First Swiss Mobility AG

Transcription

1 Presale: First Swiss Mobility AG This presale report is based on information as of March 14, The ratings shown are preliminary. This report does not constitute a recommendation to buy, hold, or sell securities. Subsequent information may result in the assignment of final ratings that differ from the preliminary ratings. Class Rating* Amount (mil. CHF) Available credit support (%) Interest (%) Legal final maturity A AAA (sf) TBA April 16, 2027 B AA- (sf) TBA April 16, 2027 C BBB+ (sf) TBA April 16, 2027 *The rating on each class of securities is preliminary as of March 14, 2017, and subject to change at any time. We expect to assign final credit ratings on the closing date, subject to a satisfactory review of the transaction documents and legal opinion. Our ratings address timely payment of interest and ultimate principal. Includes subordination and a cash reserve (see "Transaction Key Features" below for details). CHF--Swiss franc. NR--Not rated. TBA--To be announced. Transaction Participants Originator Multilease AG Arrangers Credit Suisse AG Managers Credit Suisse AG, Zürcher Kantonalbank Seller Multilease AG Servicer Multilease AG Trustee Intertrust Trustees Ltd. Servicing Facilitator Intertrust Services (Switzerland) Ltd. Data Trustee Intertrust Services (Switzerland) Ltd. Issuer account bank Zürcher Kantonalbank Paying agent Credit Suisse AG Primary Credit Analyst: David Tuchenhagen, Frankfurt ; david.tuchenhagen@spglobal.com Secondary Contact: Marc-Orell Stadthaus, Frankfurt; marc-orell.stadthaus@spglobal.com See complete contact list on last page(s) MARCH 14,

2 Supporting Ratings Institution/role Zürcher Kantonalbank, as issuer account bank Rating AAA/Negative/A-1+ Transaction Key Features Expected closing date April 13, 2017 Collateral Auto lease and residual value receivables Principal outstanding (mil. CHF) 330 Country of origination Transaction structure Switzerland Revolving true sale Replenishment period (months) 32 Redemption profile Fully sequential, using all principal and excess interest collections to pay down notes, which starts after the end of the replenishment period Credit enhancement for the class A notes (% of asset volume) Subordination: 21.0; Cash reserve: 2.1; Stressed excess spread (initial % a year): 2.5 Credit enhancement for the class B notes (% of asset volume) Subordination: 14.3; Cash reserve: 2.1; Stressed excess spread (initial % a year): 2.4 Credit enhancement for the class C notes (% of asset volume) Subordination: 10.0; Cash reserve: 2.1; Excess spread (initial % a year): 2.2 Cash reserve available to cover liquidity shortfalls during the life of the transaction and redeem notes at the end of the transaction; nonamortizing TBD--To be determined. CHF--Swiss franc. CHF6.93 million Transaction Summary S&P Global Ratings Services has assigned its preliminary credit rating to First Swiss Mobility AG's Swiss franc (CHF) denominated, asset-backed fixed-rate class A to C notes. The notes are backed by a portfolio of auto lease receivables, which Multilease AG granted to its Swiss clients. Multilease AG is an direct subsidiary of Emil Frey Group, which is one of the leading automotive importers in the Swiss market. It is one of the largest manufacturer-independent providers of auto leases in Switzerland. The transaction will be revolving for 32 months, or less if certain performance triggers are breached. After the end of the replenishment period, the notes will amortize sequentially, using all principal and excess interest collections to pay them down. A combination of subordination, a cash reserve, and excess spread will provide credit enhancement for the class A to C notes. The transaction is not exposed to interest rate mismatches, because both the notes and the receivables pay fixed interest rates. Accordingly, no swap is in place. The transaction is exposed to commingling risk, which is not mitigated by a commingling reserve. We have sized this exposure in our cash flow model as a loss. MARCH 14,

3 Notable Features This is Multilease AG's first transaction and the second Swiss auto asset-backed securities (ABS) transaction that we have rated. The legal structure is set up so that the issuer acquires the entire lease contracts, together with all rights and obligations--effectively, it acts as the lessor. The issuer holds an unencumbered title to the leased vehicles. We have analyzed whether this would materially change the unsecured creditors' incentives to try to trigger the issuer's insolvency, and have found that this would not be the case. Rating Rationale Sector outlook In our base-case scenario, we forecast that the Swiss economy will record GDP growth of 1.5% in 2017 and 2018, compared with 1.6% in At the same time, we expect the unemployment rate to remain stable at 3.4% in 2017 and 3.3% in 2018, from 3.4% in In our view, changes in GDP growth and the unemployment rate are key determinants of portfolio performance. We set our credit assumptions to reflect our economic outlook. Our near- to medium-term view is that the Swiss economy will remain resilient and record positive growth. Operational risk In December 2016, we conducted a corporate overview of Multilease's origination, underwriting, and risk management practices. We consider these to be in line with general market practice and our criteria for assessing operational risk (see "Global Framework For Assessing Operational Risk In Structured Finance Transactions," published on Oct. 9, 2014). The application of our operational risk criteria does not constrain the maximum potential preliminary ratings on the notes below 'AAA'. Credit risk We have analyzed credit risk under our European auto ABS criteria, using historical gross loss data from the originator's lease book for January 2011-December 2016 (see "Methodology And Assumptions For European Auto ABS," published on Oct. 15, 2015). We expect to see about 1.7% of defaults in the securitized pool, taking into account potential portfolio deterioration through adverse asset replenishment. We used the highest range of gross loss multiples to recognize that this is Multilease AG's first transaction and the limited number of comparable transactions in the Swiss market. Of the portfolio, 40% (under the replenishment criteria) could comprise residual values, which are subject to market value decline risk. We based our analysis on our view of potential market value declines at various rating levels by applying our "European Consumer Finance Criteria," published on March 10, We made adjustments for transaction- and originator-specific parameters, resulting in an adjusted market value decline assumption of about 33% at a 'AAA' rating level. MARCH 14,

4 Sequential payment structure Our ratings on the rated notes reflect our assessment of the transaction's payment structure as set out in the transaction documents. The credit enhancement would build up quickly in our base-case scenario due to the sequential payment structure, the use of all excess cash to pay down notes from the beginning of the amortization period, and the nonamortizing cash reserve. Our analysis indicates that the credit enhancement available to the rated class of notes is sufficient to withstand the credit and cash flow stresses that we apply at the respective preliminary rating level. Counterparty risk Our ratings on the notes also consider that the replacement mechanisms implemented in the transaction documents adequately mitigate the counterparty risks that the transaction is exposed to. The transaction is exposed to Zürcher Kantonalbank, as account bank. We have analyzed counterparty risk by applying our counterparty criteria (see "Counterparty Risk Framework Methodology And Assumptions," published on June 25, 2013). Investment on the transaction accounts will be in line with our investment criteria (see "Global Investment Criteria For Temporary Investments In Transaction Accounts," published on May 31, 2012). A portion of the security deposits made by the lessees are credited to an account with a 95 days notice period. We have analyzed the drawing mechanism and the immediately available funds related to deposits. We deem potential liquidity risks to be sufficiently mitigated. Legal risk We consider the issuer to be a bankruptcy-remote entity, in line with our European legal criteria (see "Europe Asset Isolation And Special-Purpose Entity Criteria--Structured Finance," published on Sept. 13, 2013). We anticipate that the legal opinion at closing will likely provide comfort that the sale of the receivables would survive the insolvency of Multilease AG as the selling originator. The issuer in this transaction will have an unencumbered title to the leased vehicles that it acquires. We have analyzed whether this would materially change the unsecured creditors' incentives to try to petition the special-purpose entity into insolvency, and believe that this would not be the case. The transaction will also be exposed to commingling risk. We have sized the exposure as an additional loss. Credit stability We have analyzed the effects of a moderate stress on the credit variables and their ultimate effect on the rating on the notes (see "Scenario Analysis: Gross Default Rates And Excess Spread Hold The Answer To Future European Auto ABS Performance," published on May 12, 2009). We have run two scenarios and the results are in line with our credit stability criteria (see "Methodology: Credit Stability Criteria," published on May 10, 2010). Sovereign risk The application of our criteria for rating above the sovereign foreign currency rating does not cap the rating in this transaction (see "Ratings Above The Sovereign - Structured Finance: Methodology And Assumptions," published on Aug. 8, 2016). Our preliminary ratings on the notes reflect our assessment of the collateral pool's credit and cash flow characteristics, as well as our analysis of the transaction's legal, counterparty, and operational risks. Our analysis indicates that the credit enhancement available to the various classes of rated notes would be sufficient to mitigate the credit and cash flow risks and are commensurate with the preliminary ratings that we have assigned. MARCH 14,

5 Transaction Structure At closing, First Swiss Mobility AG will purchase a pool of auto lease contracts, including the lease receivables and the residual value receivables, together with all other rights and obligations arising from the contracts. First Swiss Mobility AG will issue the class A, B, and C notes to partially finance the purchase price for the pool of CHF330 million. At the same time, the First Swiss Mobility 2017 AG will use the proceeds from a subordinated loan that it receives from the seller to fund the cash reserve and the remaining asset purchase price. All rated notes will pay interest at a fixed rate yet to be defined. Interest will be paid annually during the revolving period and monthly during the amortizing period. In December 2019, the scheduled end of the revolving period, the class A note fixed rate will increase to a rate yet to be defined. We expect the first interest payment date to be in April 2018 and the legal final maturity of the notes to be in April Originator profile The servicer and originator Multilease AG forms part of the family-owned Emil Frey Group, which is headquartered in Zurich, Switzerland. The Emil Frey Group was founded in It is one of the largest automotive importers, and operates retail dealerships in Switzerland and in other European countries. Emil Frey has the exclusive right to import MARCH 14,

6 specific car brands into Switzerland (for example, Jaguar, Land Rover, Mitsubishi, Subaru, Suzuki, and Toyota). Multilease AG offers auto lease financing solely to Swiss commercial and private customers. Multilease AG's total leasing portfolio as of December 2015 comprised CHF765 million (45,000 contracts). The company achieved modest, but constant growth in its portfolio from 2006 to Since then, the portfolio has remained stable--annual new production has been about CHF450 million. Underwriting policy Multilease AG originates about 17,000 new contracts per year. The origination process is standardized and follows a system-based approach. It implemented a new underwriting system in 2014 and follows different underwriting processes for commercial and private customers. Multilease AG therefore has two different scorecards in place, which are reviewed regularly. The final credit decision is done manually, depending on the credit or underwriting competency level. Multilease AG's leasing book is diversified across car brands, which we consider to be a strength compared with other captive finance companies. It also has adequate geographic diversification and a good franchise, in our view. Servicing MultiLease AG employs an in-house team which collaborates with several external service providers to service the portfolio. The in-house team manages the total book on all delinquent and performing customers. We have conducted an onsite visit and review of the originator and servicer for the purpose of this transaction. We consider Multilease AG's underwriting and servicing processes to be in line with general market practice. Priority of payments The transaction has a combined waterfall (see table 1). On each monthly payment date, the issuer will apply the following funds to the waterfall: All asset collections received during the month; All recovery proceeds; All available replenishment amounts; and The amounts in the cash reserve (see table 1). Table 1 Priority Of Payments (Simplified) 1 Taxes 2 Value added tax-related payments 3 Senior fees 4 Class A interest amount 5 Class B interest amount 6 Class C interest amount 7 Credit the reserve fund to its required amount 8 Purchase of new receivables during the revolving period. Sequential repayment of the rated notes by the lesser of (i) rated notes' balance, and (ii) available funds post payment of item (7) during the amortization period. 9 Permitted disbursement amount to the subordinated loan provider 10 Credit to the subordinated loan ledger MARCH 14,

7 Revolving period During the revolving period, the issuer will use collections from the assets to purchase new receivables from the seller. The revolving period will end in December 2019 or when one of the following early amortization events occurs: 1) The cumulative gross losses as a percentage of outstanding receivables plus all receivables purchased during the replenishment period exceeds the following thresholds: 0.35% within the first six months after the closing date; 0.70% between the 7th and 12th month after closing; 1.05% between the 13th and 18th month after closing; 1.40% between the 19th and 24th month after closing; 1.75% between the 25th and 30th month after closing; or 2.10% between the 31st and 36th month after closing. 2) The percentage of more than 30 days delinquent receivables, based on outstanding receivables plus all receivables purchased during the replenishment period, exceeds 1.5% for two consecutive months. 3) Amounts available, but not used for replenishment, exceed 10% of the outstanding receivable balance for two consecutive months. 4) Available replenishment amounts in the waterfall are less than the replenishment required amount (that is, the outstanding note balance, plus initial overcollateralization, minus the outstanding receivable balance, excluding defaults). We consider this in our analysis to monitor actual net loss performance. 5) An enforcement event occurs and the trustee serves an enforcement notice. 6) The appointment of the servicer is terminated. 7) An insolvency event occurs with respect to the seller or servicer. Under the transaction documents, the total pool after replenishment must be in line with the following concentration limits amongst others: Used vehicles cannot exceed 35% of the pool; Commercial customers cannot exceed 32% of the pool; Used vehicles with commercial customers cannot exceed 10% of the pool; and The weighted-average yield of all receivables cannot be less than 3.0%. The transaction documents also set out that all additional receivables need to be in line with the transaction's eligibility criteria (see "Portfolio stratification and eligibility criteria"). Call option The issuer has an option to redeem the notes prior to legal final maturity. Under the transaction documents, the option can be exercised on the December 2019 payment date or any payment date thereafter. If the issuer exercises this option, all rated notes will be fully redeemed. MARCH 14,

8 Cash reserve At closing, the issuer will use part of the proceeds from the subordinated loan it receives from the seller to fund the cash reserve up to its required amount of CHF6.93 million. The entire cash reserve is applied to the waterfall each month, where it is available to pay senior fees and the interest on the class A, B, and C notes. The cash reserve will not amortize, and all amounts standing on the cash reserve once the portfolio has paid down to zero will be available to redeem the outstanding notes. Commingling risk Lessees pay their monthly installments into accounts held in the servicer's name. As is typical for the Swiss market, most of lessees pay their monthly installments via bank transfer, instead of by direct debit. All lease instalments are due on the first day of each month. Typically, the residual value is borne by the dealer and the dealer is obliged to transfer such repurchase price directly to the servicer. These payments are typically more equally spread around all days of the month. Both the lessee payments and the dealer payments could lead to commingling risk if the servicer becomes insolvent. According to the transaction documents, the servicer will identify and transfer such payments within five business days of receipt into the special-purpose entity's operational accounts. The servicer facilitator, Intertrust Services (Switzerland) Ltd., is contractually obliged to notify all dealers and lessees to redirect their payments to the issuer or substitute servicer's accounts within 10 business days; this process would begin immediately upon a servicer insolvency. We anticipate that about one month of interest and principal collections including prepayments would be commingled. As the transaction does not have a commingling reserve, we have treated this amount as a loss in our cash flow analysis. Back-up servicing Multilease AG will act as servicer for the transaction assets. No back-up servicer will be appointed at closing. We believe that the operational risk associated with servicer insolvency and the transition to a new substitute servicer is limited because of the following factors: The assets are lease receivables based on contracts that are in line with market practice. Given the size of Switzerland's leasing market and the availability of third-party servicing in this area, we expect the issuer would be able to contract a substitute servicer with adequate servicing capabilities in a relatively short time period. According to the transaction documents, the servicer facilitator will facilitate the appointment of a replacement servicer if a servicer termination event occurs. A lessee and dealer notification process is in place to limit the time period during which collections are routed through the insolvent servicer. The transaction has a cash reserve that is sufficient to cover interest on the rated notes for an adequate period of time. MARCH 14,

9 Collateral Description The collateral pool consists of auto lease and residual value receivables that are based on leasing contracts that Multilease AG entered into with its Swiss private and commercial leasing customers. Lessees in the pool finance either new or used vehicles. All contracts in the pool are based on similar terms with respect to maximum term, repayment profile, or termination rights. Typically, lease contracts comprise two elements: the regular lease installments, which cover the vehicle's depreciation in value over the contract's life, and the vehicle's residual value when the lease contract expires. In this transaction, both the lease installments and the residual values are securitized. Portfolio stratification and eligibility criteria Table 2 shows the provisional pool's breakdown. Table 2 Breakdown Of The Provisional Pool* Pool characteristics Lease balance (mil. CHF) 330 Number of lease contracts 19,558 Average discounted lease balance 16,873 Minimum portfolio yield(%) 3.0 Weighted-average original term (months) 49.3 Weighted-average remaining term (months) 31.5 Weighted-average seasoning (months) 17.8 Pool concentrations Top 20 customers (percentage of balance; %) 1.2 Top vehicle Make (l) Toyota (percentage of balance; %) 26.5 Top region (Zürich) (percentage of balance; %) Distribution by product Share of used vehicles (percentage of balance; %) Share of commercial customers (percentage of balance; %) *All values as of Dec. 31, The transaction documents set out certain eligibility criteria for receivables in the pool as follows: All receivables are denominated in Swiss francs. No payments are overdue or have defaulted. The lease and dealer agreements comply with Swiss law and the agreements are legally valid, binding, and enforceable. No act of fraud or misrepresentation has occurred. The original term of the leases is not more than 60 months. The seller has received at least one lease installment as of the relevant cut-off date. The seller is under no obligation to provide any maintenance, insurance, or other services. MARCH 14,

10 The lease agreement is not linked to payment protection insurance. The finance amount is less than or equal to CHF250,000. The lease agreement has an interest rate of at least 0.4% a year. The lessee's registered office, in the case of corporate entities, or place of residence, in the case of individuals, is in Switzerland. The lease and dealer agreements' status and enforceability is, according to the seller, not impaired due to the lessee or dealer's warranty claims or any other rights (including set-off rights). The pool includes no employees of Multilease AG. No lessee is an Emil Frey Group company. Credit And Cash Flow Analysis Our ratings analysis includes an assessment of the credit risk inherent in the transaction. We analyze various stress scenarios and their effects on the cash flow under the notes by applying our European auto ABS criteria. We have received monthly static gross loss and recovery data showing cumulative gross losses and recoveries as a percentage of the origination volume (defaulted volume, for recoveries) in Multilease AG's lease book. The data cover the first quarter of 2011 to the fourth quarter of 2016 and provide for a four-way split between private and commercial customers leasing new and used vehicles. To assess the potential deterioration of the portfolio's credit quality arising from adverse replenishment, we sized separate gross loss and recovery rate base case assumptions and aggregated them into weighted-average base cases. We used a hypothetical worst-case portfolio composition, rather than the individual subportfolios' shares of the preliminary pool. Chart 2 shows total cumulative gross losses in the originator's books. We can see that overall performance has been very good and stable over the observed period. However, we acknowledge that the data set does not cover the economic downturn in 2008 and 2009, when unemployment in Switzerland almost doubled to about 4% from 2%. MARCH 14,

11 Chart 2 We set our base case assumptions for the subpools based on the stable performance of the receivables and to reflect the relatively benign economic conditions that we expect for Switzerland in the next two years. To incorporate the risk of portfolio deterioration through adverse replenishment, we constructed a worst-case pool based on the portfolio concentration limits and calculated the weighted-average base case for the total pool based on this, rather than the closing pool composition (see "Revolving period"). We set our gross loss stress multiples at the highest end of our range because this is the originator's first transaction in the Swiss market, the transaction revolves, and the overall gross loss base cases are very low. Tables 3 and 4 summarize our credit assumptions. Table 3 Base Cases (%) Gross Loss Recovery Private customers with new vehicles Private customers with used vehicles Commercial customers with new vehicles Commercial customers with used vehicles Total closing pool Total worst case pool MARCH 14,

12 Table 4 Stress Assumptions Rating Gross loss (%) Recovery (%) Prepayment (%) AAA to 24 AA to 24 BBB to 24 Market value risk The issuer faces the risk of loss on the receivables that represent the residual values if/when: A vehicle's market value is below the purchase price the issuer paid for the receivable (loss severity); and A third party (in this case, dealers), which covers the loss, defaults (risk frequency). We combined these parameters into the residual value loss rate, that is, the loss on residual value claims that reach their contractual maturity (after defaults and prepayments). We assumed a market value decline (that is, loss severity) of 39% of the residual value of the vehicles at 'AAA'. This assumption is based on forecasts for used car prices in Europe, Multilease's sales data and underwriting data, and the portfolio's comparatively high vehicle brand diversification. We applied an 83.4% risk frequency at the 'AAA' level because the market value risk is ultimately transferred to the issuer for all contract types in the pool. We gave some benefit to the fact that dealers independent from Emil Frey Group undertake to repurchase the vehicles for a purchase price equal to the residual value. According to the transaction documents, the percentage of repurchase agreements provided by non-emil Frey dealers is floored at 73%. We did not give benefit to repurchase agreements from the remaining portion which relates to Emil Frey dealers, because we do not consider the default risk of Emil Frey to be mitigated to a level commensurate with the assigned ratings for those dealers. We sized aggregate numbers based on the worst-case portfolio composition to take into account potential portfolio deterioration through replenishment. In our cash flow model, we applied these residual value loss rates only to those residual values that see their contractual maturity; that is, we applied this loss rate to the assets after prepayments and defaults. Cash flow analysis In our cash flow modeling, we applied stressed losses equally for a period of 21 months. We stressed the prepayment rates, and ran interest rate scenarios. We further assumed a stressed servicing fee of 1% of outstanding asset balance plus a fixed component of CHF250,000 a year, so that in our modeling, the available excess spread is reduced to approximately 1.3% per year as of closing. We have assumed asset yield to be equal to the minimum asset yield of 3.00% set out in the transaction documents. The model incorporates the payment structure, including the cash reserve's turbo amortization and nonamortizing features. We model additional losses for commingling risk because this is not covered through a reserve or other mitigants. MARCH 14,

13 Our analysis indicates that the credit enhancement available to the rated notes is sufficient to withstand the credit and cash flow stresses that we apply at the respective rating levels. Our preliminary rating addresses not only the availability of funds for full payment of interest and principal, but also the timeliness of these payments in accordance with the terms of the rated securities. Scenario Analysis This scenario analysis section incorporates: A description of our methodology and scenario stresses, Results of the effects of the stresses on ratings, and Results of the effects of the stresses on our cash flow analysis. Methodology When rating European auto and consumer ABS transactions, we have developed a scenario analysis and sensitivity-testing model framework. This demonstrates the likely effect of scenario stresses on the ratings in a transaction over a one-year outlook horizon. For this asset class, we consider scenario stresses over a one-year horizon to be appropriate, given the relatively short weighted-average life of the assets backing the notes. For these types of securities, there are many factors that could cause the downgrade and default of a rated note, including asset performance and structural features. However, for the purposes of this analysis, we focused on the three fundamental drivers of collateral performance, namely: Gross loss rate, Recovery rate, and Prepayment rate. Given current economic conditions, the proposed stress scenarios reflect negative events for each of these variables. Increases in gross default rates could arise from a number of factors, including rises in unemployment and company insolvencies, together with falls in house prices and a reduction in the availability of credit. In addition, these effects would most likely cause collateral recovery rates to fall as the structural imbalance between supply and demand leads to reductions in asset prices. In this environment, we also expect prepayment rates to fall as fewer refinancing options leave obligors unable to prepay finance agreements and demand for replacement vehicles falls. For this analysis, we have included two stress scenarios to demonstrate the transition of a rating on a note (see table 5). Table 5 Scenario Stresses Rating variable Scenario 1 (relative stress to base case) Scenario 2 (relative stress to base case) Gross loss rate (%) Recovery rate (%) (30) (50) Constant prepayment rate (%) (20) (33) MARCH 14,

14 We intend our base-case assumptions for each transaction to be best estimates of future performance for the asset pool. Our approach in determining these base cases would incorporate historically observed performance and an expectation of potential changes in these variables during the life of the transaction. The sensitivity of rated notes in each transaction will differ depending on these factors, in addition to structural features of the transaction, including its reliance on excess spread, payment waterfalls, and levels of credit enhancement at closing. For each proposed scenario stress, we separate the applied methodology into three distinct stages. In the first stage, we stress our expected base-case assumptions over a one-year period to replicate deviations away from our expected performance over the stress horizon. We assume that the stresses that we apply occur at closing, and apply gross losses based on our expectation of a cumulative default curve for the pool. The second stage applies our usual rating methodology, including revising our base-case assumptions at the one-year horizon to reflect the assumed deviations as a result of the stressed environment. In the final stage of the analysis, we re-rate the transaction at the one-year horizon, after revising our base-case assumptions and applying our standard credit and cash flow stresses at each rating level. The output of the analysis shows the likely rating transition of the rated notes, given the applied stresses and the value and timing of any forecasted principal and interest shortfalls under the most stressful scenario. Scenario stress and sensitivity analysis When applying scenario stresses in the manner described above, we intend the results of this modeling to be a simulation of what could happen to the ratings on the notes for the given transaction. For the purposes of our analysis for this transaction, we applied the two scenarios described above in our cash flow modeling. Tables 6 to 8 show the implied base case stresses and scenario stress results. Table 6 Scenario Stresses Stress Horizon--12 Months Rating variable Base case Scenario 1 Scenario 2 Gross loss rate (%) Recovery rate (%) Constant prepayment rate (%) Market value decline (%) Table 7 Scenario Stress Analysis--Rating Transition Results Scenario stress Class Initial rating Scenario stress rating Scenario 1 A AAA (sf) AAA (sf) B AA- (sf) AA- (sf) C BBB+ (sf) BB (sf) Scenario 2 A AAA (sf) AAA (sf) B AA- (sf) BBB (sf) C BBB+ (sf) NR (sf) MARCH 14,

15 Table 8 Cash Flow Effect Principal shortfall Scenario stress Worst-case run Amount (mil. ) Class A Cumulative interest shortfall Expected loss as a percentage of the transaction size (%) Month Amount ( ) Starting in month Scenario 1 Scenario 2 Class B Scenario 1 Scenario 2 Class C Scenario 1 Scenario 2 Low prepayment, falling interest rate Low prepayment, falling interest rate Low prepayment, falling interest rate Low prepayment, falling interest rate Low prepayment, falling interest rate Low prepayment, falling interest rate None 0 N/A None N/A None 0 N/A None N/A None 0 N/A None N/A 7,969, % 59 None N/A 6,362, % 59 None N/A 14,190, % 59 None N/A N/A Not applicable. Where interest or principal shortfalls occur under the most senior notes, the holders of these notes or the trustee can call an event of default. This could lead to multiple events, such as the post-enforcement priority of payments being applied. All of these events would have an effect on the transaction cash flows. For the purposes of the analysis above, we make a simplified assumption that the trustee will not call an event of default. Monitoring And Surveillance As part of our ongoing surveillance of this transaction, we regularly assess: The performance of the underlying pool, including defaults, delinquencies, and prepayments; The supporting ratings in the transaction; and The servicer's operations and its ability to maintain minimum servicing standards. Related Criteria And Research Related Criteria Criteria - Structured Finance - General: Ratings Above The Sovereign - Structured Finance: Methodology And Assumptions, Aug. 08, 2016 Criteria - Structured Finance - ABS: Methodology And Assumptions For European Auto ABS, Oct. 15, 2015 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 02, 2015 Criteria - Structured Finance - ABS: Global Methodology And Assumptions For Assessing The Credit Quality Of MARCH 14,

16 Securitized Consumer Receivables, Oct. 09, 2014 Criteria - Structured Finance - General: Global Framework For Assessing Operational Risk In Structured Finance Transactions, Oct. 09, 2014 Criteria - Structured Finance - General: Global Framework For Cash Flow Analysis Of Structured Finance Securities, Oct. 09, 2014 Legal Criteria: Europe Asset Isolation And Special-Purpose Entity Criteria--Structured Finance, Sept. 13, 2013 Criteria - Structured Finance - General: Counterparty Risk Framework Methodology And Assumptions, June 25, 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 - General: Standard & Poor's Revises Criteria Methodology For Servicer Risk Assessment, May 28, 2009 Criteria - Structured Finance - ABS: European Consumer Finance Criteria, March 10, 2000 Related Research European Economic Snapshots: February 2017, Feb. 28, 2017 European Structured Finance Scenario And Sensitivity Analysis 2016: The Effects Of The Top Five Macroeconomic Factors, Dec. 16, 2016 Global Structured Finance Scenario And Sensitivity Analysis 2016: The Effects Of The Top Five Macroeconomic Factors, Dec. 16, 2016 How We Rate And Monitor EMEA Structured Finance Transactions, March 24, 2016 Scenario and Sensitivity Analysis: 2015 EMEA ABS Scenario And Sensitivity Analysis, Aug. 6, 2015 Scenario Analysis: Gross Default Rates And Excess Spread Hold The Answer To Future European Auto ABS Performance, May 12, 2009 Analytical Team Primary Credit Analyst: David Tuchenhagen, Frankfurt ; david.tuchenhagen@spglobal.com Secondary Contact: Marc-Orell Stadthaus, Frankfurt; marc-orell.stadthaus@spglobal.com MARCH 14,

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