Fitch Assigns abc SME Lease Germany SA, Compartment 2 Final Ratings
EUR382.7m Class A fixed-rate, asset-backed notes (ISIN: XS1261447418), due December 2026: 'AAAsf'; Stable Outlook
EUR30.8m Class B fixed-rate, asset-backed notes (ISIN: XS1261447509), due December 2026: 'AAsf'; Stable Outlook
EUR29.3m Class C fixed-rate, asset-backed notes (ISIN: XS1261447681), due December 2026: 'Asf'; Stable Outlook
EUR60.2m Class D variable-rate, asset-backed notes (ISIN: XS1261447848), due December 2026: not rated
The ratings are based on Fitch's assessment of the originators' origination and servicing procedures, Fitch's expectations of asset performance, the available credit enhancement (CE), and the transaction's legal structure.
This transaction is the second securitisation of lease contracts granted to German small- and medium-sized enterprises (SMEs), originated by abcfinance GmbH and milon financial services GmbH. Both originators are part of the Werhahn Group.
KEY RATING DRIVERS
Fitch observed that the performance of the underlying five leased asset groups - vehicles; machines; facilities; solar, fitness and leisure; and other - differs and has derived individual default and recovery assumptions for each group. This resulted in a weighted average (WA) base case default rate of 5.0% and a WA base case recovery rate of 60.1% for the total portfolio, which is comparable to other German equipment transactions rated by Fitch.
The portfolio's industry and obligor concentrations are higher than in a typical ABS transaction. Fitch applied its ABS rating criteria to derive the default assumptions and then back-tested the results using the SME CLO approach to assess whether these concentrations lead to additional default stresses. The concentration impact was limited.
Most of the lessees pay their monthly or quarterly collections by direct debit to an account in the name of the servicer, which is pledged to the SPV. There are no rating requirements or remedial actions in relation to the collection account bank (CAB). As this exposes the issuer to a default of the CAB and consequently a commingling of funds, Fitch assumed a commingling loss in its analysis. However, the available CE, together with a commingling reserve, is considered sufficient to absorb such losses.
abcbank GmbH acts as servicer of the lease contracts. The transaction involves a back-up servicer (akf bank GmbH & Co. KG) from closing onwards. The back-up servicer, together with the liquidity reserve, which provides initial coverage of SPV expenses up to four months, satisfactorily addresses servicer discontinuity risk.
Fitch tested the rating sensitivity of the notes to various scenarios, including an increase in the base case default rate and/or a decrease in the base case recovery rate for the portfolio. The model-implied sensitivities indicate that an increase in the base case default rate by 50% together with a decrease in the base case recovery rate by 50% may result in a downgrade of the class A notes, to 'A+sf'; the class B notes to 'A-sf'; and the class C notes to 'BB+sf'.
The transaction is static and the notes amortise in sequential order. Only the amortising portion of the lease receivables is securitised. Both assets and notes pay fixed interest.
The initial transaction portfolio comprises leases backed by new (81.2%) and used (18.8%) collateral. As of the pool's cut-off date, the weighted average remaining term of the portfolio is 41 months. The largest lessee accounts for 0.6% of the portfolio balance, and the largest 20 lessees represent 5.2% of the pool. Among the asset groups, machines and vehicles are the largest with pool shares of 29.1% and 29%, respectively. Facilities represent 23.1% of the pool, followed by other (13.8%) and solar, fitness and leisure (5.1%).
A new issue report, including further information on transaction related stress, key rating drivers and rating sensitivities, as well as material sources of information that were used to prepare the credit rating, is available at www.fitchratings.com.
DUE DILIGENCE USAGE
Fitch was provided with a third party asset portfolio assessment in relation to this rating action.
Fitch reviewed the results of the third party assessment conducted on the asset portfolio information, which indicated no adverse findings material to the rating analysis. Fitch believes the sample size and relevance of the tested fields suggest the data provided by the originator for assigning the ratings was of acceptable quality.
Fitch also conducted a review of a small targeted sample of abc'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.
SOURCES OF INFORMATION
The information below was used in the analysis:
- Pool stratification data provided by abc as at 31 July 2015
- Dynamic delinquency data from January 2005 to July 2015, for the overall lease book.
- Monthly default and recovery vintage data, for the overall book and split into different sub-pools: vehicles; machines; facilities; solar, fitness and leisure; and other. The data provided spans the period between January 2005 and December 2014.
- Monthly prepayment data from January 2005 to December 2014, for the overall lease book.
- Lease-by-lease information for the initial transaction portfolio.
REPRESENTATIONS AND WARRANTIES
A comparison of the transaction's Representations, Warranties & Enforcement Mechanisms to those typical for the asset class is available by accessing the appendix that accompanies the new issue report, dated 20 August 2015 at www.fitchratings.com. In addition refer to the special report "Representations, Warranties, and Enforcement Mechanisms in Global Structured Finance Transactions" dated 12 June 2015 available on the Fitch website.