Rating action

The transaction comprises the following instruments:

Senior Bond (ISIN PLGNBAT00014), PLN 188.8m: affirmed at AAA_SF

Mezzanine Bond (ISIN N/A), PLN 150.0m: not rated

Sub-loan (ISIN N/A), PLN 50.0m: not rated

Scope’s review was based on investor reports through the 13 July 2020 reporting date.

Transaction overview

GNB Auto Plan 2017 SP. Z O.O. is a cash securitisation of Polish auto loans with no residual value risk originated in the ordinary course of business by Getin Noble Bank SA (GNB). The outstanding portfolio balance (PLN 388.8m versus PLN 700.0m at closing) consists of private borrowers (86.9% versus 69.4% at closing), as well as small and medium-sized enterprises (SMEs) (13.1% versus 30.6% at closing), who used the loans to acquire new and used vehicles. The transaction’s 24-month revolving period concluded in July 2019. The transaction closed on 18 July 2017 and has a final legal maturity of 16 July 2030.

Rating rationale

The rating action is supported by structural deleveraging, robust structural features, very good asset performance and a short expected weighted-average-life (WAL) of 0.6 years for the senior bond. Scope acknowledges potential uncertainty going forward due to Covid-19; however, we believe this is partially mitigated by the combination of i) strong transaction elements, ii) Poland’s (A+ / Stable) fiscal and monetary stimulus coupled with unprecedented EU support measures made available in the wake of the outbreak, and iii) the country’s large and diversified economic base with low exposure to the hard-hit travel and tourism sector.

The senior bond’s credit enhancement has increased to 54.7% from 30.4% at closing. Additional credit enhancement is provided from available excess spread (4.1%). The fully funded PLN 12.5m non-amortising reserve fund provides liquidity and covers approximately 22.5 months of senior fees and interest. The reserve fund is also made available to pay down the senior bond when its balance drops below the outstanding reserve fund amount.

Asset performance has been better than Scope’s expectation at closing. Observed cumulative defaults since closing are 1.8%, where Scope assumed non-performing assets of 3.0% at the end of the revolving period and a further 6.8% mean default assumption during the deleveraging phase. The share of loans 31+ days past due are 0.9% of the outstanding portfolio. 98.7% of all defaulted assets have been recovered via collections and/or repurchased by GNB.

The portfolio composition has migrated to the strongest segment in terms of credit quality – private borrowers buying new vehicles (66.1%). The expected remaining WAL of the senior bond is very short at 0.6 years, which is typical of auto loan deals following the conclusion of the replenishment period.

TMF Poland Sp. z o.o. (TMF) has stepped in as the new back-up servicer (BUS) in the transaction, replacing Idea Bank S.A. – effective 16 December 2019. ING Bank Śląski (a subsidiary of ING Bank NV) will serve as the collections account bank in the event GNB’s servicing responsibilities are terminated. TMF has been the corporate services provider since inception, and is thus well integrated and familiar with the transaction. Furthermore, TMF: i) has assumed BUS roles in two other public Polish securitisations, ii) has been operating in Poland since 2007, and iii) has the necessary technology for servicing operations. The new BUS and standing collections account bank are do not negatively impact the assigned rating.

Transaction counterparties continue to support the ratings: i) GNB, the originator and servicer; ii) Citibank N.A. London Branch, the account bank; and iii) KDPW, the Polish central clearinghouse, as the paying agent. Structural protections include regular cash sweeps, back-up arrangements and account bank replacement trigger should it lose its investment-grade rating.

Key rating drivers

CREDIT-POSITIVE (+)

Increased credit enhancement¹: The senior bond’s credit enhancement has increased to 54.7% from 30.4% at closing. Additional credit enhancement is provided from available excess spread (4.1%), which is used to accelerate repayment of the bond.

Non-amortising reserve fund^1,3: The fully funded PLN 12.5m non-amortising reserve fund provides liquidity and covers approximately 22.5 months of senior fees and interest. The reserve fund is also made available to pay down the senior bond when its balance drops below the outstanding reserve fund amount.

Short remaining life^1,2: The expected remaining WAL of the senior bond is very short at 0.6 years.

CREDIT-NEGATIVE (-)

Macro-economic uncertainty due to COVID-19²: Following the onset of COVID-19, Scope downwardly revised Poland’s GDP growth forecast for 2020, but expects a strong rebound in 2021. Uncertainties due to the pandemic are a given going forward, but Poland is better positioned than many of its European peers to withstand economic shocks.

Rating-change drivers

NEGATIVE (-)

A severe macro-economic dislocation due to COVID-19 could exacerbate macroeconomic and sovereign risks, which may negatively impact 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 (0.6 years) of the rated 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 4.7%, a coefficient of variation of 35.0%, and a rating-conditional recovery rate of 15.4% for the senior bond. Scope assumed a 25.0% prepayment rate.

Scope also assumed a significant commingling risk assumption – reducing modelled assets by 7.8%.

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 the rated instrument changes 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:

• Senior bond: sensitivity to default rate, zero notches; sensitivity to recovery rate, zero notches.

Rating driver references
1. Confidential investor reports
2. Scope internal sources
3. Confidential transaction documents

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: David Bergman, Managing Director
The rating was first released by Scope on 18 July 2017.

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
© 2020 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.

Scope Ratings GmbH, Lennéstraße 5, 10785 Berlin, District Court for Berlin (Charlottenburg) HRB 192993 B, Managing Director: Guillaume Jolivet.