The rating actions are as follows:

Class A1, EUR 25.0m: assigned a preliminary rating of (P) BBB-_SF

Class A2, EUR 35.0m: assigned a preliminary rating of (P) BBB-_SF

Class A3, EUR 15.2m: assigned a preliminary rating of (P) BBB-_SF

Class B, EUR 26.3m: not rated

AutoWheel Securitisation D.A.C is an 18-month revolving EUR 101.5m cash securitisation of i) operational car leases granted to Greek corporates and SMEs, and II) future sales proceeds from the underlying vehicles. 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 three senior tranches are pari passu and pay monthly interest except for the first 12 months of the transaction, where tranche A1 and A2 feature an annual coupon, which turns to monthly after this period. The interest of those tranches will be funded monthly into the liquidity reserve, held in the foreign account bank, before paid out to the noteholders after the end of this period.

Download the full rating report here.

Rating rationale

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 mitigate to some extent key sovereign risks components including systemic counterparty risks, capital controls, redenomination risk and severe asset impairments.

The ratings reflect i) the legal and financial structure of the transaction; ii) the quality of the underlying collateral (movable assets) given improving macroeconomic conditions in Greece; iii) the ability of Autohellas as originator and servicer and the credit and operational risk exposure to this counterparty; iv) the credit risk exposure to Alpha Bank as the Greek account bank and back-up servicer; v) the exposure to Citibank, N.A. as the foreign account bank, paying agent, calculation agent and cash manager; and vi) the ability of Autotechnica as the car maintenance provider. The issuer’s liabilities benefit from a relatively strong security on the portfolio of SME and corporate leases which have a weighted average life of 33 months.

The class A notes are supported by a 26.0% subordination provided by the principal of the class B tranche, as well as a 6.9% yearly minimum of fully trapped excess spread via the subordination of class B interest. Available excess spread is also trapped to build up overcollateralisation during the revolving period. Three reserve accounts are maintained in a foreign bank (Citibank), which provide further liquidity and credit protection to the rated notes and mitigate negative liquidity effects from potential temporary capital controls by the state. Asset risks are partially mitigated by lease repurchase guarantees by Autohellas and by early-amortisation triggers, including in a case of default by Autohellas. The risk exposure of the class A reflects its expected weighted average life of 20 months after the revolving period concludes.

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 (2008-2016). 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 default is mitigated by Alpha Bank’s appointment on the closing date as standing back-up servicer.

Alignment of interest (positive) Autohellas provides an irrevocable and unconditional guarantee 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.

Residual value risk (negative) Residual values will constitute up to 40% 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 will be linked to one-month Euribor.

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 the weak operating environment and volatility in macro-economic performance in Greece. The Greek economy experienced 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 and 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.

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 impairing asset performance beyond that represented by stressed historical data.

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 will affect the ratings.

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.

Quantitative analysis and key assumptions

Scope has performed a cash flow analysis that incorporates important mechanisms in the structure. Scope applied its large homogenous portfolio approximation approach when analysing the highly granular collateral pool and projecting cash flows over its amortisation period. Scope analysed the transaction assuming a single 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 composition of the portfolio.

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

Scope has taken into account default rate and recovery vintage data from 2008 through 2016 for the securtised portfolio, which reflects the performance of the lease book originated by Autohellas since 2008. The observation period for lease origination by Autohellas is approximately 9 years. This timeframe captures a period of severe economic stress in Greece.

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

Scope considered the assets’ amortisation characteristics and assumed a default timing reflecting a constant default intensity. Scope assumed a portfolio margin of 9.25%.

Rating sensitivity
Scope 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 increase by 50% and the portfolio’s expected recovery rate reduce by 50% (effecting both, defaulted assets and residual value on performing assets), respectively:

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. 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 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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