensive credit shock across sectors, regions and markets. Our analysis has considered the effect on the performance of consumer assets from the collapse in UK economic activity in the second quarter and a gradual recovery in the second half of the year. However, that outcome depends on whether governments can reopen their economies while also safeguarding public health and avoiding a further surge in infections. As a result, the degree of uncertainty around our forecasts is unusually high. We regard the coronavirus outbreak as a social risk under our ESG framework, given the substantial implications for public health and safety.

The portfolio expected mean default level of 12% is higher than other UK auto transactions and is based on Moody's assessment of the lifetime expectation for the pool taking into account: (i) the higher average risk of the borrowers; (ii) the historic performance of the loan book of the originator; (iii) benchmark transactions; and (iv) other qualitative considerations.

Portfolio expected recoveries of 35.0% are lower than the UK auto average and are based on Moody's assessment of the lifetime expectation for the pool taking into account: (i) older average age of the vehicles; (ii) historic performance of the loan book of the originator; (iii) benchmark transactions; and (iv) other qualitative considerations.

The PCE of 32.0% is higher than the average of its UK auto peers and is based on Moody's assessment of the pool taking into account the higher risk profile of the pool borrowers and relative ranking to originator peers in the UK auto and consumer markets. The PCE of 32% results in an implied coefficient of variation ("CoV") of 35.8%.

AUTO SECTOR TRANSFORMATION:

The automotive sector is undergoing a technology-driven transformation which will have credit implications for auto finance and lease portfolios. Technological obsolescence, shifts in demand patterns and changes in government policy will result in some segments experiencing greater volatility in the level of recoveries and residual values compared with those seen historically. For example, diesel engines have declined in popularity and older engine types face restrictions in certain metropolitan areas. Similarly, the rise in popularity of alternative fuel vehicles (AFVs) introduces uncertainty in the future price trends of both legacy engine types and AFVs themselves because of evolutions in technology, battery costs and government incentives. As of the cut-off date 30 June 2020, the securitised portfolio is backed by 63% of vehicles with diesel engines of which 24.7% were produced in or before 2013 and as such adhere to Euro 5 emission standards or earlier. 3.5% of the portfolio are labelled as "Other" fuel type.

METHODOLOGY

The principal methodology used in these ratings was "Moody's Global Approach to Rating Auto Loan- and Lease-Backed ABS" published in July 2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBS_1236186. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Factors that would lead to an upgrade or downgrade of the ratings:

Factors that may cause an upgrade of the ratings of Class B-X1 Notes include significantly better than expected performance of the pool together with an increase in credit enhancement of Notes.

Factors that may cause a downgrade of the Class A-X1 Notes rating include a decline in the overall performance of the pool or a significant deterioration of the credit profile of the servicer's parent, Santander Consumer Finance S.A.

Please note that a Request for Comment was published in which Moody's requested market feedback on potential revisions to one or more of the methodologies used in determining these Credit Ratings. If the revised methodologies are implemented as proposed, the Credit Ratings referenced in this press release will not be affected. Request for Comments can be found on the rating methodologies page on www.moodys.com.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.

The analysis relies on an assessment of collateral characteristics to determine the collateral loss distribution, that is, the function that correlates to an assumption about the likelihood of occurrence to each level of possible losses in the collateral. As a second step, Moody's evaluates each possible collateral loss scenario using a model that replicates the relevant structural features to derive payments and therefore the ultimate potential losses for each rated instrument. The loss a rated instrument incurs in each collateral loss scenario, weighted by assumptions about the likelihood of events in that scenario occurring, results in the expected loss of the rated instrument.

Moody's quantitative analysis entails an evaluation of scenarios that stress factors contributing to sensitivity of ratings and take into account the likelihood of severe collateral losses or impaired cash flows. Moody's weights the impact on the rated instruments based on its assumptions of the likelihood of the events in such scenarios occurring.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or Note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.

At least one ESG consideration was material to the credit rating action(s) announced and described above.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Maria Divid, CFA Vice President - Senior Analyst Structured Finance Group Moody's Investors Service Ltd. One Canada Square Canary Wharf London E14 5FA United Kingdom JOURNALISTS: 44 20 7772 5456 Client Service: 44 20 7772 5454 Anthony Parry Senior Vice President/Manager Structured Finance Group JOURNALISTS: 44 20 7772 5456 Client Service: 44 20 7772 5454 Releasing Office: Moody's Investors Service Ltd. One Canada Square Canary Wharf London E14 5FA United Kingdom JOURNALISTS: 44 20 7772 5456 Client Service: 44 20 7772 5454

© 2020 Moody's Corporation, Moody's Investors Service, Inc., Moody's Analytics, Inc. and/or their licensors and affiliates (collectively, "MOODY'S"). All rights reserved.

CREDIT RATINGS ISSUED BY MOODY'S INVESTORS SERVICE, INC. AND/OR ITS CREDIT RATINGS AFFILIATES ARE MOODY'S CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES, AND MATERIALS, PRODUCTS, SERVICES AND INFORMATION PUBLISHED BY MOODY'S (COLLECTIVELY, "PUBLICATIONS") MAY INCLUDE SUCH CURRENT OPINIONS. MOODY'S INVESTORS SERVICE DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL FINANCIAL OBLIGATIONS AS THEY COME DUE AND ANY ESTIMATED FINANCIAL LOSS IN THE EVENT OF DEFAULT OR IMPAIRMENT. SEE MOODY'S RATING SYMBOLS AND DEFINITIONS PUBLICATION FOR INFORMATION ON THE TYPES OF CONTRACTUAL FINANCIAL OBLIGATIONS ADDRESSED BY MOODY'S INVESTORS SERVICE CREDIT RATINGS. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS, NON-CREDIT ASSESSMENTS ("ASSESSMENTS"), AND OTHER OPINIONS INCLUDED IN MOODY'S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. MOODY'S PUBLICATIONS MAY ALSO INCLUDE QUANTITATIVE MODEL-BASED ESTIMATES OF CREDIT RISK AND RELATED OPINIONS OR COMMENTARY PUBLISHED BY MOODY'S ANALYTICS, INC. AND/OR ITS AFFILIATES. MOODY'S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND MOODY'S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL, OR HOLD PARTICULAR SECURITIES. MOODY'S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS DO NOT COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. MOODY'S ISSUES ITS CREDIT RATINGS, ASSESSMENTS AND OTHER OPINIONS AND PUBLISHES ITS PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL, WITH DUE CARE, MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING, OR SALE.

MOODY'S CREDIT RATINGS,ASSESSMENTS, OTHER OPINIONS, AND PUBLICATIONS ARE NOT INTENDED FOR USE BY RETAIL INVESTORS AND IT WOULD BE RECKLESS AND INAPPROPRIATE FOR RETAIL INVESTORS TO USE MOODY'S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS OR PUBLICATIONS WHEN MAKING AN INVESTMENT DECISION. IF IN DOUBT YOU SHOULD CONTACT YOUR FINANCIAL OR OTHER PROFESSIONAL ADVISER.

ALL INFORMATION CONTAINED HEREIN IS PROTECTED BY LAW, INCLUDING BUT NOT LIMITED TO, COPYRIGHT LAW, AND NONE OF SUCH INFORMATION MAY BE COPIED OR OTHERWISE REPRODUCED, REPACKAGED, FURTHER TRANSMITTED, TRANSFERRED, DISSEMINATED, REDISTRIBUTED OR RESOLD, OR STORED FOR SUBSEQUENT USE FOR ANY SUCH PURPOSE, IN WHOLE OR IN PART, IN ANY FORM OR MANNER OR BY ANY MEANS WHATSOEVER, BY ANY PERSON WITHOUT MOODY'S PRIOR WRITTEN CONSENT.

MOODY'S CREDIT RATINGS,ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS ARE NOT INTENDED FOR USE BY ANY PERSON AS A BENCHMARK AS THAT TERM IS DEFINED FOR REGULATORY PURPOSES AND MUST NOT BE USED IN ANY WAY THAT COULD RESULT IN THEM BEING CONSIDERED A BENCHMARK.

All information contained herein is obtained by MOODY'S from sources believed by it to be accurate and reliable. Because of the possibility of human or mechanical error as well as other factors, however, all information contained herein is provided "AS IS" without warranty of any kind. MOODY'S adopts all necessary measures so that the information it uses in assigning a credit rating is of sufficient quality and from sources MOODY'S considers to be reliable including, when appropriate, independent third-party sources. However, MOODY'S is not an auditor and cannot in every instance independently verify or validate information received in the rating process or in preparing its Publications.

To the extent permitted by law, MOODY'S and its directors, officers, employees, agents, representatives, licensors and suppliers disclaim liability to any person or entity for any indirect, special, consequential, or incidental losses or damages whatsoever arising from or in connection with the information contained herein or the use of or inability to use any such information, even if MOODY'S or any of its directors, officers, employees, agents, representatives, licensors or suppliers is advised in advance of the possibility of such losses or damages, including but not limited to: (a) any loss of present or prospective profits or (b) any loss or damage arising where the relevant financial instrument is not the subject of a particular credit rating assigned by MOODY'S.

To the extent permitted by law, MOODY'S and its directors, officers, employees, agents, representatives, licensors and suppliers disclaim liability for any direct or compensatory losses or damages caused to any person or entity, including but not limited to by any negligence (but excluding fraud, willful misconduct or any other type of liability that, for the avoidance of doubt, by law cannot be excluded) on the part of, or any contingency within or beyond the control of, MOODY'S or any of its directors, officers, employees, agents, representatives, licensors or suppliers, arising from or in connection with the information contained herein or the use of or inability to use any such information.

NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS, COMPLETENESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY CREDIT RATING, ASSESSMENT, OTHER OPINION OR INFORMATION IS GIVEN OR MADE BY MOODY'S IN ANY FORM OR MANNER WHATSOEVER.

Moody's Investors Service, Inc., a wholly-owned credit rating agency subsidiary of Moody's Corporation ("MCO"), hereby discloses that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by Moody's Investors Service, Inc. have, prior to assignment of any credit rating, agreed to pay to Moody's Investors Service, Inc. for credit ratings opinions and services rendered by it fees ranging from $1,000 to approximately $2,700,000. MCO and Moody's investors Service also maintain policies and procedures to address the independence of Moody's Investors Service credit ratings and credit rating processes. Information regarding certain affiliations that may exist between directors of MCO and rated entities, and between entities who hold credit ratings from Moody's Investors Service and have also publicly reported to the SEC an ownership interest in MCO of more than 5%, is posted annually at www.moodys.com under the heading "Investor Relations — Corporate Governance — Director and Shareholder Affiliation Policy."

Additional terms for Australia only: Any publication into Australia of this document is pursuant to the Australian Financial Services License of MOODY'S affiliate, Moody's Investors Service Pty Limited ABN 61 003 399 657AFSL 336969 and/or Moody's Analytics Australia Pty Ltd ABN 94 105 136 972 AFSL 383569 (as applicable). This document is intended to be provided only to "wholesale clients" within the meaning of section 761G of the Corporations Act 2001. By continuing to access this document from within Australia, you represent to MOODY'S that you are, or are accessing the document as a representative of, a "wholesale client" and that neither you nor the entity you represent will directly or indirectly disseminate this document or its contents to "retail clients" within the meaning of section 761G of the Corporations Act 2001. MOODY'S credit rating is an opinion as to the creditworthiness of a debt obligation of the issuer, not on the equity securities of the issuer or any form of security that is available to retail investors.

Additional terms for Japan only: Moody's Japan K.K. ("MJKK") is a wholly-owned credit rating agency subsidiary of Moody's Group Japan G.K., which is wholly-owned by Moody's Overseas Holdings Inc., a wholly-owned subsidiary of MCO. Moody's SF Japan K.K. ("MSFJ") is a wholly-owned credit rating agency subsidiary of MJKK. MSFJ is not a Nationally Recognized Statistical Rating Organization ("NRSRO"). Therefore, credit ratings assigned by MSFJ are Non-NRSRO Credit Ratings. Non-NRSRO Credit Ratings are assigned by an entity that is not a NRSRO and, consequently, the rated obligation will not qualify for certain types of treatment under U.S. laws. MJKK and MSFJ are credit rating agencies registered with the Japan Financial Services Agency and their registration numbers are FSA Commissioner (Ratings) No. 2 and 3 respectively.

MJKK or MSFJ (as applicable) hereby disclose that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by MJKK or MSFJ (as applicable) have, prior to assignment of any credit rating, agreed to pay to MJKK or MSFJ (as applicable) for credit ratings opinions and services rendered by it fees ranging from JPY125,000 to approximately JPY250,000,000.

MJKK and MSFJ also maintain policies and procedures to address Japanese regulatory requirements.

​​​​​​​​
Advertisement