Rating Action: Moody's upgrades 155 classes of bonds and downgrades seven classes of bonds issued by 95 US and 5 Canadian auto loan securitizations
Global Credit Research - 17 Dec 2020
Approximately $11.6 billion of asset-backed securities affected
New York, December 17, 2020 -- Moody's Investors Service, ("Moody's") has upgraded 155 classes of bonds and downgraded seven classes of bonds issued by 95 US and 5 Canadian auto loan securitizations. The bonds are backed by pools of retail automobile loan contracts originated and serviced by multiple parties.
Please click on this link https://www.moodys.com/viewresearchdoc.aspx?docid=PBS_ARFTL437501 for the List of Affected Credit Ratings. This list is an integral part of this Press Release and identifies each affected issuer. This link also provides the updated Aaa stress loss levels on the pools.
The rating actions are primarily driven by the adoption of the updated methodology "Moody's Global Approach to Rating Auto Loan- and Lease-Backed ABS" published on 12/17/2020 and reflect updated performance information.
The upgrades are a result of a decrease in Aaa stress loss levels under the new methodology and/or a buildup in credit enhancement owing to structural features including a sequential pay structure, non-declining reserve account and overcollateralization. The downgrades resulted from a decrease in excess spread benefit and/or an increase in Aaa stress loss levels under the new methodology.
The rating actions also reflect our revised loss expectations for the underlying loan pools driven by an increased likelihood of deterioration in loan performance as a result of a slowdown in economic activity and an increase in unemployment due to the coronavirus outbreak. In our analysis, we considered higher expected losses, which reflects the percentage of loans granted payment deferrals in the individual pools and such loans higher likelihood to default and recent pool performance.
The coronavirus outbreak, the government measures put in place to contain it, and the weak global economic outlook continue to disrupt economies and credit markets across sectors and regions. Our analysis has considered the effect on the performance of consumer assets from the current weak U.S. and Canadian economic activity and a gradual recovery for the coming months. Although an economic recovery is underway, it is tenuous and its continuation will be closely tied to containment of the virus. 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 principal methodology used in these ratings was "Moody's Global Approach to Rating Auto Loan- and Lease-Backed ABS" published in December 2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBS_1202515. 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:
Moody's could upgrade the notes if, given our expectations of portfolio losses, levels of credit enhancement are consistent with higher ratings. Moody's expectation of pool losses could decline as a result of a lower number of obligor defaults or appreciation in the value of the vehicles securing an obligor's promise of payment. Portfolio losses also depend greatly on the US and Canadian job markets, the market for used vehicles, and changes in servicing practices.
Moody's could downgrade the notes if, given our expectations of portfolio losses, levels of credit enhancement are consistent with lower ratings. Credit enhancement could decline if excess spread is not sufficient to cover losses in a given month. Moody's expectation of pool losses could rise as a result of a higher number of obligor defaults or deterioration in the value of the vehicles securing an obligor's promise of payment. Portfolio losses also depend greatly on the US and Canadian job markets, the market for used vehicles, and poor servicing. Other reasons for worse-than-expected performance include error on the part of transaction parties, inadequate transaction governance, and fraud.
The List of Affected Credit Ratings announced here are all solicited credit ratings. Additionally, the List of Affected Credit Ratings includes additional disclosures that vary with regard to some of the ratings. Please click on this link https://www.moodys.com/viewresearchdoc.aspx?docid=PBS_ARFTL437501 for the List of Affected Credit Ratings. This list is an integral part of this Press Release and provides, for each of the credit ratings covered, Moody's disclosures on the following items:
** Rating Solicitation
** Issuer Participation
** Participation: Access to Management
** Participation: Access to Internal Documents
** Disclosure to Rated Entity ** Endorsement ** Lead Analyst ** Releasing Office
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.
Moody's either did not receive or take into account one or more third-party due diligence assessment(s) regarding the underlying assets or financial instruments (the "Due Diligence Assessment(s)") in this credit rating action for Canadian Pacer Auto Receivables Trust 2018-1, Canadian Pacer Auto Receivables Trust 2018-2, Canadian Pacer Auto Receivables Trust 2019-1, Canadian Pacer Auto Receivables Trust 2020-1, and Ford Auto Securitization Trust 2020-A.
The Due Diligence Assessment(s) referenced herein were prepared and produced solely by parties other than Moody's. While Moody's uses Due Diligence Assessment(s) only to the extent that Moody's believes them to be reliable for purposes of the intended use, Moody's does not independently audit or verify the information or procedures used by third-party due-diligence providers in the preparation of the Due Diligence Assessment(s) and makes no representation or warranty, express or implied, as to the accuracy, timeliness, completeness, merchantability or fitness for any particular purpose of the Due Diligence Assessment(s).
The analysis includes an assessment of collateral characteristics and performance to determine the expected collateral loss or a range of expected collateral losses or cash flows to the rated instruments. As a second step, Moody's estimates expected collateral losses or cash flows using a quantitative tool that takes into account credit enhancement, loss allocation and other structural features, to derive the expected loss for each 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.
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_1243406.
At least one ESG consideration was material to the credit rating action(s) announced and described above.
The below contact information is provided for information purposes only. Please see the ratings tab of the issuer page at www.moodys.com, for each of the ratings covered, Moody's disclosures on the lead rating analyst and the Moody's legal entity that has issued the ratings.
The relevant office for each credit rating is identified in "Debt/deal box" on the Ratings tab in the Debt/Deal List section of each issuer/entity page of the website.
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.
Nicholas Monzillo Analyst Structured Finance Group Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Deepika Kothari Senior Vice President Structured Finance Group JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Releasing Office: Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653
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