Overview
- We have reviewed the performance of Turbo Finance 9 by conducting our credit and cash flow analysis and applying our relevant criteria.
- Following the considerable transaction amortization, we raised our ratings on all classes of 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) Sept. 28, 2023--S&P Global Ratings today raised its credit ratings on Turbo Finance 9 PLC's class B notes to 'AAA (sf)' from 'AA+ (sf)', class C-Dfrd notes to 'AA+ (sf)' from 'A (sf)', class D-Dfrd notes to 'AA (sf)' from 'A- (sf)', and class E-Dfrd notes to 'A (sf)' from 'BB- (sf)'.
The transaction has amortized sequentially since August 2021, the end of a nine-month revolving period (see "New Issue: Turbo Finance 9 PLC," published on Oct. 8, 2020). This has resulted in increased credit enhancement for the outstanding notes. As of the August 2023 servicer report, the pool factor has declined to 13.4%, and the available credit enhancement for the class B, C-Dfrd, D-Dfrd, and E-Dfrd notes had increased to 93.4%, 55.1%, 39.8%, and 20.6%, respectively, from 11.9%, 6.9%, 4.9%, and 2.3% at closing.
The repayment of the notes was accelerated in September 2023, following the repurchase of receivables by the seller, MotoNovo Finance Ltd. (MNF). Following MNF's review of its internal servicing and origination processes, it determined that receivables with an aggregate outstanding principal of £49.8 million were required to be repurchased. At the time of sale to Turbo Finance 9, the repurchased receivables were either in breach of a representation given by MNF denoted in the receivables purchase agreement or subsequently became no longer STS (simple, transparent, and standardized) or LCR (liquidity coverage ratio) compliant receivables. The seller therefore exercised its documented option to repurchase such receivables. As a result of the repurchase, the class A notes were fully repaid and available credit enhancement to the remaining notes further increased.
The level of losses recorded--hostile termination (HT) and voluntary termination (VT)--are lower than forecast at closing and at our previous review (see "Turbo Finance 9 PLC Class B Rating Raised; All Other Classes Affirmed," published Sept. 22, 2022). Combined with a reduced remaining collateral balance, we have lowered our HT gross loss base-case assumptions to 2.0% from 4.0%. We have lowered our VT base case to 0.5% from 1.1%. The loss multiples remain unchanged.
The reported cumulative recovery rates are currently significantly below our expectations at closing. Following the pandemic, the originator conducted a review of the arrears management processes, which led to the slowdown of their recovery process. As the actions taken have not yet seen a resultant improvement in the level of recoveries being generated in the transaction, we have lowered the base recovery rate assumption to 10%.
Credit Assumption Summary (AAA) | ||||||
---|---|---|---|---|---|---|
Current review (%) | September 2022 review (%) | |||||
Base-case cumulative HT rate assumption (%) | 2.0 | 4.0 | ||||
Base-case cumulative VT rate assumption (%) | 0.5 | 1.1 | ||||
HT stress multiple | 4.7 | 4.7 | ||||
VT stress multiple | 3.0 | 3.0 | ||||
Stressed cumulative recovery (%) | 7.5 | 27.6 | ||||
RV loss exposure percentage of the total pool | 14.9 | 13.1 | ||||
RV loss (%) | 30.3 | 29.0 | ||||
HT--Hostile terminations. VT--Voluntary terminations. RV--Residual value. |
Our cash flow analysis indicates that the available credit enhancement for the class B, C-Dfrd, D-Dfrd, and E-Dfrd notes in this transaction is sufficient to withstand the credit and cash flow stresses that we apply at the 'AAA', 'AA+', 'AA', and 'A' rating levels, respectively. The class C-Dfrd, D-Dfrd, and E-Dfrd notes achieve higher cash flow outputs under our standard cash flow analysis. However, the assigned ratings on these classes of notes also take into consideration their relative level of subordination and various sensitivity scenarios.
Operational, counterparty, and legal risks continue to be adequately mitigated, in our view, and do not constrain our ratings on the notes.
Related Criteria
- Criteria | Structured Finance | ABS: Global Auto ABS Methodology And Assumptions, March 31, 2022
- General Criteria: Environmental, Social, And Governance Principles In Credit Ratings, Oct. 10, 2021
- Criteria | Structured Finance | General: Global Framework For Payment Structure And Cash Flow Analysis Of Structured Finance Securities, Dec. 22, 2020
- Criteria | Structured Finance | General: Methodology To Derive Stressed Interest Rates In Structured Finance, Oct. 18, 2019
- 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 | General: Global Framework For Assessing Operational Risk In Structured Finance Transactions, Oct. 9, 2014
- Criteria | Structured Finance | General: Global Derivative Agreement Criteria, June 24, 2013
- General Criteria: Global Investment Criteria For Temporary Investments In Transaction Accounts, May 31, 2012
- General Criteria: Principles Of Credit Ratings, Feb. 16, 2011
Related Research
- Global Credit Conditions Q3 2023: Higher For Longer Will Fuel Ratings Divergence, June 29, 2023
- Economic Outlook U.K. Q3 2023: Higher Rates Start To Bite, June 26, 2023
- Turbo Finance 9 PLC Class B Rating Raised; All Other Classes Affirmed, Sept. 22, 2022
- United Kingdom 'AA/A-1+' Ratings Affirmed; Outlook Stable, April 23, 2022
- New Issue: Turbo Finance 9 PLC, Oct. 8, 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: | James Gayer, London 20-7176-3657; james.gayer@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 acknowledgement 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 nonpublic 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.spglobal.com/ratings (free of charge), and www.ratingsdirect.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.spglobal.com/usratingsfees.