Fitch Assigns Aurorus 2016 B. V. Final Ratings
Class A notes, due August 2070: 'AA-sf'; Outlook Stable
Class B notes, due August 2070: 'Asf'; Outlook Stable
Class C notes, due August 2070: 'BBBsf'; Outlook Stable
Class D notes, due August 2070: 'BBsf'; Outlook Stable
Class E notes, due August 2070: 'Bsf'; Outlook Stable
Class F notes, due August 2070: not rated
Class G notes, due August 2070: not rated
Subordinated notes: not rated
The transaction is a securitisation of Dutch unsecured consumer loans originated by Qander Consumer Finance B. V. (Qander) with a two-year revolving period. The portfolio consists of mainly revolving credit lines (either standalone or linked to a credit card), allowing the borrowers to make additional drawings up to their respective maximum loan credit limit. A minimum 9.5% of fixed-rate, fixed-term amortising loans is also included. The pool as of 31 July 2016 totalled EUR292.7m and comprised 87,190 loans.
The final ratings are based on Fitch's assessment of Qander's origination and servicing procedures, the agency's expectations of future asset performance, the available credit enhancement and the transaction's legal structure.
KEY RATING DRIVERS
Majority of Unsecured Revolving Credits
Up to 90.5% of the portfolio consists of general purpose, floating-rate, unsecured revolving credits (including standalone revolving loans and Visa cards). The typical monthly minimum payment is equal to a percentage of the approved credit limit or of the current outstanding balance. Obligatory amortisation only starts when the borrower reaches the age of 65, whereby no further drawdown is allowed. The overall payment rate results in a slower amortisation profile than for trusts in the UK.
Extended Amortisation Risk Mitigated
Amortisation for revolving credits could slow significantly under a rapidly rising interest rate environment, as the monthly instalment would not normally increase with interest rates, while the interest portion would. The transaction employs a fixed-for-floating swap, so that swap receipts could make up for a shortfall in principal collections (in a combined waterfall). In Fitch's view, this risk is adequately mitigated by the swap under our interest rate stresses.
Heterogeneous Asset Performance
For its analysis, Fitch has divided the pool into revolving credits (with Visa cards as a sub-product type) and fixed-rate amortising loans, due to the different risk profiles. In line with our applicable criteria, Fitch applied a dynamic charge-off steady state assumption of 6% a year to the revolving credits and a base case lifetime default expectation of 6% for fixed-rate amortising loans.
Originator Recently Relaunched Business
Following its acquisition by Chenavari Investment Managers LLP, Qander restarted business activities in 2015 after a two-year lending hiatus. The transaction securitises Qander's whole loan book with very few exclusions. Fitch considers the available historical data adequate to perform its asset analysis.
Servicing Continuity Risk Mitigated
The servicer is unrated. Fitch considers the back-up servicing arrangement provided by Vesting Finance B. V., coupled with a cash reserve providing liquidity, to adequately mitigate the risk of a potential disruption in collections.
Variable Funding Notes
The transaction is structured to issue dynamically-sized senior and subordinated notes to provide funding flexibility. Mezzanine notes are fixed. During the revolving period, a variable amount of senior notes (up to a maximum commitment of EUR240m) can be issued monthly to purchase additional receivables, while the balance of the subordinated notes fluctuates accordingly, to maintain a minimum credit enhancement. An adjusted borrowing base mechanism is used to calculate the amount of notes issuance on a monthly basis.
RATING SENSITIVITIES
Expected impact upon the note rating of increased charge-offs/defaults (Class A/B/C/D/E):
Original Rating: AA-sf/Asf/BBBsf/BBsf/Bsf
Increase base case charge-off/default rate by 10%: A+sf/A-sf/BBB-sf/BB-sf/Bsf
Increase base case charge-off/default rate by 25%: Asf/BBB+sf/BB+sf/B+sf/NR
Increase base case charge-off/default rate by 50%: BBB+sf/BBB-sf/BB-sf/Bsf/NR
Expected impact upon the note rating of decreased recoveries (Class A/B/C/D/E):
Original Rating: AA-sf/Asf/BBBsf/BBsf/Bsf
Reduce base case recovery by 10%: A+sf/A-sf/BBB-sf/BB-sf/Bsf
Reduce base case recovery by 25%: A+sf/A-sf/BBB-sf/B+sf/Bsf
Reduce base case recovery by 50%: Asf/BBB+sf/BB+sf/B+sf/NR
Expected impact on the note ratings of decreased yield (Class A/B/C/D/E):
Original ratings: AA-sf/Asf/BBBsf/BBsf/Bsf
Reduce base case yield by 10%: A+sf/A-sf/BBB-sf/BB-sf/Bsf
Reduce base case yield by 25%: A+sf/BBB+sf/BB+sf/B+sf/NR
Reduce base case yield by 50%: Asf/BBB+sf/BBsf/NR/NR
Expected impact on the note rating of increased charge-offs/defaults and reduced recoveries (Class A/B/C/D/E)
Original ratings: AA-sf/Asf/BBBsf/BBsf/Bsf
Increase base case charge-off/default rate by 10%; reduce base case recovery by 10%:
A+sf/BBB+sf/BB+sf/B+sf/NR
Increase base case charge-off/default rate by 25%; reduce base case recovery by 25%:
A-sf/BBBsf/BBsf/Bsf/NR
Increase base case charge-off/default rate by 50%; reduce base case recovery by 50%:
BBBsf/BBsf/Bsf/NR/NR
DUE DILIGENCE USAGE
Fitch received a third party assessment conducted on the asset portfolio information prior to transaction announcement.
DATA ADEQUACY
Fitch conducted a review of a small targeted sample of Qander's origination files and found the information contained in the reviewed files to be adequately consistent with the originator's policies and practices and the other information provided to the agency about the asset portfolio. Overall, Fitch's assessment of the asset pool information relied upon for the agency's rating analysis according to its applicable rating methodologies indicates that it is adequately reliable.
The transaction is the first Dutch unsecured consumer loan securitisation Fitch has rated. Part of the portfolio (revolving credits) demonstrates complex loan features, although the product type is fairly standard and has a long history in the Netherlands. The purpose of the securitisation is to finance Qander's business activity. Fitch follows its Procedure for Reviewing Unique or Complex Rating Proposals during the rating process.
CRITERIA VARIATION
In this transaction the agency was provided with historical data showing substantial and stable level of recoveries. Rather than including recoveries in yield assumptions, Fitch derived the base case recoveries and respective stresses as per its Global Consumer ABS Criteria, and modelled recoveries separately in its proprietary consumer ABS cash flow model. This constitutes a variation from the Global Credit Card ABS Rating Criteria.
Fitch modified the rising interest rate stresses for the revolving loans to reflect the Dutch usury regulation, which represents a variation from the Criteria for Interest Rate Stresses in Structured Finance Transactions and Covered Bonds. Without the variation, the transaction will benefit from a quicker interest rate increase on the assets.
SOURCES OF INFORMATION
The information below was used in the analysis.
- Pool stratification provided by Qander.
- Dynamic portfolio performance data, including charge-offs, yield and MPR since January 2008 for sub-portfolio combination of products (revolving/fixed). Separate data for Visa cards and broker channel.
- Dynamic, monthly delinquencies since January 2010 for sub-portfolio combination of products (revolving/fixed). Separate data for Visa cards and broker channel. - Static, monthly default vintages since January 2008 for fixed rate amortising loans.
- Static, quarterly recovery vintages since 4Q07 split by default types.
- Dynamic, annually prepayments from 2011 to 2015 for fixed rate amortising loans.
- Dynamic, monthly flowing aging balance from January 2010 to September 2015.
- Dynamic, monthly total re-aging from January 2010 to October 2015.
- Dynamic, monthly PPP claims and denial data (including denial reasons) from January 2013 to January 2015.
- Occurred dilution cases for the past nine years.
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