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Turbo Finance 8 Class C U.K. ABS Notes Raised; Other Ratings Affirmed

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Turbo Finance 8 Class C U.K. ABS Notes Raised; Other Ratings Affirmed

Overview

  • We have reviewed the performance of Turbo Finance 8 by conducting our credit and cash flow analysis and applying our relevant criteria.
  • Following our review, we have raised to 'AA+ (sf)' from 'A (sf)' our rating on the class C- Dfrd notes and affirmed our ratings on the class A, B, D-Dfrd, and E-Dfrd notes.
  • The collateral for this auto ABS transaction comprises fixed-rate auto loan receivables granted to commercial and private borrowers resident in the U.K. for the purchase of used and new vehicles (including motorcycles, scooters, and light commercial vehicles).

LONDON (S&P Global Ratings) April 15, 2021--S&P Global Ratings today raised to 'AA+ (sf)' from 'A (sf)' its credit rating on Turbo Finance 8 PLC's class C-Dfrd notes. At the same time, we have affirmed our ratings on the class A, B, D-Dfrd, and E-Dfrd notes.

Today's rating actions follow our review of the transaction's performance since closing and the application of our criteria (see "Related Criteria").

As of the January 2021 payment date, the available credit enhancement for Turbo 8's class A, B, C-Dfrd, D-Dfrd, and E-Dfrd notes has increased to 68.6%, 44.4%, 25.6%, 15.2%, and 12.3%, respectively, from 30.13%, 18.85%, 10.11%, 5.25%, and 3.89% at our March 2020 review, owing to the notes' sequential amortization and the cash reserve floor.

For Turbo 8, the realized voluntary terminations (VT) are slightly higher than our expectation at our March 2020 review, while realized losses from hostile terminations (HT) are lower. Accordingly, we have lowered our HT gross loss base-case assumptions to 2.5% from 4.0% and increased our VT gross loss base-case assumption to 2% from 1.1%. The HT and the VT gross loss stress multiple recovery rate have been lowered to 4.6x from 4.7x and to 2.9x from 3.0x, respectively, at a 'AAA' level of stress. Residual value loss assumptions incorporate a less favorable market adjustment than previously and have increased slightly to 0% from -3% to reflect current market conditions.

Credit Assumption Summary (AAA)
Current review March 2020 review Closing review
Base-case cumulative HT rate assumption (%) 2.5 4.0 5.25
Base-case cumulative VT rate assumption (%) 2.0 1.1 1.0
Adjusted cumulative gross loss rate base-case (%) 4.6 5.1 6.25
HT stress multiple 4.6 4.7 4.7
VT stress multiple 2.9 3.0 3.0
Stressed cumulative recovery (HT and VT) (%)* 30.0 30.0 30.0
Total stressed net loss (%) 12.11 15.47 19.38
Residual value loss (%) 24.7 21.7 21.7
*100% of recoveries are realized nine months after default. Includes the 5% incentive fee for the administrator (i.e., stressed recovery = 30% x (1-5%) = 28.5%). HT--Hostile terminations. VT-- Voluntary terminations.

Our cash flow analysis indicates that the available credit enhancement for the class A, B, D-Dfrd, and E-Dfrd notes in this transaction is sufficient to withstand the credit and cash flow stresses commensurate with our current ratings on the notes. We have therefore affirmed our ratings on these classes of notes. Our analysis also indicates that the available credit enhancement for the class C-Dfrd notes is commensurate with a 'AAA' level of stress. We consider that the deferrable nature of the interest payment on this class is not compatible with a 'AAA' rating and we have therefore raised to 'AA+ (sf)' from 'A (sf)' our rating on Turbo 8's class C-Dfrd notes.

Operational, counterparty, and legal risks continue to be adequately mitigated, in our view, and do not constrain our ratings on the notes.

S&P Global Ratings believes there remains high, albeit moderating, uncertainty about the evolution of the coronavirus pandemic and its economic effects. Vaccine production is ramping up and rollouts are gathering pace around the world. Widespread immunization, which will help pave the way for a return to more normal levels of social and economic activity, looks to be achievable by most developed economies by the end of the third quarter. However, some emerging markets may only be able to achieve widespread immunization by year-end or later. We use these assumptions about vaccine timing 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.

Related Criteria

Related Research

Primary Credit Analyst:Alice Delemarle-Charton, CFA, London + 44 20 7176 3594;
alice.delemarle@spglobal.com

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