Rating action

The transaction comprises the following instruments:

Class A1 (ISIN XS1852536785), EUR 18.7m: upgraded to BBBSF from BBB-_SF

Class A2 (ISIN XS1852537163), EUR 24.2m: upgraded to BBBSF from BBB-_SF

Class A3 (ISIN XS1852537759), EUR 11.2m: upgraded to BBBSF from BBB-_SF

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

Scope’s review was based on investor reports through the 30 June 2020 cut-off.

Transaction overview

AutoWheel Securitisation DAC is a cash securitisation of operational car leases granted to Greek SMEs, where both monthly lease payments and the residual value exposure to the leased vehicles have been securitised. 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. The transaction’s 18-month revolving period concluded in January 2020. The transaction closed on 26 July 2018 and the legal maturity is September 2030.

The three senior tranches are pari passu and pay monthly principal and interest, which are fully guaranteed by Autohellas. Class B principal and interest are fully subordinated to the class A notes.

AutoWheel Securitisation DAC was Greece’s first non-bank lease securitisation.

Rating rationale

The rating actions are driven by structural deleveraging, rescinded capital controls and updated macro views on Greece (BB/Positive). However, continued uncertainty around Covid-19 weighs negatively on the transaction, limiting potential upside from rapid portfolio deleveraging that is common after the conclusion of revolving periods in auto securitisations.

Class A notes’ credit enhancement from the outstanding discounted asset balance has increased to 38.1% from 28.5% at closing. Additional credit enhancement is provided from available excess spread, which is used to accelerate repayment of the notes. Excess spread is significant, with the last reported (31 January 2020 cut-off) internal rate of return on the assets at approximately 9.7%, which compares to a weighted average coupon of 2.8% on the senior notes. Scope assumed a 9.25% portfolio yield to account for potential yield compression since January. Three reserve accounts held with the issuer´s foreign account bank, Citibank NA, provide liquidity and are also available as credit enhancement. The reserve accounts remain fully funded at their target levels and support the class A notes.

Capital controls in Greece were rescinded on 1 September 2019 following the announcement of Law 4624/2019, FEK Bulletin Α no 137/2019, reducing liquidity risk and credit risk exposure to the Alpha Bank – the issuer´s Greek account bank. Additionally, Scope’s sovereign rating for Greece has improved to (BB/Positive) from (B-/Stable) at closing, which partly reflects the lessened probability the sovereign would leave the European Union (EU) and thus expose the transaction to potential redenomination risk.

Public ratings for Alpha Bank have improved since closing, which also decreases commingling risk to the Greek account bank. Securitisation flows are swept monthly from the issuer’s Greek account bank to its foreign account bank.

The corporate credit profile of Autohellas has also improved since closing; however, Scope acknowledges that uncertainties due to COVID-19 over the short- to medium-term will very likely create a more challenging operating environment for Autohellas and its customers. Autohellas provides an irrevocable and unconditional guarantee 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.

Scope has assumed a remaining lifetime default assumption for the outstanding portfolio balance of 11.0%. We believe this is consistent with the currently observed cumulative Gross Loss Ratio (as defined in transaction documents) of 10.1%. The Gross Loss Ratio is largely driven by early terminations (3.2%) and contractual amendments (3.3%). The seller has repurchased approximately 97.8% of all Gross Loss Ratio exposures, with the remaining 2.2% paid down via collections. However, a letter to noteholders sent in May indicates that the seller will ease its non-obligatory commitment to repurchasing residual value exposures going forward. This does not affect the seller’s guarantee on principal and interest payments to the senior 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

CREDIT-POSITIVE (+)

Increased credit enhancement¹: Class A notes’ credit enhancement from the outstanding discounted asset balance has increased to 38.1% from 28.5% at closing. Additional credit enhancement is provided from available excess spread, which is used to accelerate repayment of the notes.

Improved sovereign operating environment: As of 1 September 2019, the transaction was no longer subject to capital controls in Greece following the announcement of Law 4624/2019, FEK Bulletin Α no 137/2019², reducing liquidity risk and credit risk exposure to the Greek account bank. Additionally, Scope believes the probability of Greece leaving the EU has decreased since closing³, which reduces exposure to potential redenomination risk.

CREDIT-NEGATIVE (-)

Macro-economic uncertainty due to COVID-19: Following the onset of COVID-19, Scope revised Greece’s GDP growth forecast down to -7.8% in 2020⁴ due to the economy’s high dependence on the tourism sector and high share of self-employed individuals in the economy. Uncertainty through 2021 also limits upside from the transaction’s natural deleveraging against the backdrop of a more favourable sovereign operating environment.

Residual value risk: Collections from vehicle sales are becoming an increasing share¹ (49.0% vs. 37.3% from our previous monitoring) of total collections relative to monthly lease instalments. This leaves the transaction increasingly exposed to potential volatility in the used auto market, which may be further exacerbated by negative impacts related to COVID-19.

High operational counterparty risk: 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.

Counterparty commingling risk (negative): The transaction is exposed to commingling losses on collections held at the servicer’s account and the issuer’s Greek account bank - Alpha Bank.

Rating-change drivers

POSITIVE (+)

The continuation of consistent monthly lease collections coupled with a robust secondary market for used vehicles will drive credit enhancement growth and may lead to an upgrade for the rated notes.

NEGATIVE (-)

A severe macro-economic dislocation due to COVID-19 and/or the re-emergence of severe banking sector risks, which could exacerbate macroeconomic and sovereign risks, may negatively impact the ratings.

A reinstatement of capital controls that are similar to what existed at closing may also have a negative impact on the ratings.

Quantitative analysis and assumptions

Scope has performed a cash flow analysis considering the portfolio characteristics and the main structural features. Scope applied its large homogenous portfolio approximation approach when analysing the highly granular collateral pool and projecting cash flows over its amortisation period. The cash flow analysis considers the probability distribution of 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 (1.4 years) of each tranche. Scope has taken into account asset and liability amortisation and the evolution of the portfolio’s composition.

Key analytical assumptions include a mean default rate of 11.0%, a coefficient of variation of 35%, and a rating-conditional recovery rate of 46.1% for the class A notes. Scope assumed a 0% prepayment rate.

Greece’s revocation of capital controls has been captured in the analysis and reflects favourably on the rated notes. A decreased probability of redenomination risk has also been captured and is credit-positive for the transaction.

Sensitivity analysis

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

The following shows how the quantitative results for each rated instrument change compared to the assigned rating when the portfolio’s mean default rate increases by 50%, or the portfolio’s expected recovery rate decreases by 50%, respectively:

• Class A1: sensitivity to default rate, zero notches; sensitivity to recovery rate, zero notches
  .
• Class A2: sensitivity to default rate, zero notches; sensitivity to recovery rate, zero notches.
   
• Class A3: sensitivity to default rate, zero notches; sensitivity to recovery rate, zero notches.

Rating driver references
1. Confidential investor reports
2. Government Gazette (Law 4624/2019, FEK Bulletin Α no 137/2019)
3. Hellenic Republic (BB/Positive)
4. Scope Ratings: Q3 2020 Sovereign Update

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

Cash flow analysis
Scope performed a cash flow analysis of the transaction using the Scope Cash Flow SF/EL Model Version 1.1. The analysis incorporated recovery rate and timing assumptions. It also took into account the transaction’s main structural features, such as the notes’ priorities of payment, the notes’ size and coupons. The analysis provided an expected loss and an expected weighted average life for the notes.

Methodology
The methodologies used for this rating were Scope’s ‘Consumer and Auto ABS Rating Methodology’ published on 4 March 2020 and its ‘Methodology for Counterparty Risk in Structured Finance’ published on 8 July 2020. All documents are available on https://www.scoperatings.com/#!methodology/list.
The model/s used for this rating(s) Scope Cash Flow SF/EL Model Version 1.1 is available in Scope’s list of models, published under: https://www.scoperatings.com/#!methodology/list.
Information on the meaning of each rating category, including definitions of default and recoveries can be viewed in the “Rating Definitions - Credit Ratings and Ancillary Services” published on https://www.scoperatings.com/#!governance-and-policies/rating-scale. 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. Guidance and information on how Environmental, Social or Governance factors (ESG factor) are incorporated into the rating can be found in the respective sections of the methodologies or guidance documents provided on https://www.scoperatings.com/#!methodology/list.

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: public domain, the rated entities’ agents, third parties and Scope internal sources.
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 rating 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 due diligence assessment at closing. The external due diligence assessment was considered when preparing the rating and it has no impact on the credit rating.
Prior to the issuance of the rating action, the rated entity was given the opportunity to review the rating and the principal grounds on which the credit rating is based. Following that review, the rating was not amended before being issued.

Regulatory disclosures
This credit rating is issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0.
Lead analyst: Thomas Miller-Jones, Associate Director
Person responsible for approval of the rating: Antonio Casado, Executive Director
The final ratings were first released by Scope on 26 July 2018. The ratings were last updated on 30 July 2019.

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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