Class A1 (ISIN XS1852536785), EUR 25.0m: affirmed at BBB-_SF

Class A2 (ISIN XS1852537163), EUR 32.3m: affirmed at BBB-_SF

Class A3 (ISIN XS1852537759), EUR 15.0m: affirmed at BBB-_SF

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

Scope’s review is based on transaction reporting through 30 June 2019.

Transaction Overview

AutoWheel Securitisation DAC is a revolving EUR 101.1m cash securitisation of operational car leases granted to Greek SMEs with up to 42% residual value exposure. The seller and servicer of the receivables is Autohellas SA, an auto leasing and rental company that is the exclusive franchisee in Greece of US-based car rental group, Hertz.

Rating rationale

The rating actions are driven by observed deal performance, transaction counterparties and updated macro views on Greece (BB-/Positive). Notable deal performance measures are as follows:

• The Gross Loss Ratio is approximately 6.1%, which is below the 10% early-amortisation threshold.
   
• The Cumulative Default Ratio is 0.6%.
   
• 98.3% of all defaulted, early terminated and amended leases have been repurchased by the seller.
   
• All portfolio replenishment criteria have been passing since closing.
   
• No early amortisation events have occurred.

The 6.1% Gross Loss Ratio is higher than our 4.6% mean default rate at closing. The majority of these defaults are driven by early terminations and contractual amendments, and almost all have been repurchased from the issuer. Scope has recalibrated its mean default and coefficient of variation assumptions as a result; however, the robust deal structure and commitment by Autohellas support the affirmation of the ratings.

Class A notes continue to be supported by 28.5% credit enhancement via full subordination of the class B notes. Additional support is provided by excess spread (approximately 8.3%) and three reserve accounts held with Citibank NA. The reserve accounts remain fully funded and provide liquidity and credit protection to the class A notes, mitigating liquidity issues that may stem from temporary capital controls employed 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 the class A noteholders. This ensures the interests of the seller and servicer of the receivables fully align with those of the class A noteholders.

Transaction counterparties continue to support the ratings: i) Autohellas SA, the originator, seller and servicer; ii) Autotechnica, the car maintenance provider; iii) Alpha Bank, the issuer’s Greek bank account and back-up servicer; and iv) Citibank, NA, the foreign account bank and paying agent.

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.

Alignment of interests (positive). Autohellas provides an irrevocable and unconditional guarantee on all interest and principal to be paid to the class A noteholders. This ensures that the interests of the seller and servicer of the receivables fully align with those of the class A noteholders. Further support is evidenced by Autohellas’s repurchases of defaulted, early terminated and amended lease contracts from the issuer.

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.

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.

Observed performance (negative). Contractual amendments, early terminations and defaults are collectively higher than Scope’s expectations at closing; however, this is largely mitigated by the originator’s proven commitment to repurchase assets classified as such.

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.

First-time issuer (negative). This is Greece’s first non-bank leasing securitisation. Non-bank originators/servicers which are first-time issuers often find it more complex to setup the reporting framework and extract relevant historical performance data.

Rating-change drivers

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

Completion of the revolving period (upside). 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 (upside). A lifting of capital controls would reduce liquidity risk and the credit risk exposure to the Greek account bank.

Banking sector risk (downside). A 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 (downside). A reinforcement of capital controls, in a reversal of their gradual alleviation recently, 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.

Quantitative analysis and key assumptions

A cash flow analysis was performed considering the collateral portfolio’s characteristics and the transaction’s main structural features. Scope applied a large homogenous portfolio approximation approach when analysing the collateral pool and projecting cash flows over the expected amortisation period. The cash flow analysis used a probability distribution of the portfolio’s default rate, 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.

Analytical assumptions include an updated mean default rate of 11% (4.6% at closing), an updated coefficient of variation of 35% (85% at closing), and a rating-conditional fixed recovery rate of 50.8% for the Class A notes. The recalibrated mean default rate and coefficient of variation reflect observed technical defaults (90+dpd, early terminations and contractual amendments) in the transaction.

Greece’s (BB-/Positive) improved sovereign environment has also been captured in the analysis and reflects favourably on the rated notes.

Observed deal performance gleaned from investor reporting through 30 June 2019 was used in combination with vintage data provided at closing. The vintage data included defaults, early terminations, contractual amendments and recoveries 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 over-collateralisation 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 tested the resilience of the ratings against deviations of the main input parameters: the mean-default rate and the 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 mean default rate is increased by 50% and the portfolio’s expected recovery rate is reduced by 50%, respectively:

Class A: sensitivity to default rate, one notch; sensitivity to the recovery rate, five notches.

Stress testing
Stress testing was performed by applying rating-conditional recovery rate assumptions.

Cash flow analysis
Scope performed a cash flow analysis of the transaction with the use of Scope Cash Flow SF EL Model Version 1.0.0, incorporating default and recovery rate assumptions over the portfolio’s amortisation period, taking into account the transaction’s main structural features, such as the notes’ priorities of payment, the notes’ size and coupons. The outcome of the analysis is an expected loss and an expected weighted average life for the notes.

Methodology
The methodologies used for these ratings are the ‘Consumer and Auto ABS Rating Methodology’, the ‘General Structured Finance Rating Methodology’ and the ‘Methodology for Counterparty Risk in Structured Finance’. All documents are available on www.scoperatings.com.
Historical default rates of the entities rated by Scope Ratings can be viewed in the rating performance report on https://www.scoperatings.com/#governance-and-policies/regulatory-ESMA. Please 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 definitions of default and rating notations can be found at https://www.scoperatings.com/#governance-and-policies/rating-scale.

Solicitation, key sources and quality of information
The rated entity and its agents participated in the rating process.
The following substantially material sources of information were used to prepare the credit rating: Scope internal sources, public domain, the issuer, agents of the issuer and third parties.
Scope considers the quality of information available to Scope on the rated entity or 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 received a third-party asset audit at closing of the transaction, upon initial assignment of the ratings. The external asset audit had no impact on the credit rating.
Prior to the issuance of the rating actions, the rated entity was given the opportunity to review the ratings and the principal grounds on which it is based. Following that review, the ratings were not amended before being issued.

Regulatory disclosures
This credit ratings are issued by Scope Ratings GmbH.
Lead analyst Thomas Miller-Jones, Associate Director.
Person responsible for approval of the ratings: David Bergman, Managing Director.
The ratings were first released by Scope on 26 July 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
© 2019 Scope SE & Co. KGaA and all its subsidiaries including Scope Ratings GmbH, Scope Analysis GmbH, Scope Investor Services GmbH and Scope Risk Solutions GmbH (collectively, Scope). All rights reserved. The information and data supporting Scope’s ratings, rating reports, rating opinions and related research and credit opinions 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’s ratings, rating reports, rating opinions, or related research and credit opinions are provided ‘as is’ without any representation or warranty of any kind. In no circumstance shall Scope or its directors, officers, employees and other representatives be liable to any party for any direct, indirect, incidental or other damages, expenses of any kind, or losses arising from any use of Scope’s ratings, rating reports, rating opinions, related research or credit opinions. Ratings and other related credit opinions issued by Scope are, and have to be viewed by any party as, opinions on relative credit risk and not a statement of fact or recommendation to purchase, hold or sell securities. Past performance does not necessarily predict future results. Any report issued by Scope is not a prospectus or similar document related to a debt security or issuing entity. Scope issues credit ratings and related research and opinions with the understanding and expectation that parties using them will assess independently the suitability of each security for investment or transaction purposes. Scope’s credit ratings address relative credit risk, they do not address other risks such as market, liquidity, legal, or volatility. The information and data included herein is protected by copyright and other laws. To reproduce, transmit, transfer, disseminate, translate, resell, or store for subsequent use for any such purpose the information and data contained herein, contact Scope Ratings GmbH at Lennéstraße 5 D-10785 Berlin.

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