OREANDA-NEWS. S&P Global Ratings today said it has assigned its preliminary 'A-1+ (sf)' short-term rating to the class A-1 notes and its preliminary 'AAA (sf)' long-term ratings to the class A-2a, A-2b, A-3, and A-4 notes (collectively, "the notes") to be issued by the special-purpose entity OSCAR US Funding Trust V, a Delaware statutory trust (see list below). Japanese auto loan receivables that Orient Corp. (Orico) originated will ultimately back the notes to be issued under this asset-backed securities (ABS) transaction.

The US$362.2 million notes will be backed by ?37.3 billion class A-1 to A-4 fixed-rate bonds to be issued by Oscar Japan 5, a limited liability company incorporated in Japan. The bonds, in turn, will be backed by the class A-1 to A-4 asset-backed loans (ABLs) to be extended to Mizuho Trust & Banking Co. Ltd. The pool of auto loan receivables that Orico originated will back the ABLs.

Information we obtain hereafter may lead us to assign final ratings that differ from the preliminary ratings. We will assign final ratings after the amount and exact terms of the notes are finalized and we complete a full rating analysis, including a review of the final pool, final structure, transaction documents, and legal opinion.

The preliminary ratings reflect our views primarily on the below factors. We assume a cumulative default rate on the initial receivables balance of 1.2% during the transaction term, based on the characteristics of and historical data on the underlying auto loan assets as well as our overall outlook for the future performance of Japanese auto loan assets. We also assume a cumulative default rate of 6.0% under our 'AAA' stress scenario. Credit support, provided through overcollateralization, will mitigate the credit risk of the underlying assets. In addition, excess spread will also serve as credit support for the notes. Timely interest payments and the ultimate repayment of principal on the notes by the legal final maturity dates were made under stressed cash flow modeling scenarios that we believe are appropriate for the assigned preliminary ratings. Overcollateralization of the securitized receivables will mitigate commingling risk. Cash reserves to be funded on the transaction's closing date will provide liquidity support to the transaction if the servicer is replaced. We consider that Orico has sufficient experience and ability to fulfill its duties as the initial servicer in the transaction. The transaction's payment structure and cash flow mechanisms include a default trap and the establishment of early amortization triggers that will convert principal payments to a monthly pass-through turbo structure under certain adverse circumstances. Our review of the transaction relied in part on our interpretation of our criteria, "Ratings Above The Sovereign - Structured Finance: Methodology And Assumptions," published Aug. 8, 2016, as appropriate for our assessment of the impact on our ratings from our transfer and convertibility (T&C) assessment for Japan. Our T&C assessment reflects our view of the likelihood of a sovereign restricting a securitization's access to foreign exchange needed to satisfy the securitization's debt service obligations. We base our assessment on paragraph 46 of the criteria, which states that a foreign-currency obligation backed by local-currency assets in a single jurisdiction will be capped at the T&C for that jurisdiction, unless there are structural mitigants for T&C risk. Despite the currency mismatch between the assets underlying this transaction and the payments to investors, we believe the transaction can be rated above 'AA+', our T&C assessment for Japan. This is because payment transfers outside Japan occur in yen, and the currency swap counterparty, which is a non-Japanese entity, will swap yen received outside Japan for U. S. dollars with an adequate replacement commitment in line with our counterparty criteria. We believe these structural features of the transaction, including the definition of a termination event in the currency swap agreement, sufficiently mitigate its T&C risk. We consider the maximum potential rating on the notes in this transaction to be 'AAA'. This is because the securitization has no direct exposure to sovereign obligations and has sufficient credit support to withstand our sovereign default stress test, and the sensitivity of the underlying asset type to country risk is moderate. This also accords with our above criteria for single-jurisdiction structured finance ratings above the sovereign. The transaction's legal structure establishes that the entrustment of the underlying assets will not be considered as security interest and thus the underlying assets will not be considered as part of the originator's property in the event of the originator's bankruptcy.