S&P: Rating Raised On Swedish Consumer Credits No.1's Class C ABS Notes Due To Improving Performance
Today's rating actions follow our review of the transaction's credit and cash flow performance.
The transaction has a static amortizing structure with a current pool factor of 15% (the percentage of the pool's outstanding aggregate principal balance). We have analyzed credit risk by applying our European consumer finance criteria, using the originator and the securitized pool historical default data (see "European Consumer Finance Criteria," published on March 10, 2000).
As of August 2016, we have observed a 7.38% cumulative default rate in the securitized pool, higher than our 7.10% expectation as at the previous surveillance review in April 2014 (see "Ratings Raised On Swedish Consumer Credits No. 1's Class B And C ABS Notes Due to Improving Performance," published on April 29, 2014).
As a result, we have resized our base-case default assumption for the entire pool to 9.5% from 7.1% at our April 2014 review. Since the end of 2013, the unemployment rate in Sweden has been declining, reaching 7.4% in 2015. We forecast unemployment of 6.9% in 2016 and 6.3% in 2017 (see "Sovereign Risk Indicators," published on July 6, 2016). In our view, unemployment is a key performance metric for assessing unsecured consumer assets, and we have considered it in our credit assumptions.
As of August 2016, the available credit enhancement has increased for all rated classes of notes. This is mainly due to the cash reserve fund increasing to its documented level. The available credit enhancement has also increased as a result of the transaction's sequential principal pay down.
We have rerun the cash flow model with our revised base-case default assumption. Our analysis indicates that the available credit enhancement for the class B and C notes is sufficient to withstand the credit and cash flow stresses that we have applied at the 'AAA' and 'AA+' rating levels, respectively. This confirms that the increase in credit enhancement is sufficient for the class C notes to achieve a higher rating than that currently assigned, despite an increase in our base-case default rate assumption. We have therefore affirmed our 'AAA (sf)' rating on the class B notes and have raised to 'AA+ (sf)' from 'A+ (sf)' our rating on the class C notes.
Swedish Consumer Credits No.1 securitizes a pool of consumer loans originated in Sweden.