Rating action

Scope has rated the notes issued by ROOF AT S.A., Compartment 2021 as follows:

Class A (ISIN: XS2314809190), EUR 462.8m: rated AAA_SF

Class B (ISIN: XS2314809869), EUR 75.0m: not rated

Transaction overview

The transaction is a true-sale securitisation of a three-year revolving portfolio of vehicle lease receivables worth EUR 538.0m on the closing date. The assets consist of leases primarily granted to Austrian small- and medium-sized enterprises and private individuals to lease new and used vehicles. The leases were originated by four companies in the Raiffeisen Leasing Group. The structure features class A and class B notes with sequential amortisation after the three-year revolving period.

Rating rationale

The rating reflects: i) the legal and financial structure of the transaction; ii) the quality of the underlying collateral in the context of the Austrian macroeconomic environment; iii) the ability of the originators and servicers that are members of the Raiffeisen Banking Group; and iv) the counterparty credit risk exposure to Bank of New York Mellon as the account bank and paying agent.

The rating of Class A notes benefits from substantial credit enhancement, 16.0% from subordination and cash reserves, further supported by available excess spread. The strictly sequential amortisation in combination with a fast-amortising portfolio after a revolving period of three years reflects positively on the Class A notes. Excess spread is available to provision for defaults during the revolving period and accelerates the amortisation of the notes thereafter.

Residual value risk in the transaction is immaterial. For partially amortising leases, the issuer benefits from direct recourse to the lessees, which are liable for any payment shortfall if the vehicle’s net liquidation proceeds are below the final contractual balloon payment. The transaction is not exposed to the residual value risk of operating lease contracts, as only monthly lease instalments are securitised and the residual value part is excluded.

The rating takes into account the higher risk from the portfolio’s revolving nature. The group of the servicers has a significant track record as well as well-established procedures and risk analysis principles, which ensure the consistency of the contracts originated during the revolving period.

The ratings reflect the transaction’s counterparty risk exposure to the servicers as well as to Bank of New York Mellon (Frankfurt and London Branches). We assessed the credit quality of the counterparties through a rating on Raiffeisen Bank International AG, Austria, and public information on the Bank of New York Mellon Group.

Key rating drivers

Credit enhancement (positive)¹. The class A notes benefit from 16.0% credit enhancement provided by the subordination of the class B notes and the cash reserves.

Solid track record of the originator (positive)¹. Raiffeisen-Leasing has been active in the leasing market for about 50 years. Its business benefits from seasoned processes, experienced staff and a very granular marketing network. The same procedures and risk-analysis principles are applied by all originators.

Turbo amortisation (positive)¹. After the replenishment period, excess spread will be used for principal repayment, which allows the notes to redeem faster. During the revolving period, the structure traps excess spread available from the asset portfolio to cure undercollateralisation from defaulted leases.

Hedged interest risk (positive)¹. The structure is hedged against the interest rate mismatch between the assets and liabilities. The notes are referenced to three-month Euribor, while part of the assets (around 17% of the initial portfolio) pay fixed rates. This mismatch is fully mitigated through an interest rate swap whose notional is aligned with the share of the outstanding fixed-rate assets.

Simple and transparent structure (positive)¹. The deal features a strictly sequential structure, two classes of notes and a subordinated loan, combined priority of payments, and adequately sized cash reserves.

Revolving portfolio (negative)¹. The portfolio will be replenished over three years after the closing date. The portfolio’s characteristics and credit quality could migrate during this period, though this is mitigated by asset-eligibility criteria and early-amortisation triggers.

No servicer-replacement triggers (negative)¹. The four servicers are unrated entities, and the structure has no triggers for their replacement. This is mitigated by the fact that assets are originated and serviced by four different entities, lowering the impact of single-servicer defaults. Servicing risk is mitigated by the appointment of Raiffeisen Bank International AG as back-up servicer.

Covid-impaired economy (negative). The pandemic has had a severe impact on the Austrian economy, though the effects have been mitigated by governmental support. We believe there is still significant uncertainty regarding the total impact. We reflect this in our analytical assumptions. The Covid-induced reduction in vehicle use may reflect positively on vehicle values due to the reduced wear-and-tear and mileage.

Rating-change drivers

Positive. Improvements in the macroeconomic environment would enhance the support for the rated tranches.

Negative. Worse-than-expected asset performance, reflected in higher-than-expected defaults or lower-than-expected recoveries upon asset default, may negatively impact the ratings.

Quantitative analysis and 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. The analysis considers the portfolio dated 1 March 2021.

The ratings took into account the higher risk from the revolving nature of the portfolio. Scope modelled a static portfolio, which incorporates expected portfolio migration by the end of the replenishment period with regards to five different portfolio segments. Scope has modelled a point-in-time lifetime default rate of 3.7% for the portfolio, a volatility of default in line with a coefficient of variation of 51.7%, and a recovery rate of 40.0% in the AAA rating scenario.

Sensitivity analysis

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 recovery rate, zero notches.

Rating driver reference
1. Internal confidential documentation of the arranger, issuer and originator

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

Cash flow analysis
Scope Ratings performed a cash flow analysis of the transaction with the use of Scope Ratings’ Cash Flow SF EL Model Version 1.1 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 this Credit Rating: General Structured Finance Rating Methodology (14 December 2020), Consumer and Auto ABS Rating Methodology (3 March 2021) and Methodology for Counterparty Risk in Structured Finance (8 July 2020) are available on https://www.scoperatings.com/#!methodology/list.
The model used for this Credit Rating (Scope Cash Flow SF/EL Model Version 1.1) is available in Scope Ratings’ list of models, published under https://www.scoperatings.com/#!methodology/list.
Information on the meaning of each Credit Rating category, including definitions of default, recoveries, Outlooks and Under Review, can be viewed in ‘Rating Definitions – Credit Ratings, Ancillary and Other 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 Credit Rating performance report at https://www.scoperatings.com/#governance-and-policies/regulatory-ESMA. 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 Ratings’ definitions of default and Credit 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 factors) are incorporated into the Credit 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/or its Related Third Parties participated in the Credit Rating process.
The following substantially material sources of information were used to prepare the Credit Rating: public domain, the Rated Entity, the Rated Entities’ Related Third Parties, third parties and Scope Ratings’ internal sources.
Scope Ratings considers the quality of information available to Scope Ratings on the Rated Entity or instrument to be satisfactory. The information and data supporting the Credit Rating originate from sources Scope Ratings considers to be reliable and accurate. Scope Ratings does not, however, independently verify the reliability and accuracy of the information and data.
Scope Ratings has received a third-party asset due diligence assessment/asset audit. The external due diligence assessment/asset audit analysis was considered when preparing the Credit Rating and it has no impact on the Credit Rating.
Prior to the issuance of the Credit Rating action, the Rated Entity was given the opportunity to review the Credit Rating and the principal grounds on which the Credit Rating is based. Following that review, the Credit Rating was not amended before being issued.

Regulatory disclosures
The Credit Rating is issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0. The Credit Rating is UK-endorsed.
Lead analyst: Adam Plajner, Senior Analyst
Person responsible for approval of the Credit Rating: David Bergman, Managing Director
The Credit Rating was first released by Scope Ratings on 26 March 2021.

Potential conflicts
See www.scoperatings.com under Governance & Policies/EU Regulation/Disclosures 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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