Rongteng 2022-4 Retail Auto Mortgage Loan Securitization -- Moody's assigns provisional ratings to SAIC-GMAC's fourth auto loan ABS transaction for 2022

Rating Action: Moody's assigns provisional ratings to SAIC-GMAC's fourth auto loan ABS transaction for 2022Global Credit Research - 29 Aug 2022RMB[9,430] million of securities to be ratedHong Kong, August 29, 2022 -- Moody's Investors Service has assigned provisional ratings to the Class A1, Class A2 and Class B Senior Notes to be issued by Rongteng 2022-4 Retail Auto Mortgage Loan Securitization, a domestic transaction backed by a pool of auto loans to be originated by SAIC-GMAC Automotive Finance Company Limited (SAIC-GMAC) in China.The complete rating action is as follows:Issuer: Rongteng 2022-4 Retail Auto Mortgage Loan Securitization....RMB[4,000]M Class A1 Senior Notes, Assigned (P)Aa1 (sf)....RMB[4,700]M Class A2 Senior Notes, Assigned (P)Aa1 (sf)….RMB[730]M Class B Senior Notes, Assigned (P)Aa1 (sf)The RMB[570]M Subordinated Notes are not rated by Moody's.RATINGS RATIONALEWhen assigning the ratings, Moody's analysis focused, among other factors, on (1) the characteristics of the securitized pool; (2) the macroeconomic environment; (3) the historical performance data; (4) the parental support available to the servicer; (5) the financial disruption risk in the transaction, which refer to the risk of issuer's cash flow disruption in case of a servicer termination event, and the mitigants to support timely payments on the Class A1, Class A2 and Class B Senior Notes (collectively, "the senior notes"); (6) the protection provided by credit enhancement against defaults and arrears in the securitized pool; and (7) the legal and structural integrity of the transaction.The ratings assigned to Class A1 and A2 Senior Notes are constrained by the financial disruption risk in this transaction which involves the assessment of (1) the likelihood that the servicer will be able to continue operations during the life of the transaction, (2) the ease of transfer of responsibilities from the servicer in case it needs to be replaced, and (3) the effectiveness of the mitigants, if any, to mitigate the risk of cash flow disruption caused by the financial distress of the servicer. Moody's views the financial disruption risk for this transaction as not fully mitigated because of the absence of prefunded reserve fund and the operational risk embedded in the transaction. Upon a servicer termination event, cash flow disruption could result in insufficient collections to pay interest on the Class A1 and Class A2 Senior Notes, which would trigger an event of default. Due to the limited financial disruption risk, the maximum achievable rating for Class A1 and A2 Senior Notes are at Aa1 (sf).Moody's considered, among other things, the transaction's key strengths:(1) Diversified collateral pool composition: The cut-off portfolio consists of 188,104 obligors' loans with a good level of geographic diversification across 31 regions in China. Typically, a more granular pool exhibits less volatile performance.(2) Favorable pool characteristics: The pool only includes loans to purchase new vehicles. 100% of the payments are made via direct debit. All loans are amortizing and have a weighted average LTV of 71.79% at origination. The collateral pool has a short weighted average remaining tenor of 30.35 months.(3) Full turbo structure: Subordination of the senior notes increases over time after closing. The issuer will apply the loan interest and principal repayments in accordance with its priority of payment, including repaying the Class A1 Senior Notes up to its scheduled principal payment on each note's payment date. The remaining collection will be used to repay the Class A2 Senior Notes until they are repaid in full, and subsequently, and any further remaining collections will be used to sequentially repay the Class A1 Senior and Class B Senior Notes until they are repaid in full.(4) The originator's experience in the China auto finance sector: The originator was the first auto finance company established in China, and has refined its underwriting process over time. The underwriting system is independent from its sales function and dealers. The originator uses a comprehensive set of data to assess a borrower's creditworthiness. SAIC-GMAC uses its own credit scoring system to assign a credit score to each borrower. Borrowers with score below a floor level are automatically rejected. The originator has a network of dealers which it also has wholesale business relationships with, this allows closer monitoring of the dealers and may allow more consistent origination and quality control.Moody's has also considered the following weaknesses and mitigants:(1) Untested back-up servicing arrangement: No back-up servicing arrangement will be set up at closing. Servicing of the transaction may be subject to disruption if the originator/servicer fails to perform when needed. Any disruption may result in a significant impact because the transaction has more than 188,000 obligors located in various parts of China. There is no precedent in China of actual servicing transfers to date, although potential replacement servicers exist because there are several captive finance originators with obligors across the country. Moody's considers the high likelihood of parental support for the servicer and the short weighted average life of the rated notes as key mitigants to this weakness. Although there is no explicit guarantee from the parent companies, the servicer is majority owned by SAIC Motor Corporation Limited (SAIC) and is strategically important to the auto business of its parents, SAIC and General Motors Company (GM, Baa3, stable).(2) Limited liquidity buffer: No liquidity reserve will be funded at closing and the only sources of liquidity are principal to pay interest mechanism and excess spread. Moody's considered the following mitigants in determining the operational and liquidity risks in this transaction, which refer to operational disruptions, including non-timely payments on the notes due to non-performance by the transaction parties: (a) the strong parental support available to the servicer; (b) the credit quality of the servicer's parents, SAIC and GM; (c) the short tenor of this transaction; and (d) the trustee will notify borrowers within 5 days of a servicer termination event. In the event that the servicer's rating by domestic credit agencies falls below certain levels, the excess spread will be used to fund various reserve accounts. Moody's has not relied, in its rating analysis, on triggers based on ratings assigned by other rating agencies.(3) Commingling risk with the servicer's fund: The servicer will auto-debit the borrowers' bank accounts on each of the loans' monthly installment dates, and commingle such collections with its own funds. This amount will be subject to commingling risk until the servicer transfers such collections to the issuer's account (7th business day of each month) prior to the immediate notes' payment date (26th calendar day of each month). As a mitigant to commingling risk, the servicer will (a) immediately upon a rating downgrade (by domestic rating agencies), reduce the commingling period by transferring collections from the servicer account to the trust account within four business days upon receipt of funds by the servicer; (b) maintain various reserve funds using excess spread trapping upon a rating downgrade (by domestic rating agencies); and (c) put in place a servicing transfer plan within 90 days of a domestic ratings downgrade. Moody's has considered the credit quality of the servicer and the payment mechanism in this transaction and incorporated one and a half months of cash commingling exposure in its modeling. Moody's has not relied -- in its rating analysis -- on triggers based on ratings assigned by other rating agencies.MAIN MODEL ASSUMPTIONSMoody's assumed a mean default rate of 1.2% and a portfolio credit enhancement of 7.0% for the securitized pool. A recovery rate of 10% is used as the other main input for Moody's cash flow model ABSROM. These assumptions are made according to Moody's analysis of the characteristics of such pools, their historical performance, and the current view of China's social and macroeconomic conditions and risks as reflected in its local currency country ceiling of Aaa.RATING METHODOLOGYThe principal methodology used in these ratings was "Moody's Global Approach to Rating Auto Loan- and Lease-Backed ABS" published in July 2022 and available at https://ratings.moodys.com/api/rmc-documents/390478. Alternatively, please see the Rating Methodologies page on https://ratings.moodys.com for a copy of this methodology.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, it is not currently expected that the Credit Ratings referenced in this press release will be affected.Request for Comments can be found on the rating methodologies page on https://ratings.moodys.com.Factors that would lead to an upgrade or downgrade of the ratings:Factors that may cause an upgrade of the rating of the Class B Senior Notes include a significant better-than-expected performance of the pool.Factors that may cause a downgrade of the ratings include: (1) an increase in financial disruption risk, (2) a decline in the overall performance of the pool; (3) a significant deterioration in the credit profile of the originator or its parent companies and the absence of the implementation of any mitigating actions for the transaction, and (4) a deterioration in the credit quality of the other transaction counterparties.The performance expectations for a given variable indicate Moody's forward-looking view of the likely range of performance over the medium term. Performance that falls outside the given range may indicate that the collateral's credit quality is stronger or weaker than what Moody's had previously anticipated.THE COMPANYSAIC-GMAC is 55% owned by SAIC Motor Corporation Limited (SAIC) and 45% owned by General Motors Company (GM, Baa3, stable). It is the first auto finance company established in China. It was established in August 2004 and is licensed under the supervision of the China Banking and Insurance Regulatory Commission (CBIRC). SAIC-GMAC has both a retail and wholesale business. The retail business provides auto loans to car purchasers of a number of brands, including GM and non-GM brands. The loans are originated through its dealership network across China.The issuer is a newly established special purpose trust incorporated in China.REGULATORY DISCLOSURESFor 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 on https://ratings.moodys.com/rating-definitions.Moody's took 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 and used the Due Diligence Assessment(s) in preparing the ratings. This had a neutral impact on the ratings.The Due Diligence Assessment(s) referenced herein were prepared and produced solely by parties other than Moody's. 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