[non-NRSRO] AURORA Collection2102 — Moody’s assigns provisional rankings to AURORA Collection2102, bank card receivables ABS
Rating Action: Moody’s assigns provisional ratings to AURORA Series2102, credit card receivables ABS
Global Credit Research – 27 Jan 2021
JPY7.0 billion in Debt Securities affected
Tokyo, January 27, 2021 — Moody’s SF Japan K.K. has assigned provisional ratings to the AURORA Series2102 ABS, backed by credit card receivables.
The complete rating action is as follows:
Transaction Name: AURORA Series2102
Class, Scheduled Dividend/Interest Rate, Rating
Series2102 Beneficial Interests, Fixed, (P)Aaa (sf)
Series2102 Trust ABL, Fixed, (P)Aaa (sf)
Total Issue Amount: JPY7.0 billion
Closing Date: February 25, 2021
Final Maturity Date: January 31, 2028
Underlying Asset: Credit card receivables (cash advance receivables and card purchase receivables)
Total Amount of Receivables (Principal Amount): JPY 59,286,879,277
Arranger: Mizuho Securities Co., Ltd.
The seller, being both originator and initial servicer, entrusts a pool of eligible credit card receivables and cash to the asset trustee, who then issues the Series2102 Beneficial Interests (“Series Beneficial Interests”), the Subordinated Beneficial Interests, the Seller’s Beneficial Interests and the Reserve Beneficial Interests.
Entrustment of the receivables is perfected against third parties under the Perfection Law. Perfection against obligors is not made unless certain events occur.
The asset trustee receives a limited recourse loan (Series2102 Trust ABL, hereafter “Series Trust ABL”) from the investors. The funds are used to redeem a part of the Series Beneficial Interests.
The rest of Series Beneficial Interests is transferred to the investors. The transfer is perfected against the relevant obligors and third parties under Article 94 of Japan’s Trust Law.
The Series Beneficial Interests and the Series Trust ABL are structured pari-passu in the principal and dividend/interest waterfall under the trust agreement.
The seller holds the Subordinated Beneficial Interests, the Seller’s Beneficial Interests and the Reserve Beneficial Interests.
Credit enhancement is provided by the senior/subordinated structure and available excess spread. Subordination comprises approximately 17.7% of the initial principal balance of the Series Beneficial Interests, the Series Trust ABL and the Subordinated Beneficial Interests at the closing date.
The Series Beneficial Interests and the Series Trust ABL are redeemed in a monthly, scheduled amortization. If the Subordinated Beneficial Interests amount exceeds the required amount and certain conditions are met, then the “excessive” portion can be transferred to the seller’s portion.
Defaulted receivables in the underlying pool are used as payment in kind for dividends on the Subordinated Beneficial Interests, while cash in an amount equivalent to the principal balance of the defaulted receivables is transferred from the interest collection account to the principal collection account.
Additional enhancement is built up in accordance with the deterioration in the performance of the pool through a dynamic reserve mechanism.
If any early amortization events occur, the dividend waterfall to the Subordinated Beneficial Interests in the series is suspended, and the excess spread is used to redeem the Series Beneficial Interests and the Series Trust ABL. Key early amortization events include the default rate exceeding its trigger level.
If any servicer replacement events occur, the asset trustee can dismiss the servicer and have a back-up servicer take over the servicing operations. A back-up servicer is appointed at closing.
In preparation for servicer replacement, liquidity is provided in the form of a cash reserve at closing. This reserve covers the dividend payments on the Series Beneficial Interests, the interest payments on the Series Trust ABL, trust fees, and fees relating to start back-up servicer operations, etc.
Commingling risk is covered by the Seller’s Beneficial Interests and advance payment of collections.
The ratings are based mainly on the credit quality of the receivables, the transaction structure, and the servicer’s experience.
Moody’s estimated the annualized expected default rate (“charge-off rate”) of the underlying assets at approximately 4.6%, after taking into consideration receivable attributes, historical data on the seller’s entire pool, performance data on existing securitization pools, and industry trends.
Moody’s also believes that the base scenario of the monthly principal payment rate is at approximately 5.4% and the annual yield at approximately 15.6%. (These parameters are based on Moody’s definition for analytical purposes, and thus may not be comparable to other data).
Moody’s Aaa LGSD for the transaction is 17.7%. Aaa LGSD corresponds to the maximum loss that is consistent with an Aaa (sf) rating, assuming that the sponsor has closed its cardholders’ accounts. This scenario is associated with sponsors that are in or near to default. In this transaction, the available credit enhancement is no less than the Aaa LGSD at the closing.
The principal methodology used in these ratings was “Moody’s Approach to Rating Credit Card Receivables-Backed Securities” (Japanese) published in July 2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBS_1230133. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.
Factors that would lead to an upgrade or downgrade of the ratings:
The primary factor that could lead to a downgrade of the ratings is a worse performance of the underlying assets than Moody’s expected.
Moody’s assumes that, given the structure of the transaction as well as other factors, the risk of interruption to the cash flow from the assets in the event of the seller’s or the asset trustee’s bankruptcy is sufficiently minimized to achieve the rating assigned.
Moody’s considers the seller sufficiently capable of servicing the pool, having taken into account the seller’s business experience and the servicing operations.
Moody’s has also conducted the sensitivity analysis below which provides the number of notches by which the model-indicated output of the deal would have varied if different assumptions had been made as to certain key model parameters. The analysis assumes that the deal has not aged.
If the annualized expected charge-off rate and long-run expected charge-off rate was changed from 4.6%/8.0% to 6.9%/10.0% and 9.2%/12.0% and other assumptions remained unchanged, the model-indicated output of Series2102 Beneficial Interests and Series2102 Trust ABL would change by 0 and 1 notch respectively.
The analysis results are model-indicated outputs, which are one of the many quantitative and qualitative factors considered by rating committees in determining actual ratings. This analysis does not intend to measure how the rating of the deal might migrate over time, but rather, how the initial model-indicated output of the deal might have differed if certain key model parameters had been varied.
The coronavirus outbreak, the government measures put in place to contain it, and the weak global economic outlook continue to disrupt economies and credit markets across sectors and regions. Our analysis has considered the effect on the performance of consumer assets from the current weak Japanese economic activity and a gradual recovery for the coming months. Although an economic recovery is underway, it is tenuous and its continuation will be closely tied to containment of the virus. As a result, the degree of uncertainty around our forecasts is unusually high.
We regard the coronavirus outbreak as a social risk under our ESG framework, given the substantial implications for public health and safety.
For further specification of Moody’s key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody’s Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
In rating this transaction, Moody’s uses a cash flow model to determine the collateral loss in a maximum stress scenario. As a second step, Moody’s haircuts this collateral loss based on the sponsor’s credit quality. Finally, Moody’s compares the available credit enhancement with the haircut collateral loss, taking into account loss allocation and other structural features, to determine the model-indicated rating for each instrument.
Moody’s quantitative analysis entails an evaluation of scenarios that stress factors contributing to sensitivity of ratings and take into account the likelihood of severe collateral losses or impaired cash flows.
For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody’s rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider’s credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.
The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.
These ratings are solicited. Please refer to Moody’s Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.
Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.
Moody’s general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1243406.
At least one ESG consideration was material to the credit rating action(s) announced and described above.
The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody’s affiliates outside the EU and is endorsed by Moody’s Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody’s office that issued the credit rating is available on www.moodys.com.
The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody’s affiliates outside the UK and is endorsed by Moody’s Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody’s office that issued the credit rating is available on www.moodys.com.
Moody’s SF Japan K.K. is a registered credit rating agency under the Financial Instrument and Exchange Act but not a Nationally Recognized Statistical Rating Organization (“NRSRO”). Therefore the credit ratings assigned by Moody’s SF Japan K.K. are Registered Credit Ratings to the FSA, but are not NRSRO Credit Ratings.
Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody’s legal entity that has issued the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.
Atsushi Karikomi VP – Senior Credit Officer Structured Finance Group Moody’s SF Japan K.K. Atago Green Hills Mori Tower 20fl 2-5-1 Atago, Minato-ku Tokyo 105-6220 Japan JOURNALISTS: 81 3 5408 4220 Client Service: 81 3 5408 4210 Yusuke Seki Associate Managing Director Structured Finance Group JOURNALISTS: 81 3 5408 4220 Client Service: 81 3 5408 4210 Releasing Office: Moody’s SF Japan K.K. Atago Green Hills Mori Tower 20fl 2-5-1 Atago, Minato-ku Tokyo 105-6220 Japan JOURNALISTS: 81 3 5408 4220 Client Service: 81 3 5408 4210
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