Nov 25 (Reuters) - (The following statement was released by the rating agency)
Fitch Ratings has assigned Bee First Finance S.A. -
Compartment Edelweiss 2013-1 (Edelweiss)'s notes the following expected ratings:
EUR230.5m Class A notes, due December 2021: 'AAA(EXP)sf'; Outlook Stable
EUR18.3m Class B notes, due December 2021: 'A(EXP)sf'; Outlook Stable
EUR9.3m Class C notes, due December 2021: 'BBB(EXP)sf'; Outlook Stable
EUR6.6m Class D notes, due December 2021: 'BB+(EXP)sf'; Outlook Stable
The final ratings are contingent upon the receipt of final documents conforming to the information already received and on a satisfactory review of final legal opinions to support the agency's analytical approach.
The transaction is a one-year revolving securitisation of vehicle lease receivables originated in Austria by EBV Leasing GmbH & Co. KG (EBV), ultimately owned by Erste Bank Group AG (Erste Bank, A/Stable/F1).
KEY RATING DRIVERS
Lessee defaults
Fitch has assumed a base case default rate of 2.8% and applied default multiples of 6.8x in a 'AAAsf' scenario, 4x in 'Asf', 2.9x in 'BBBsf' and 1.8x in 'BB+sf', reflecting primarily the presence of balloon risk, the revolving nature of the pool and a concentration towards employees of Erste Bank and Vienna Insurance Group (VIG). Fitch set its recovery base case at 67.7%, applying haircuts of up to 45% in 'AAAsf'.
Revolving Period Additional Risk
The transaction envisages a one-year revolving period. Fitch considers that the early amortisation triggers, along with the eligibility criteria and available credit enhancement, mitigate the risk added by the revolving period. The agency analysed potential changes in the pool composition during this period and assumed a shift towards a more risky - considering Fitch's loss assumptions - composition.
Limited Residual Value Risk
The lessee's right to return the vehicles at maturity, in lieu of settling balloon payments, exposes the issuer to residual value (RV) risk; however, these rights are restricted under the lease contracts. Additionally, if a lessee exercises such rights, they remain liable for 75% of any RV loss incurred. In Fitch's opinion, the RV risk therefore lies largely with the lessees, exposing the transaction to balloon risk when obligors are faced with stressed economic circumstances and limited re-financing options.
Stable Asset Outlook
Fitch expects the repayment abilities of Austrian consumers to remain stable, based on flat unemployment rates (4.7% expected throughout 2014), an improvement in GDP growth (1.4% forecasted for 2014, up from 0.4% in 2013) and stable interest rates.
TRANSACTION CHARACTERISTICS
Key Counterparties
EBV, the originator will continue to service the portfolio. EBV belongs to the Erste Bank Group and Erste Bank will act as back-up servicer from closing. Additionally, PwC Transaction Services is appointed as servicer facilitator, in case Erste Group Bank is unable to take over the servicing activity upon servicer termination.
HSBC Bank plc (AA-/Stable/F1+) will provide an amortising liquidity facility (LF) sized at 1.6% of the collateral balance. The LF will cover senior expenses and interest payments on all the classes of notes.
The issuer will enter into a fixed-floating interest rate swap with Erste Bank to hedge the interest rate mismatch between the fixed-rate assets in the portfolio (16.2% of the initial portfolio) and the floating-rate notes.
Portfolio Features
As of September 2013, the securitised portfolio included 21,884 variable- (83.8%) and fixed-rate (16.2%) monthly-paying lease receivables originated by EBV to Austrian private (42.4%) and commercial (57.6%) obligors for the purchase of new (64.3%) and used/demo vehicles (35.7%). The weighted-average (WA) seasoning of the pool and the WA remaining term were 25 and 34 months, respectively.
The lease claims will be purchased by the issuer at their net present value, which is the sum of all scheduled principal payments over the lease term discounted at the contractual yield on the lease minus a security deposit ('Kaution').
Credit Enhancement (CE)
The transaction features a principal deficiency ledger mechanism (PDL) for each class of notes, according to which certain interest funds will be allocated to the principal waterfall in an amount implicitly equal to the receivables classified as defaulted in a given period, with debiting starting from the class D PDL. Hence, excess spread provides the first layer of protection against losses, with a minimum weighted-average margin of 2.45% over the three-month Euribor (or the swap rate for fixed-rate loans) being guaranteed during the revolving period.
The class A, class B, class C and class D notes will be redeemed sequentially. This mechanism ensures that potential losses will be first allocated to the junior notes, providing CE to the more senior ones.
Additionally, a static cash reserve, funded at closing by the originator through a subordinated loan, equal to 1.25% of the portfolio balance, will provide CE by covering for any unpaid PDL.
Initial CE is thus 14.15% for the Class A, 7.25% for the Class B, 3.75% for the class C, and 1.25% for the class D.
RATING SENSITIVITIES
The rating of the Class D notes cannot exceed the Issuer Default Rating of Erste Group Bank. This is due to the exposure of up to 5% of the portfolio to Erste Bank's employees (see Default Risk below). In addition, Fitch has used the contractual servicing/back-up servicing fee of 20bp in its modelling for the lower rating categories (instead of its normal servicing fee assumption of 70bp) as in such scenarios the agency assumes that Erste Bank will perform its obligations. For those reasons, significant changes to Erste Bank's IDR may lead to changes to the ratings of the class D notes.
Unexpected increases in the default rate and loss severity on defaulted loans could produce loss levels higher than the base case and could result in potential rating actions on the notes.
Rating Sensitivity to Increased Default Rate Assumptions
Class A / Class B / Class C / Class D
Current default base case: 'AAAsf' / 'Asf' / 'BBBsf' / 'BB+sf'
Increase in default rate base case by 10%: 'AA+sf' / 'Asf' / 'BBB-sf' / 'BB+sf'
Increase in default rate base case by 25%: 'AAsf' / 'A-sf' / 'BBB-sf' / 'BBsf'
Increase in default rate base case by 50%: 'AA-sf' / 'BBB+sf' / 'BBB-sf' / 'BBsf'
Rating Sensitivity to Reduced Recovery Rate Assumptions
Class A / Class B / Class C / Class D
Current recovery rate (RR) base case: 'AAAsf' / 'Asf' / 'BBBsf' / 'BB+sf'
Reduce RR base case by 10%: 'AA+sf' / 'Asf' / 'BBB-sf' / 'BBsf'
Reduce RR base case by 25%: 'AA+sf' / 'A-sf' / 'BBB-sf' / 'BB-sf'
Reduce RR base case by 50%: 'AAsf' / 'BBB+sf' / 'BBB-sf' / 'Bsf'
Rating Sensitivity to Multiple Factors
Class A / Class B / Class C / Class D
Current base case assumptions: 'AAAsf' / 'Asf' / 'BBBsf' / 'BB+sf'
Mild stress: Increase in default rate by 10%, reduce recovery rate by 10%: 'AA+sf' / 'A-sf' / 'BBB-sf' / 'BBsf'
Moderate stress: Increase in default rate by 25%, reduce recovery rate by 25%: 'AA-sf' / 'BBB+sf' / 'BBB-sf' / 'Bsf'
Severe stress: Increase in default rate by 50%, reduce recovery rate by 50%: 'Asf' / 'BBB-sf' / 'BBsf' / 'CCC to D'
A presale report, including further information on transaction related stress and sensitivity analysis, and material sources of information that were used to prepare the credit rating is available at www.fitchratings.com.
Link to Fitch Ratings' Report: Bee First Finance S.A. - Compartment Edelweiss 2013-1
HSBC Holdings (HSBA)