Overview
- FCT Sinople Finance finances Europcar Mobility Group's (Europcar) rental fleets in France, Germany, Italy, and Spain.
- Our rental fleet ABS methodology recognizes the inverse relationship between the rental car company's financial health and the potential for credit volatility. Our analysis of FCT Sinople Finance contemplates the potential bankruptcy of Europcar and the liquidation of the fleets as the primary source of repayment for the senior notes.
- The various disruptions caused by COVID-19 have the potential to affect our legal, credit, market value, and liquidity risks analysis in the liquidation scenario we consider.
- On April 3, 2020, we downgraded Europcar, the parent of the lessors and servicers in this transaction, to 'B-' from 'BB-' and placed the rating on CreditWatch negative on the back of COVID-19 effects and weakening liquidity.
- Considering the significant uncertainty arising from the deterioration of Europcar's credit quality and the potential effect of COVID-19 on our fleet liquidation assumptions, we have placed on CreditWatch negative our 'A (sf)' rating on FCT Sinople Finance's senior notes.
PARIS (S&P Global Ratings) April 16, 2020--S&P Global Ratings today placed on CreditWatch negative its 'A (sf)' rating on FCT Sinople Finance's senior notes. The securitization finances Europcar's rental fleets in France, Germany, Italy, and Spain.
On April 3, 2020, we lowered to 'B-' from 'BB-' and placed on CreditWatch negative our long-term issuer credit rating (ICR) on Europcar (see "Europcar Mobility Group Downgraded To 'B-' From 'BB-' On COVID-19 Effects And Weakening Liquidity; On Watch Negative"). Today's CreditWatch placement reflects the significant uncertainty arising from the potential effects of COVID-19 on our fleet liquidation assumptions and the deterioration of Europcar's credit quality.
All of the vehicles securitized in FCT Sinople Finance are leased to Europcar's rental car subsidiaries in France, Germany, Italy, and Spain. These rental car subsidiaries act as both sole obligors of the transaction and servicers of the fleets. To address the risk of a potential obligor default under the operating leases, our rating scenario contemplates the bankruptcy of the rental car company and the liquidation of the fleets as the primary source of repayment for the senior notes. In this scenario, the vehicles continue to depreciate during and after a legal stay period until the vehicles can be repossessed and liquidated.
The length of the legal stay and liquidation periods that we consider in our rating scenario are based in part on legal comfort provided by issuer's counsel, which we then stress to arrive at the assigned ratings. Our combined legal stay and liquidation period assumptions are currently 7, 9, 8, and 7 months for France, Germany, Italy, and Spain, respectively.
The extraordinary support measures that governments have put in place in the various jurisdictions to protect companies against the fallout of COVID-19 may negatively affect these original analyses. Typically, in most jurisdictions, the governments suspended the requirement for companies to file for insolvency and restricted creditors' ability to petition companies during various protected periods, which might delay any potential insolvency proceedings related to Europcar.
Furthermore, lockdown measures ordered by governments have caused a significant slowdown of judicial activity in the four jurisdictions. We understand that legal civil proceedings are typically restricted to urgent matters and that it might be difficult--or even impossible in certain jurisdictions--to initiate and move forward the insolvency and repossession proceedings needed for the liquidation of the fleets. Additionally, once the lockdown measures are lifted, we do not expect the courts to quickly resume normal judicial activity.
Our view of the likely extension of the legal stay periods will differ depending on the exact timing of Europcar´s potential default--during the lockdown, after the lockdown but before the resuming of normal courts operation, or afterwards.
Returning vehicles to carmakers under the buyback agreements included in the transaction constitutes a logistical challenge in a lockdown situation. For "at risk cars", those not covered by a buyback agreement, we understand that the European used car market has almost shut down. Consequently, our view on the relevant liquidation periods might also be negatively impacted and, as for our legal stay analysis, any revision of our conclusions would depend on the timing of the potential default of the rental car company.
Any revisions of our legal stay and liquidations assumptions might in turn change our view on the collateral cumulative depreciation while in the rental car company's possession and our liquidity analysis. Regarding the latter, we note that the transaction benefits from a liquid source of credit enhancement, in the form of a cash reserve amounting to 3.5% of the asset balance, which was originally sized to cover servicing fees and interest on the rated notes during the legal stay and liquidation period outlined above.
Finally, the residual-value haircuts that we apply in our 'A' rating scenario to the fleet's net book value at the expiry of the legal stay and liquidation period--22.0% and 15.5% for highest risk and intermediate risk vehicles, respectively--might also be affected by the fallout of COVID-19.
In our view, the transaction's credit quality might have declined due to operational disruption resulting from COVID-19. We believe this might limit the cash flows available to FCT Sinople Finance. The CreditWatch negative placement of our rating on the senior notes reflects the combination of Europcar's deteriorating creditworthiness, as reflected by its lower ICR, with the significant uncertainty arising from COVID-19 regarding the various legal and credit assumptions that we consider in our stressed liquidation scenario.
Under our rental fleet methodology, should the rental car company actually default and depending on the circumstances at that time, we may lower the then-current ratings on the transaction by more than one category (see "Related Criteria"). We expect to resolve the CreditWatch placement once we learn more about the severity and duration of COVID-19's effects on our legal, credit, market value, and liquidity analyses, and the developments regarding Europcar's creditworthiness. On this basis, we will evaluate the need to revise certain of our assumptions.
S&P Global Ratings acknowledges a high degree of uncertainty about the rate of spread and peak of the coronavirus outbreak. Some government authorities estimate the pandemic will peak around midyear, and we are using this assumption in assessing the economic and credit implications. In our view, the measures adopted to contain COVID-19 have pushed the global economy into recession (see our macroeconomic and credit updates here: www.spglobal.com/ratings). As the situation evolves, we will update our assumptions and estimates accordingly.
Environmental, social, and governance (ESG) factors relevant to the rating action:
- Health and safety
Related Criteria
- 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
- General Criteria: Guarantee Criteria, Oct. 21, 2016
- 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
- Criteria | Structured Finance | General: Global Framework For Assessing Operational Risk In Structured Finance Transactions, Oct. 9, 2014
- General Criteria: Methodology Applied To Bank Branch-Supported Transactions, Oct. 14, 2013
- Criteria | Structured Finance | General: Global Derivative Agreement Criteria, June 24, 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
- Criteria | Structured Finance | ABS: Updated General Methodology And Assumptions For Rating U.S. Rental Fleet Securitizations, Aug. 1, 2011
- General Criteria: Principles Of Credit Ratings, Feb. 16, 2011
- General Criteria: Methodology: Credit Stability Criteria, May 3, 2010
- General Criteria: Use Of CreditWatch And Outlooks, Sept. 14, 2009
- Criteria | Structured Finance | General: Methodology For Servicer Risk Assessment, May 28, 2009
Related Research
- Europcar Mobility Group Downgraded To 'B-' From 'BB-' On COVID-19 Effects And Weakening Liquidity; On Watch Negative, April 3, 2020
- 2017 EMEA ABS Scenario And Sensitivity Analysis, July 6, 2017
- Global Structured Finance Scenario And Sensitivity Analysis 2016: The Effects Of The Top Five Macroeconomic Factors, Dec. 16, 2016
- European Structured Finance Scenario And Sensitivity Analysis 2016: The Effects Of The Top Five Macroeconomic Factors, Dec. 16, 2016
| Primary Credit Analyst: | Williams Rivera-Montalban, Paris (33) 1-4420-7340; williams.rivera-montalban@spglobal.com |
No content (including ratings, credit-related analyses and data, valuations, model, software or other application or output therefrom) or any part thereof (Content) may be modified, reverse engineered, reproduced or distributed in any form by any means, or stored in a database or retrieval system, without the prior written permission of Standard & Poor’s Financial Services LLC or its affiliates (collectively, S&P). The Content shall not be used for any unlawful or unauthorized purposes. S&P and any third-party providers, as well as their directors, officers, shareholders, employees or agents (collectively S&P Parties) do not guarantee the accuracy, completeness, timeliness or availability of the Content. S&P Parties are not responsible for any errors or omissions (negligent or otherwise), regardless of the cause, for the results obtained from the use of the Content, or for the security or maintenance of any data input by the user. The Content is provided on an “as is” basis. S&P PARTIES DISCLAIM ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE, FREEDOM FROM BUGS, SOFTWARE ERRORS OR DEFECTS, THAT THE CONTENT’S FUNCTIONING WILL BE UNINTERRUPTED OR THAT THE CONTENT WILL OPERATE WITH ANY SOFTWARE OR HARDWARE CONFIGURATION. In no event shall S&P Parties be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or losses (including, without limitation, lost income or lost profits and opportunity costs or losses caused by negligence) in connection with any use of the Content even if advised of the possibility of such damages.
Credit-related and other analyses, including ratings, and statements in the Content are statements of opinion as of the date they are expressed and not statements of fact. S&P’s opinions, analyses and rating acknowledgment decisions (described below) are not recommendations to purchase, hold, or sell any securities or to make any investment decisions, and do not address the suitability of any security. S&P assumes no obligation to update the Content following publication in any form or format. The Content should not be relied on and is not a substitute for the skill, judgment and experience of the user, its management, employees, advisors and/or clients when making investment and other business decisions. S&P does not act as a fiduciary or an investment advisor except where registered as such. While S&P has obtained information from sources it believes to be reliable, S&P does not perform an audit and undertakes no duty of due diligence or independent verification of any information it receives. Rating-related publications may be published for a variety of reasons that are not necessarily dependent on action by rating committees, including, but not limited to, the publication of a periodic update on a credit rating and related analyses.
To the extent that regulatory authorities allow a rating agency to acknowledge in one jurisdiction a rating issued in another jurisdiction for certain regulatory purposes, S&P reserves the right to assign, withdraw or suspend such acknowledgment at any time and in its sole discretion. S&P Parties disclaim any duty whatsoever arising out of the assignment, withdrawal or suspension of an acknowledgment as well as any liability for any damage alleged to have been suffered on account thereof.
S&P keeps certain activities of its business units separate from each other in order to preserve the independence and objectivity of their respective activities. As a result, certain business units of S&P may have information that is not available to other S&P business units. S&P has established policies and procedures to maintain the confidentiality of certain non-public information received in connection with each analytical process.
S&P may receive compensation for its ratings and certain analyses, normally from issuers or underwriters of securities or from obligors. S&P reserves the right to disseminate its opinions and analyses. S&P's public ratings and analyses are made available on its Web sites, www.standardandpoors.com (free of charge), and www.ratingsdirect.com and www.globalcreditportal.com (subscription), and may be distributed through other means, including via S&P publications and third-party redistributors. Additional information about our ratings fees is available at www.standardandpoors.com/usratingsfees.
Any Passwords/user IDs issued by S&P to users are single user-dedicated and may ONLY be used by the individual to whom they have been assigned. No sharing of passwords/user IDs and no simultaneous access via the same password/user ID is permitted. To reprint, translate, or use the data or information other than as provided herein, contact S&P Global Ratings, Client Services, 55 Water Street, New York, NY 10041; (1) 212-438-7280 or by e-mail to: research_request@spglobal.com.