In This Article:
Rating Action: Moody's assigns provisional ratings to Driver Japan ten backed by auto loan receivables
Global Credit Research - 05 Jan 2021
JPY40.0 billion in debt securities affected
Tokyo, January 05, 2021 -- Moody's SF Japan K.K. has assigned provisional ratings to Driver Japan ten, backed by auto loan receivables originated by Volkswagen Financial Services Japan Ltd.
The complete rating action is as follows:
Transaction Name: Driver Japan ten
Class, Dividend/Interest Rate, Rating
Beneficial Interests 2, Fixed, (P)Aaa (sf)
ABL 2, Fixed, (P)Aaa (sf)
Total Issue Amount: JPY40.0 billion
Closing Date: February 25, 2021
Revolving Period: One-year from February 2021
Final Maturity Date: June 28, 2029
Underlying Asset: Auto loan receivables
Total Amount of Receivables: JPY44,926,670,200
Discounted Principal Amount of Receivables: JPY42,781,682,735
Seller (Originator/Initial Servicer): Volkswagen Financial Services Japan Ltd.
Trustee 1 / Trustee 2: Shinsei Trust & Banking Co., Ltd.
Sub-Servicer: JACCS Co., Ltd., SMBC Finance Service Co., Ltd.
ABL 1 Lender / Seller 2: Mizuho Securities Co., Ltd.
Underwriter: BNP Paribas Securities (Japan) Limited
Arranger: Mizuho Securities Co., Ltd., BNP Paribas Securities (Japan) Limited
RATINGS RATIONALE
The Seller, being both originator and initial servicer, entrusts a pool of its auto loan receivables and related rights to the Trustee 1, and the Trustee 1 issues a Senior Beneficial Interest and a Subordinated Beneficial Interest.
Entrustment of the receivables is perfected against third parties under the Perfection Law. Perfection against obligors is not made unless certain events occur.
The Trustee 1 raises funds by taking out a limited-recourse asset-backed loan ("ABL 1"), which is extended by ABL1 lender, and uses the proceeds to redeem the Senior Beneficial Interest in full. The Seller retains the Subordinated Beneficial Interest.
The ABL 1 lender as Seller 2 entrusts the ABL 1 to Trustee 2 and receives the Beneficial Interests 2.
Entrustment of the ABL 1 is perfected against relevant obligors and third parties pursuant to the rules under Article 467 of the Civil Law.
The Trustee 2 receives the ABL 2 from the ABL 2 Investors. The Trustee 2 uses the proceeds to redeem a part of the Beneficial Interests 2.
The Seller 2 transfers the Beneficial Interests 2 directly or through the Underwriter to investors. The transfer is perfected against relevant obligors and third parties pursuant to the Article 94 of Japan's Trust Law.
Credit enhancement is provided by the senior/subordinated structure and available excess spread. Initial subordination comprises approximately 6.5% of the initial principal balance of the receivables.
The Beneficial Interests 2 and the ABL 2 are redeemed on a monthly, pro-rata basis, but amortization conditioned with a floor on the Subordinated Beneficial Interest Amount, and occurring after the one-year revolving period. The Beneficial Interests 2 and the ABL 2 are structured pro-rata, pari-passu in the principal and interest/dividend waterfall.
If any early amortization events occur, the waterfall to the Subordinated Beneficial Interest is suspended, and instead is used to redeem the Beneficial Interests 2 and the ABL 2. Key early amortization events include a servicer replacement event occurring or a breach of asset performance triggers.
The back-up servicer is not appointed at closing. If a Servicer Replacement Event occurs, the Trustee 1 appoints one, and enters into the back-up servicing agreement.
Commingling risk is fully covered by the Servicer's advance payment in the transaction.
The ratings are based mainly on the credit quality of the receivables, the transaction structure, and the servicer's experience.
Moody's estimated the annualized expected default rate of the underlying assets at approximately 0.34% (Cumulative expected default rate: approximately 0.65%, Aaa credit enhancement: approximately 6.1%), after taking into consideration receivable attributes, historical data on the Seller's entire pool, performance data on existing securitization pools, and industry trends. The expected default rate is based on the default definition used in Moody's analysis and may not be comparable to other rates.
To determine the ratings, Moody's also conducted a cash flow analysis in which it added stress consistent with the assigned ratings on parameters such as the expected default rate.
Moody's assumes that, given the structure of the transaction as well as other factors, the risk of interruption to the cash flow from the assets in the event of the Seller's or the trustees' bankruptcy is sufficiently minimized to achieve the ratings assigned.
Moody's considers the Seller's and Sub-Servicers sufficiently capable of servicing the pool, having taken into account the Seller's and Sub-Servicers' business experience and the servicing operations.
The principal methodology used in these ratings was "Moody's Global Approach to Rating Auto Loan- and Lease-Backed ABS" (Japanese) published in July 2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBS_1236205. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.
Factors that would lead to an upgrade or downgrade of the ratings:
The primary factor that could lead to a downgrade of the ratings is worse performance of the underlying assets than Moody's expected.
Moody's has also conducted the sensitivity analysis below which provides the number of notches by which the model-indicated output of the deal would have varied if different assumptions had been made as to certain key model parameters. The analysis assumes that the deal has not aged.
If the expected default rate was changed from 0.34% to 0.68% and 1.19% and other assumptions remained unchanged, the model-indicated output of the Beneficial Interests 2 and the ABL 2 would change by 0 and 1 notch respectively.
The analysis results are model-indicated outputs, which are one of the many quantitative and qualitative factors considered by rating committees in determining actual ratings. This analysis does not intend to measure how the rating of the deal might migrate over time, but rather, how the initial model-indicated output of the deal might have differed if certain key model parameters had been varied.
The coronavirus outbreak, the government measures put in place to contain it, and the weak global economic outlook continue to disrupt economies and credit markets across sectors and regions. Our analysis has considered the effect on the performance of consumer assets from the current weak Japanese economic activity and a gradual recovery for the coming months. Although an economic recovery is underway, it is tenuous and its continuation will be closely tied to containment of the virus. As a result, the degree of uncertainty around our forecasts is unusually high.
We regard the coronavirus outbreak as a social risk under our ESG framework, given the substantial implications for public health and safety.
REGULATORY DISCLOSURES
For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
In rating this transaction, Moody's used a cash flow model to model cash flow stress scenarios to determine the extent to which investors would receive timely payments of interest and principal in the stress scenarios, given the transaction structure and collateral composition.
Moody's quantitative analysis entails an evaluation of scenarios that stress factors contributing to sensitivity of ratings and take into account the likelihood of severe collateral losses or impaired cash flows. Moody's weights the impact on the rated instruments based on its assumptions of the likelihood of the events in such scenarios occurring.
For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.
The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.
These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.
Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.
Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1243406.
At least one ESG consideration was material to the credit rating action(s) announced and described above.
The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.
The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.
Moody's SF Japan K.K. is a registered credit rating agency under the Financial Instrument and Exchange Act but not a Nationally Recognized Statistical Rating Organization ("NRSRO"). Therefore the credit ratings assigned by Moody's SF Japan K.K. are Registered Credit Ratings to the FSA, but are not NRSRO Credit Ratings.
Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.
Atsushi Karikomi VP - Senior Credit Officer Structured Finance Group Moody's SF Japan K.K. Atago Green Hills Mori Tower 20fl 2-5-1 Atago, Minato-ku Tokyo 105-6220 Japan JOURNALISTS: 81 3 5408 4220 Client Service: 81 3 5408 4210 Yusuke Seki Associate Managing Director Structured Finance Group JOURNALISTS: 81 3 5408 4220 Client Service: 81 3 5408 4210 Releasing Office: Moody's SF Japan K.K. Atago Green Hills Mori Tower 20fl 2-5-1 Atago, Minato-ku Tokyo 105-6220 Japan JOURNALISTS: 81 3 5408 4220 Client Service: 81 3 5408 4210
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