The rating actions are as follows:

Class A1 (ISIN XS1852536785), EUR 25.0m: assigned a final rating of BBB-_SF

Class A2 (ISIN XS1852537163), EUR 32.3m: assigned a final rating of BBB-_SF

Class A3 (ISIN XS1852537759), EUR 15.0m: assigned a final rating of BBB-_SF

Class B (ISIN N/A), EUR 28.8m: not rated

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AutoWheel Securitisation D.A.C is an 18-month revolving EUR 101.1m cash securitisation of operational car leases granted to Greek SMEs with up to 42% residual value exposure. Scope’s quantitative analysis is based on the portfolio as of the initial cut-off date (31 May 2018) and on portfolio replenishment criteria during the revolving period. The seller and servicer of the receivables is Autohellas, a car rental company and the exclusive franchisee in Greece of US-based car rental group, Hertz. This is the first non-bank leasing securitisation executed in Greece.

The initial portfolio is composed of 8,974 leases with a weighted average remaining term of 31 months. Lease instalments and car residual values respectively represent 69.5% and 39.5% of the securitisation balance at closing. Transaction covenants aimed at preventing negative migration during the revolving period include the following limits, among others: residual value share, 42%; top 50 borrower share, 30%; share of contracts with early termination, 15%; and weighted average remaining life, 48 months; minimum annual return on the assets: 9.5%.

The three senior tranches are pari passu and pay interest monthly, except for the first 12 months of the transaction during which tranches A1 and A2 feature an annual coupon. Interest will be funded monthly into a pre-funding reserve ledger held in the foreign account bank before being paid to noteholders after the period ends.

Rating rationale

The ratings reflect i) the legal and financial structure of the transaction; ii) the expected performance of the underlying portfolio of leases; iii) the quality of collateral; and iv) the residual value exposure to movable assets in the context of macroeconomic conditions in Greece. The rating also addresses the credit and operational exposures to the key transaction counterparties: Autohellas, originator and servicer of the portfolio; Autotechnica, the car maintenance provider; Alpha Bank, the Greek account bank and back-up servicer; and Citibank, N.A. the foreign account bank and paying agent.

The transaction benefits from strong structural protection features and credit enhancement mechanisms which justify an expected loss on the instrument commensurate with an investment grade rating. These protective elements, together with the movable nature of the securitised assets and the limited risk horizon of the tranche, partly mitigate key sovereign risks including systemic counterparty risks, potential capital controls, redenomination risk and severe asset impairments.

The rating on class A notes is driven by the 28.5% credit enhancement provided by the full subordination of class B notes and the trapping of excess spread to either repay the senior notes during the amortisation period or purchase new assets during the revolving period. Gross excess spread at closing, defined as the difference between the annual return on the assets (10.9%) and the annual rate payable on the senior notes (2.0%, relative to the total notes balance), is 8.90%. Excess spread would diminish if the rate of return on the assets decreased to the minimum allowed by the replenishment covenants (9.5%) or the class A2 notes base rate increased. Servicing fees amounting to 2% of collections constitute the main senior cost component.

The transaction has a liquidity reserve, a maintenance reserve and a set-off reserve, maintained at Citibank, which are fully funded at closing. On each payment date, the reserves will form part of the available funds for distribution and will be applied in accordance with the priority of payments, providing liquidity and credit protection to the rated notes. These accounts mitigate the negative effects on liquidity available to Class A upon potential temporary capital controls by the state. Credit risk is partially mitigated by an irrevocable and unconditional guarantee by the seller on all interest and principal payments due to class A noteholders. This ensures the interests of the seller and servicer of the receivables fully align with those of class A noteholders.

The risk exposure of the class A reflects its expected weighted average life of about 20 months after the revolving period concludes, based upon Scope’s performance assumptions Scope assessed both the asset and counterparty risks associated with a possible systemic shock in Greece, taking into account the length of the risk exposure and the transaction’s strong protective features.

Key rating drivers

Strong credit protection (positive). The subordination of class B principal and interest, full trapping of excess spread, and available cash reserves strongly protect senior noteholders against i) credit and residual value losses in the portfolio; ii) counterparty risks such as servicer commingling losses; and iii) sovereign risks such as a severe macro-economic dislocation that leads to substantial asset impairments.

Foreign account bank (positive). The issuer will use a foreign bank to process noteholder payments, which partly mitigates commingling and liquidity risks arising from potential capital control regulations.

Robust lease book performance (positive). The seller’s eligible lease book had lower default rates than for other lease products, such as unsecured SME bank exposures, during the last period of severe economic stress (2008-2017). In Scope’s view this is due to product-specific factors on the part of the seller, including i) sound underwriting practices; ii) a large share of repeat clients (70%); and iii) positive product features such as a lower-risk lease purpose, positive borrower selection, and security.

Back-up servicer (positive). Operational risk arising from the servicer’s potential default is mitigated by Alpha Bank’s appointment on the closing date as standing back-up servicer.

Alignment of interests (positive). Autohellas provides an irrevocable and unconditional guarantee on all interest and principal to be paid to class A noteholders. This ensures the interests of the seller and servicer of the receivables fully align with those of class A noteholders.

Residual value risk (negative). Residual values will constitute up to 42% of the securitisation balance. This creates a direct exposure to vehicle-value risk, while the security on defaulted receivables indirectly exposes the transaction to vehicle-value risk.

High operational counterparty risk (negative). The transaction is very reliant on the performance of Autohellas, the servicer, and its fully owned subsidiary, Autotechnica, the car maintenance provider. The replacement of these counterparties may increase operational costs.

High counterparty commingling risk (negative). The transaction is exposed to commingling losses on issuer collections held at the servicer’s account and at the issuer’s Greek account bank.

Interest rate risk (negative). The portfolio is partly exposed to interest rate risk because assets pay fixed rental coupons while class A2 are linked to one-month Euribor (or 12-month Euribor during the first year).

First-time issuer (negative). This is Greece’s first non-bank leasing securitisation. Scope’s assumptions on defaults incorporate a layer of stress beyond vintage data, which capture the risks posed by first-time issuers, such as the untested reporting framework and the issuer’s non-regulated nature.

Systemic weakness (negative). The transaction is exposed to Greece’s weak operating environment and volatile macro-economic performance. The Greek economy has had three bailouts since 2010 and banks are still under emergency liquidity support, although talks between the IMF, ECB and Greek authorities are progressing towards a final review.

Positive rating-change drivers

Economic recovery. An improving economic environment would likely enhance the operating environment in Greece and/or mitigate the credit, operational and commingling risks of counterparties.

Completion of 18-month revolving period. Should the revolving period conclude with robust performance by the portfolio, the seller and the sovereign, and/or higher, Scope may upgrade the ratings.

Capital controls. A lifting of capital controls would reduce liquidity risk and the credit risk exposure to the Greek account bank.

Negative rating-change drivers

Banking sector risk. The renewed intensification of banking sector risks could lead to more severe macroeconomic conditions than expected, creating the potential for disorderly sovereign default that impairs asset performance beyond that represented by stressed historical data.

Capital controls. A reinforcement of capital controls, in a reversal of their gradual alleviation in recent years, could lead to a prolonged deferral of payments nationwide, negatively affecting lease collection rates. Capital controls could also cause a deferral of cross-border payments to the issuer’s foreign account and impede the accumulation of payments.

Redenomination risk. Although unlikely over the risk horizon of the class A, an exit of Greece from the euro area leading to currency redenomination losses beyond Scope’s assumptions would affect the ratings.

Quantitative analysis and key assumptions

Scope has performed a cash flow analysis that incorporates important mechanisms in the structure. The large homogenous portfolio approximation approach of Scope was used to analyse the highly granular collateral pool and project cash flows over the amortisation period. Scope has assumed one asset segment for auto leases issued to SME and corporate borrowers. The cash flow analysis considers the probability distribution of portfolio default rates, following an inverse Gaussian distribution, to calculate the expected loss of each rated tranche. The analysis also provides the expected weighted average life of each tranche. Scope has taken into account asset and liability amortisation and the evolution in the portfolio’s composition.

Analytical assumptions include a mean default rate of 4.6%, a coefficient of variation of 85%, and a rating-conditional fixed recovery rate of 50.8% for the class A notes.

Scope has taken into account default rate and recovery vintage data from 2008 to 2017, which reflects the performance of the lease book originated by Autohellas since 2008. The observation period for lease origination by Autohellas is approximately 10 years, which captures a period of severe economic stress in Greece.

Scope did not consider a long-term reference default distribution because vintage data capture a full economic cycle of performance that is sufficient to derive a long-term forward-looking view on the portfolio.

Scope has modelled expected portfolio collections as of the start of the amortisation period based on the initial portfolio, adjusted to address the risk of an increased residual share up to the 42% replenishment limit (from 39.5% at closing). Scope has not sized for overcollateralisation from the trapping of excess spread during the revolving period, in order to address the extension of the transaction’s risk horizon and potential negative credit migration of other portfolio attributes.

Rating sensitivity

Scope has tested the resilience of the rating against deviations of the main input parameters: the portfolio mean-default rate and the portfolio recovery rate. This analysis has the sole purpose of illustrating the sensitivity of the rating to input assumptions and is not indicative of expected or likely scenarios.

The following shows how the quantitative results change when the portfolio’s expected default rate increases by 50% and the portfolio’s expected recovery rate reduces by 50% (affecting both defaulted assets and the residual value of performing assets):

• Class A: sensitivity to probability of default, one notch; sensitivity to recovery rates, five notches

Methodology
The methodology used for these ratings ‘General Structured Finance Rating Methodology’, ‘Auto ABS Rating Methodology’, and the ‘Methodology for Counterparty Risk in Structured Finance’ are available on www.scoperatings.com.
Historical default rates of Scope Ratings can be viewed in the rating performance report on https://www.scoperatings.com/#governance-and-policies/regulatory-ESMA. Also refer to the central platform (CEREP) of the European Securities and Markets Authority (ESMA): http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml. A comprehensive clarification of Scope’s definition of default as well as definitions of rating notations can be found in Scope’s public credit rating methodologies on www.scoperatings.com.

Solicitation, key sources and quality of information
The issuer of the rated instruments and/or its agents participated in the rating process.
The following substantially material sources of information were used to prepare the credit rating: public domain, the issuer of the rated instruments, the issuer’s agents, third parties and Scope internal sources. Scope considers the quality of information available to Scope on the issuer of the rated instruments and instrument to be satisfactory. The information and data supporting Scope’s ratings originate from sources Scope considers to be reliable and accurate. Scope does not, however, independently verify the reliability and accuracy of the information and data.
Scope Ratings GmbH has relied on a third-party asset audit. The external asset audit has no impact on the credit rating.

Regulatory and legal disclosures
These credit ratings are issued by Scope Ratings GmbH.
The rating analysis was prepared by Antonio Casado, Director.
Responsible for approving the rating: Guillaume Jolivet, Managing Director
The ratings were assigned as preliminary ratings by Scope on 15.03.2018.

Potential conflicts
Please see www.scoperatings.com for a list of potential conflicts of interest related to the issuance of credit ratings.

Conditions of use / exclusion of liability
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