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    NEWS

    SCF Rahoituspalvelut X DAC Finnish Auto ABS Class B and C-Dfrd Notes Upgraded; Class A Rating Affirmed
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    SCF Rahoituspalvelut X DAC Finnish Auto ABS Class B and C-Dfrd Notes Upgraded; Class A Rating Affirmed

    Overview

    • We have reviewed SCF Rahoituspalvelut X DAC's performance by conducting our analysis of the transaction's underlying assets and structural features.
    • Following our review, we raised to 'AA (sf)' from 'AA- (sf)' and to 'A (sf)' from 'A- (sf)' our ratings on the class B and C-Dfrd notes. At the same time, we affirmed our 'AAA (sf)' rating on the class A notes.
    • This is a Finnish ABS transaction comprising primarily auto loans for cars (89.32%) and a smaller portion of loans for light commercial vehicles, motorbikes, campers, and caravans originated by SCF Finland, which closed in October 2021.

    FRANKFURT (S&P Global Ratings) March 22, 2024--S&P Global Ratings today raised to 'AA (sf)' from 'AA- (sf)' and to 'A (sf)' from 'A- (sf)' its credit ratings on SCF Rahoituspalvelut X DAC's class B and C-Dfrd notes, respectively. At the same time, we affirmed our 'AAA (sf)' rating on the class A notes.

    Our ratings address timely payment of interest and ultimate payment of principal on the class A and B notes and ultimate payment of interest and principal on the class C-Dfrd notes.

    Today's rating actions follow our review of the transaction's performance and the application of our current criteria, and reflect our assessment of the payment structure according to the transaction documents (see "Related Criteria").

    The transaction closed in October 2021 and has amortized sequentially since May 2022, the end of a six-month revolving period, and switched to pro rata on the August 2023 payment date (see "New Issue: SCF Rahoituspalvelut X DAC" published Oct. 19, 2021). At the December 2023 payment date, the pool factor was 38.35%, and the available credit enhancement for the class A, B, and C-Dfrd notes had increased to 16.60%, 8.95%, and 6.69%, respectively, from 8.49%, 4.58%, and 3.42% at closing. Credit enhancement is provided through subordination and excess spread. The structure also benefits from a liquidity reserve which amortizes at 0.5% of the class A and B notes' outstanding balance with a floor of 0.15% of the class A and B notes' initial balance.

    We have analyzed credit risk under our global auto ABS methodology, using the transaction's historical data (see "Related Criteria"). In our view, asset performance has been very stable, with cumulative gross defaults in line with our assumptions at closing. We expect a default rate of 2.6% for new vehicles and 3.1% for used vehicles in our base-case scenario. Based on the current pool composition, we adjusted our weighted average base-case gross loss assumption to 2.93% (from 2.94% at our previous full review in March 2023). When considering the current outstanding performing pool and subtracting defaults since closing and late delinquencies, the weighted-average base-case gross loss assumption totals 3.07%. At the same time, we have applied a gross default multiple of 4.55x at 'AAA', 3.55 at 'AA', and 2.50 at 'A', acknowledging SCF Finland's historically stable originations, good data quality, and our experience with the originator in other Nordic markets.

    Under our auto ABS criteria, we apply rating dependent haircuts to our base-case recovery assumption. We establish recovery rate assumptions based primarily on analysis of historical recovery rates for the originator and the market, past performance volatility, as well as credit, operational, or other factors that might affect the timing, amount, and sustainability of recovery rates. Typical recovery haircuts assumed at 'AAA' are in the 15% to 50% range. Based on the current recoveries, robust historical recovery data provided, portfolio features, the current macroeconomic conditions, and the strong legal environment in Finland, we have applied a base case recovery rate of 70% with a 35%, 30%, and 23% haircut at the 'AAA', 'AA', and 'A' rating levels, respectively. This equates to 45.5%, 49.0%, and 53.9% stressed recovery rates in our 'AAA', 'AA', and 'A' scenarios. We have also split recoveries between two recovery periods where two thirds of our stressed recoveries are coming in after nine months and the remaining recoveries after 18 months.

    The servicer receives a monthly handling contractual fee (set by a dealer and clearly written in the loan contract), which is a part of the effective interest rate payable by the borrower. We continue to account for this during our cash flow analysis.

    Table 1

    Credit assumption summary ('AAA')
    SCF Rahoituspalvelut X DAC
    Current review (%) Previous review (%)
    Base-case cumulative rate assumption 2.93 2.94
    Gross loss base case calibrated on remaining performing pool (%) 3.07 3.25
    AAA' stress multiple 4.55 4.55
    AAA' stressed recovery rate 45.50 45.50
    AAA' stressed net loss 7.60 8.20

    Our operational and legal risk analysis is unchanged since closing. We consider that the transaction documents adequately mitigate exposure to counterparty risk through the transaction bank account provider, BNP Paribas Securities Services (Dublin Branch), collection bank account provider, Skandinaviska Enskilda Banken AB, (Helsinki branch), and interest rate cap provider, Banco Santander S.A., up to a 'AAA' rating.

    Our analysis indicates that the available credit enhancement for the class A, B, and C-Dfrd notes is sufficient to withstand the credit and cash flow stresses that we apply at the 'AAA','AA', and 'A' rating levels, respectively. Therefore, we raised to 'AA (sf)' from 'AA- (sf)' and to 'A (sf)' from 'A- (sf)' our ratings on the class B and C-Dfrd notes, respectively. We also affirmed our 'AAA (sf)' rating on the class A notes.

    Table 2

    Sensitivity analysis matrix
    Recovery rate base case (%)
    Gross default rate base case (%) 0 -10 -30
    0 Base run 3 4
    10 1 5 7
    30 2 6 8

    Table 3

    Sensitivity analysis results
    Base run 1 2 3 4 5 6 7 8
    Gross loss base case 2.93% 3.22% 3.81% 2.93% 2.93% 3.22% 3.81% 3.22% 3.81%
    Recoveries 70% 70.00% 70.00% 63.00% 49.00% 63.00% 63.00% 49.00% 49.00%
    Sensitivities Base run 1 2 3 4 5 6 7 8
    A AAA AAA AA+ AAA AAA AAA AA AA AA-
    B AA AA- A AA- A A A- A- BBB
    C- Dfrd A A- BBB A- BBB BBB BBB- BBB- BB

    Related Criteria

    Related Research

    Primary Credit Analyst:Matthew Aitken, Frankfurt +49 69 3399 9153;
    matthew.aitken@spglobal.com
    Research Contributor:Trupti Patil, CRISIL Global Analytical Center, an S&P affiliate, Pune

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