Fitch Assigns Marketplace Originated Consumer Assets 2016-1 Expected Ratings
Class A: 'AA-(EXP)sf'; Outlook Stable
Class B: 'A(EXP)sf'; Outlook Stable
Class C: 'BBB(EXP)sf'; Outlook Stable
Class D: 'BB(EXP)sf'; Outlook Stable
Class Z: 'NR(EXP)sf'
MOCA 2016-1 is a true-sale securitisation of a static pool of UK unsecured consumer loans, originated through the marketplace lending platform of Zopa Limited and sold by P2P Global Investments (P2PGI). This transaction is the first marketplace lending securitisation to be rated by Fitch in EMEA.
The assignment of the final ratings is contingent on the receipt of final documents conforming to information already received.
KEY RATING DRIVERS
'AAsf' Rating Cap
MOCA 2016-1 is the first securitisation of unsecured consumer loans originated through a marketplace lending platform in EMEA. Zopa has been in business since 2004, but originations have only grown to a significant volume in recent years, with dramatic growth since 2011. The 'AAsf' rating cap reflects the short performance history for most of the origination volume and the untested operational platform.
The 'AAsf' cap is the highest assigned to a marketplace lending transaction globally by Fitch to date. Fitch believes the high transparency of Zopa's data, the longer history than peers globally and the robust origination and underwriting standards support the high rating.
Strong Historical Performance
Based on the data provided, Fitch has assigned a default base case of 4.7% and a recovery base case of 20%, with a base case loss of 3.8%. These base cases compare favourably with the performance of other unsecured consumer loans. However, this performance was mainly in a favourable economic environment and against a backdrop of strong growth in origination volumes combined with development in the underwriting criteria. Fitch therefore applied a very high default multiple of 5.5x at 'AA-sf'.
Steady Portfolio Migration
Zopa's appetite for risk has increased in recent years. It has moved into lower-credit quality borrowers while increasing loan terms across the board. The risk is actively managed with Zopa's proprietary scorecard. However, Fitch has factored this migration into the analysis of Zopa's past performance.
Strong Back-Up Servicer
Target Financial Services acts as back-up servicer and has a strong track record as a servicer of consumer products. Target receives periodic pool information and has specified an invocation plan with a readiness level of 60 days. Fitch therefore views exposure to Zopa as servicer to be adequately addressed.
Expected impact upon the note rating of increased defaults (class A):
Current rating: 'AA-sf'
Increase base case defaults by 10%: 'A+sf'
Increase base case defaults by 25%: 'Asf'
Increase base case defaults by 50%: 'BBB+sf'
Expected impact upon the note rating of decreased recoveries (class A):
Current rating: 'AA-sf'
Reduce base case recovery by 10%: 'AA-sf'
Reduce base case recovery by 25%: 'AA-sf'
Reduce base case recovery by 50%: 'AA-sf'
Expected impact upon the note rating of increased defaults and decreased recoveries (class A):
Current rating: 'AA-sf'
Increase default base case by 10%; reduce recovery base case by 10%: 'A+sf'
Increase default base case by 25%; reduce recovery base case by 25%: 'Asf'
Increase default base case by 50%; reduce recovery base case by 50%: 'BBB+sf'
USE OF THIRD-PARTY DUE DILIGENCE PURSUANT TO RULE 17G-10
Form ABS Due Diligence-15E was not provided to, or reviewed by, Fitch in relation to this rating action.
Fitch reviewed the results of a third party assessment conducted on the asset portfolio information, and concluded that there were no findings that affected the rating analysis.
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.
SOURCES OF INFORMATION
The information below was used in the analysis.
- Loan-by-loan data for the preliminary pool provided by Zopa as at 31 August 2016
- Historical performance provided by Zopa for January 2005 to August 2016.
REPRESENTATIONS AND WARRANTIES
A description of the transaction's representations, warranties and enforcement mechanisms (RW&Es) that are disclosed in the offering document and which relate to the underlying asset pool is available by accessing the appendix referenced under "Related Research" below. The appendix also contains a comparison of these RW&Es to those Fitch considers typical for the asset class as detailed in the Special Report titled "Representations, Warranties and Enforcement Mechanisms in Global Structured Finance Transactions," dated 31 May 2016.