- We have reviewed the performance of Motor 2017-1 PLC by conducting our credit and cash flow analysis and applying our relevant criteria.
- Following our review, we have affirmed our ratings on all classes of notes in this transaction.
- The transaction securitizes a portfolio of auto loan receivables originated by Santander Consumer (UK) to U.K. borrowers.
LONDON (S&P Global Ratings) Aug. 6, 2020--S&P Global Ratings today affirmed its 'AAA (sf)' credit ratings on Motor 2017-1 PLC's class A notes and our 'AA (sf)' rating on the class B notes.
Today's affirmations follow our review of the transaction' performance since closing and the application of our criteria (see "Related Criteria").
Motor 2017-1 closed in September 2017 and revolved until the end of September 2018 (see "New Issue: Motor 2017-1 PLC," published on Sept. 20, 2017). The portfolio comprises both conditional sale (CS) agreements and personal contract purchase (PCP) agreements. The CS agreements do not expose the issuer to residual value risk. There is also no residual value risk exposure in the PCP agreements as the guaranteed future value (GFV) has not been securitized even though the PCP agreements' balloon payment (the final instalment) was sold to the issuer. The GFV portion is repaid to the seller through GFV principal receipts as senior deferred consideration. The GFV portion of the PCP loans does not provide any credit enhancement to the notes. However, the transaction does benefit considerably from this structural feature in the context of excess spread and recoveries on defaulted PCP loans. All interest (including that earned on the GFV portion of the PCP loans) paid by borrowers forms part of available revenue on each interest payment date (IPD). In addition, should a PCP loan default, any recoveries received are used to first clear any remaining balance on the instalment portion of the PCP loan before being used to pay down the GFV portion.
As of May 2020, the available credit enhancement has increased to about 42.00% and 32.00%, respectively, for the class A and B notes. The transaction is now seasoned, and the observed gross losses realized for hostile terminations (HTs) have been slightly worse than our initial expectations. We have therefore increased our HT gross loss base case for Motor 2017-1 to 3.25% from 2.97% at closing.
We have also increased our voluntary termination (VT) gross loss base-case assumption to 3.4% from about 2.0%. Current cumulative VT gross losses since the beginning of the amortization period, GFV adjusted, are at 2.4%. The higher VT base case accounts for an overall deterioration in the VT performance and likely increase in VTs as the lockdown eases. We have maintained our gross loss stress multiple VT for 'AAA' at 2.00x. At the same time, we lowered our multiple for HT to 4.0x. This is to account for the low pool factor at 24.06% as of May 2020.
We have assumed stressed recoveries of 36.18% at all rating levels, based on the actual subpool weights. Our stressed recovery rate assumptions remain unchanged since closing at 30% for conditional sale contracts and 45% for PCP contracts.
As per the most recent investor report received, the transaction's pool factor has reduced to 24.06% and the weighted-average life (WAL) is about 11 months.
In our analysis, we factored our recessionary outlook for the U.K. stemming from the spread of COVID-19, and we applied liquidity stress accordingly in the transaction: payment holidays and disruptions in recovery processes (see "European Auto And Consumer ABS: Analysis Adjusted To Reflect COVID-19 Effects," published on May 11, 2020).
We have performed our cash flow analysis to test the effect of the amended credit assumptions. We have applied certain liquidity stresses, such as a delay in cash receipts due to payment holidays and extended recovery timing.
Our cash flow analysis indicates that the available credit enhancement for the class A notes is sufficient to withstand the credit and cash flow stresses that we apply at the current rating levels.
Our cash flow analysis indicates that the class B notes can attain a higher rating than that currently assigned. However, in light of the current uncertainty surrounding COVID-19, we believe a higher rating for this class of notes is not appropriate at this time. In particular, based on the May 2020 investor report, 10.70% of the current pool balance is on payment holiday due to the outbreak, up by over 60.0% from a prior month. We expect that this number will continue to grow but at a much slower pace as the incoming requests have moderated. We will continue to track the investor reports and conduct update calls with the issuer in order to monitor this trend. Furthermore, we have also noted a significant drop in monthly collections between the March and May investor reports due to a decline in prepayments and increase in payment holidays. We have therefore affirmed our 'AAA (sf)' ratings on the class A notes and our 'AA (sf)' rating on the class B notes.
Our counterparty, operational, and legal risk analysis remains unchanged since closing.
Our credit stability analysis indicates that the maximum projected deterioration that we would expect at each rating level for one- and three-year horizons under moderate stress conditions is in line with our credit stability criteria (see "Methodology: Credit Stability Criteria," published on May 3, 2010).
S&P Global Ratings acknowledges a high degree of uncertainty about the evolution of the coronavirus pandemic. The consensus among health experts is that the pandemic may now be at, or near, its peak in some regions, but will remain a threat until a vaccine or effective treatment is widely available, which may not occur until the second half of 2021. We are using this assumption in assessing the economic and credit implications associated with the pandemic (see our research here: www.spglobal.com/ratings). As the situation evolves, we will update our assumptions and estimates accordingly.
We will continue to review the ratings in light of these macroeconomic events and transaction performance.
- Criteria | Structured Finance | General: Counterparty Risk Framework: Methodology And Assumptions, March 8, 2019
- Criteria | Structured Finance | General: Incorporating Sovereign Risk In Rating Structured Finance Securities: Methodology And Assumptions, Jan. 30, 2019
- Legal Criteria: Structured Finance: Asset Isolation And Special-Purpose Entity Methodology, March 29, 2017
- Criteria | Structured Finance | ABS: Methodology And Assumptions For European Auto ABS, Oct. 15, 2015
- Criteria | Structured Finance | General: Methodology: Criteria For Global Structured Finance Transactions Subject To A Change In Payment Priorities Or Sale Of Collateral Upon A Nonmonetary EOD, March 2, 2015
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- Criteria - Structured Finance - General: Global Framework For Cash Flow Analysis Of Structured Finance Securities, Oct. 9, 2014
- Criteria | Structured Finance | ABS: Global Methodology And Assumptions For Assessing The Credit Quality Of Securitized Consumer Receivables, Oct. 9, 2014
- General Criteria: Methodology Applied To Bank Branch-Supported Transactions, Oct. 14, 2013
- Criteria | Structured Finance | General: Criteria Methodology Applied To Fees, Expenses, And Indemnifications, July 12, 2012
- General Criteria: Global Investment Criteria For Temporary Investments In Transaction Accounts, May 31, 2012
- General Criteria: Methodology: Credit Stability Criteria, May 3, 2010
- Criteria | Structured Finance | General: Methodology For Servicer Risk Assessment, May 28, 2009
- European Short-Time Work Schemes Pave The Way For A Smoother Recovery, May 20, 2020
- European Auto And Consumer ABS: Analysis Adjusted To Reflect COVID-19 Effects, May 11, 2020
- European Economic Snapshots: Larger Risks To Growth Loom Ahead, May 5, 2020
- Economic Research: EU Response To COVID-19 Can Chart A Path To Sustainable Growth, April 22, 2020
- Economic Research: Europe Braces For A Deeper Recession In 2020, April 20, 2020
- Economic Research: COVID-19 Deals A Larger, Longer Hit To Global GDP, April 16, 2020
- European ABS And RMBS: Assessing The Credit Effects Of COVID-19, March 30, 2020
- COVID-19: The Steepening Cost To The Eurozone And U.K. Economies, March 26, 2020
- COVID-19 Will Batter Global Auto Sales And Credit Quality, March 23, 2020
- New Issue: Motor 2017-1 PLC, Sept. 20, 2017
|Primary Credit Analyst:||Mihaela Brancati, London (44) 20-7176-3402;|
|Secondary Contact:||Marta O'Gorman, London + 44 20 7176 2523;|
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