OSCAR US Funding Trust V

Transcription

1 Presale: OSCAR US Funding Trust V US$362.2 Million OSCAR US Class A-1 To Class A-4 Fixed/Float-Rate Notes The ratings shown are preliminary. This report does not constitute a recommendation to buy, hold, or sell securities. Subsequent information may result in the assignment of final ratings that differ from the preliminary ratings. Please call S&P Global Ratings at (81) for the final ratings when assigned. Preliminary Ratings As Of Sept. 9, 2016 Class A-1 Notes A-2a Notes A-2b Notes A-3 Notes A-4 Notes Preliminary amount (mil. US$)* Preliminary rating Interest rate Legal final maturity date O/C ratio (%) A-1+ (sf) Fixed Sept. 15, AAA (sf) Fixed Nov. 15, AAA (sf) Floating Nov. 15, AAA (sf) Fixed Dec. 15, AAA (sf) Fixed Dec. 15, *The aggregate issue amount and the breakdown of the issue amounts of the class A-1 to A-4 notes are tentative and may be changed by the closing date. The O/C ratio is defined as follows: 1-(A+B)/(C-D-E); A: the rated obligations and equally ranked obligations; B: prior obligations to the rated obligations; C: underlying assets (including cash); D: liquidity reserves; E: obligations, except for senior, mezzanine, or subordinate obligations (seller's interest, etc.). Because the currency exchange rates applicable to each class of notes differ, we used the principal amounts of the yen-denominated bonds to calculate the O/C ratios of the notes. O/C--Overcollateralization. Primary Credit Analyst: Toshiaki Shimizu, Tokyo (81) ; toshiaki.shimizu@spglobal.com Secondary Contact: Hiroshi Sonoda, Tokyo (81) ; hiroshi.sonoda@spglobal.com See complete contact list on last page(s) SEPTEMBER 9,

2 Profile Expected closing date Sept. 27, 2016 Collateral Auto loan receivables Originator/Servicer/Trustor Orient Corp. Backup servicer MU Frontier Servicer Co. Ltd. Japan trustee Mizuho Trust & Banking Co. Ltd. Indenture trustee U.S. Bank National Association Issuer OSCAR US Funding Trust V Owner trustee Wilmington Trust N.A. Bond issuer Oscar Japan 5 LLC Bank account provider Mizuho Bank Ltd. Arranger Mizuho Securities Co. Ltd. Swap counterparty [BNP Paribas]* Underwriter Mizuho Securities USA Inc. *BNP Paribas' participation as swap counterparty has not been finalized and is subject to all the bank's internal approvals being obtained. Credit Support Overcollateralization Credit support provided through overcollateralization will mitigate the credit risk of the notes. Prior to the occurrence of early amortization events, principal on the subordinate BI will be redeemed subject to certain conditions. Principal repayment will cease during the early amortization period. Excess spread Prior to the occurrence of early amortization events, excess spread (collected interest remaining after expenses and interest payments on the senior BIs and ABLs) will be partially used to cover losses of the subordinate BI resulting from defaults of auto loan receivables ("default trap"). During the early amortization period, interest and principal payments on the subordinate BI will stop and excess spread will be allocated to the repayment of the senior BIs and ABLs. BI--Beneficial interest. ABL--Asset-backed loan. Transaction Structure Servicing risk Liquidity risk Commingling risk Currency and interest mismatch risks Counterparty risk Assumed Scenarios The Japan trustee could discharge the servicer from its duties should the servicer become involved in certain credit events in the future. MU Frontier Servicer will be appointed as the backup servicer at closing. A cash reserve to be funded at closing for four months' worth of interest payments and transaction expenses will mitigate liquidity risk. This cash reserve will amortize over the transaction term, and the released amount will be used to repay the outstanding principal on the senior BIs and ABLs. Overcollateralization will mitigate commingling risk. The collateral underlying this transaction is denominated in Japanese yen and carries fixed interest rates, whereas the notes will be denominated in U.S. dollars and will carry fixed interest rates, except for the A-2b notes, which will carry a floating rate. Cross-currency interest rate swaps will be entered into to hedge these mismatch risks. The transaction's downgrade provisions and replacement or remedy mechanisms will mitigate its exposure to counterparty risk arising from the transaction account providers and the swap counterparty. (%) Base-case scenario 'AAA' stress scenario Cumulative default rate Loss timing by months outstanding (12/24/36/48) 41 / 28 / 17 / 9 23 / 41 / 21 / 10 Monthly prepayment rate SEPTEMBER 9,

3 Assumed Scenarios (cont.) (%) Base-case scenario 'AAA' stress scenario Commingling losses Excess spread Break-even overcollateralization level Rationale S&P Global Ratings has assigned its preliminary 'A-1+ (sf)' short-term rating to the class A-1 notes and its preliminary 'AAA (sf)' long-term ratings to the class A-2a, A-2b, A-3, and A-4 notes (collectively, "the notes") to be issued by the special-purpose entity OSCAR US Funding Trust V, which is a Delaware statutory trust (see tables above). Japanese auto loan receivables that Orient Corp. (Orico) originated will ultimately back the notes. Information we obtain hereafter may lead us to assign final ratings that differ from the preliminary ratings. The preliminary ratings reflect our views primarily on the below factors. We assume a cumulative default rate on the initial receivables balance of 1.2% during the transaction term, based on the characteristics of and historical data on the underlying auto loan assets as well as our overall outlook for the future performance of Japanese auto loan assets. We also assume a cumulative default rate of 6.0% under our 'AAA' stress scenario. Credit support, provided through overcollateralization, will mitigate the credit risk of the underlying assets. In addition, excess spread will also serve as credit support for the notes. Timely interest payments and the ultimate repayment of principal on the notes by the legal final maturity dates were made under stressed cash flow modeling scenarios that we believe are appropriate for the assigned preliminary ratings. Overcollateralization of the securitized receivables will mitigate commingling risk. Cash reserves to be funded on the transaction's closing date will provide liquidity support to the transaction if the servicer is replaced. We consider that Orico has sufficient experience and ability to fulfill its role as the initial servicer in the transaction. The transaction's payment structure and cash flow mechanisms include a default trap and the establishment of early amortization triggers that will convert principal payments to a monthly pass-through turbo structure under certain adverse circumstances. Our review of the transaction relied in part on our interpretation of our criteria, "Ratings Above The Sovereign - Structured Finance: Methodology And Assumptions," published Aug. 8, 2016, as appropriate for our assessment of the impact on our ratings from our transfer and convertibility (T&C) assessment for Japan. Our T&C assessment reflects our view of the likelihood of a sovereign restricting a securitization's access to foreign exchange needed to satisfy the securitization's debt service obligations. We base our assessment on paragraph 46 of the criteria, which states that a foreign-currency obligation backed by local-currency assets in a single jurisdiction will be capped at the T&C for that jurisdiction, unless there are structural mitigants for T&C risk. Despite the currency mismatch between the assets underlying this transaction and the payments to investors, we believe the transaction can be rated above 'AA+', our T&C assessment for Japan. This is because payment transfers outside Japan occur in yen, and the currency swap counterparty, which is a non-japanese entity, will swap yen received outside Japan for U.S. dollars with an adequate replacement commitment in line with our counterparty criteria. We believe these structural SEPTEMBER 9,

4 features of the transaction, including the definition of a termination event in the currency swap agreement, sufficiently mitigate its T&C risk. We consider the maximum potential rating on the notes in this transaction to be 'AAA'. This is because the securitization has no direct exposure to sovereign obligations and has sufficient credit support to withstand our sovereign default stress test, and the sensitivity of the underlying asset type to country risk is moderate. This also accords with our above criteria for single-jurisdiction structured finance ratings above the sovereign. The transaction's legal structure establishes that the entrustment of the underlying assets will not be considered as security interest and thus the underlying assets will not be considered as part of the originator's property in the event of the originator's bankruptcy. Transaction Structure The US$362.2 million notes will be backed by the 37.3 billion class A-1 to A-4 fixed-rate bonds to be issued by Oscar Japan 5 LLC. The bonds, in turn, will be backed by the class A-1 to A-4 asset-backed loans (ABLs) to be extended to Mizuho Trust & Banking Co. Ltd. (the Japan trustee). The pool of auto loan receivables that Orico originated will back the ABLs. The transaction structure follows (see chart 1). Chart 1 SEPTEMBER 9,

5 1. The originator will entrust auto loan receivables with the Japan trustee. The Japan trustee will issue the senior beneficial interests (senior BIs) and the subordinate beneficial interest (subordinate BI) to the originator. At the entrustment, the lien on the receivables will be perfected against third-party claims via registration of the transfer of the receivables, pursuant to regulations for perfection under Japan's Special Perfection Law. Perfection against obligor claims will be suspended until the occurrence of certain events, including a servicer replacement. 2. The Japan trustee will delegate the servicing of the auto loan receivables to the originator. A backup servicer will also be appointed on the transaction's closing date. 3. The originator will sell the A-1 to A-4 senior BIs wholly to Oscar Japan 5 LLC and the A-5 senior BI to Mizuho Securities Co. Ltd. Mizuho Securities will extend the A-1 to A-4 ABLs to the Japan trustee and the Japan trustee will use the funds from the ABLs to redeem the A-1 to A-4 senior BIs held by Oscar Japan 5. Mizuho Securities will then sell the A-1 to A-4 ABL receivables to Oscar Japan 5. Should the principal amounts of the extended ABLs be less than the issue amounts of the A-1 to A-4 senior BIs, only amounts of the A-1 to A-4 senior BIs equal to those of the corresponding ABLs will be sold to Oscar Japan 5 and the remaining senior BIs will be sold to investors. 4. Oscar Japan 5 will issue the A-1 to A-4 Japanese yen-denominated bonds that OSCAR US Funding Trust V is to purchase. 5. OSCAR US Funding Trust V will enter into a cross-currency interest rate swap agreement for each class of notes with the swap counterparty. 6. OSCAR US Funding Trust V will issue the A-1 to A-4 U.S. dollar-denominated notes, which Mizuho Securities USA will underwrite and sell to investors. The OSCAR US Funding Trust V transaction incorporates the following structural features: Prior to the occurrence of an early amortization event, the Japan trustee will make scheduled principal payments to the holder of each ABL and on the senior BIs sequentially. The subordinate BI will also be redeemed under certain conditions. After the occurrence of an early amortization event, principal payments will switch to a pass-through structure. Under the transaction structure, recoveries from vehicle repossessions and liquidations will not be passed to the Japan trustee. Cash Flow Delivery of collections The monthly collection periods for this transaction run from the first of each month to the end of the same month. Orico will collect payments from the receivables through automatic withdrawal from the obligors' accounts on the 27th of each month. Orico will transfer the collection amount to the Japan trustee on the 24th of the following month. The Japan trustee will distribute interest and principal on the ABLs on the 25th of each month. The bond issuer will pay interest and principal on the bonds on the 13th of each month, and the issuer of the notes is scheduled to pay interest and principal on the notes on the 15th of each month. SEPTEMBER 9,

6 The first interest and principal payment date for the senior BIs and ABLs will be Oct. 25, The first interest and principal payment date for the bonds will be Nov. 9, 2016, and that on the notes will be Nov. 15, Because the interest and principal payments for the ABLs will be passed through and ultimately used to pay the interest and principal on the notes after being exchanged for U.S dollars through cross-currency interest rate swaps, and because each of the A-1 to A-4 senior BIs and A-1 to A-4 ABLs are repaid pro rata, the following description focuses primarily on repayment of the senior BIs and ABLs. Repayment of ABLs The Japan trustee will use interest collected from the auto loan receivables (less an amount equivalent to the sum of trustee fees, servicing fees, and other expenses) to pay interest on the A-1 to A-5 senior BIs and A-1 to A-4 ABLs pari passu. The A-1 to A-5 senior BIs and A-1 to A-4 ABLs carry fixed interest rates. Additionally, the Japan trustee will repay principal on the A-1 to A-5 senior BIs and A-1 to A-4 ABLs. The Japan trustee will repay the ABLs sequentially from the A-1 senior BI and ABL, A-2a and A-2b senior BIs and ABLs, A-3 senior BI and ABL, A-4 senior BI and ABL, to the A-5 senior BI. Also, principal will be repaid via a controlled amortization structure. Principal on the A-2a and A-2b senior BIs and ABLs are paid pari passu. The occurrence of an early amortization event will convert the principal payment mechanism from monthly controlled amortization to a pass-through turbo structure, and interest payments and principal repayments on the subordinate BI will cease. Before the occurrence of an early amortization event, if any of the auto loan receivables default, the originator will entrust cash equivalent to 50% of the principal on the defaulted receivables. This entrusted cash will then be transferred to the principal collection account to repay the senior BIs and ABLs. Prior to early amortization, excess spread will cover up to 50% of the principal on the defaulted receivables as a default trap. Upon the occurrence of an early amortization event, the entrustment mechanism will remain in effect but the default trap through the excess spread will cease. In addition, the bankruptcy of the originator would terminate the entrustment mechanism. The required cash reserve amount--which equals four months' worth of interest payments, and transaction expenses, as well as costs required for perfection against obligor claims and the start-up of the call center--will be deposited at closing. In addition, an amount equal to the sum of the outstanding amounts of the payment reserve and cash retained in the principal collection account multiplied by 1.5% and the weighted average life of the senior BIs and ABLs will be retained from the cash flow to cover negative carry. The cash reserve will amortize but the excess will be applied to principal redemption for the senior BIs and ABLs. The required amount of the payment reserve will be transferred from the principal collection account during the transaction term in accordance with the waterfall to cover any shortfall in scheduled principal repayments for the senior BIs and ABLs. The required amount is initially set at 500 million and will amortize according to a predetermined schedule. The amount available for redemption of the subordinate BI is the amount calculated by (1)-(2)-(3)+(4) below. Note that if the three-month moving average of the monthly default rate exceeds 0.4%, (1)-(2)-(3) is deemed to be zero. Also, SEPTEMBER 9,

7 (1)-(2)-(3) will be adjusted so that the outstanding amount of the subordinate BI after the redemption will not fall below 30% of the initial issue amount. Additionally, if (1)-(2)-(3) or (4) becomes negative, it is deemed to be zero. (1) The subordinate BI outstanding amount, less the amount of defaulted receivables retained within the trust account and the sum of the outstanding amounts of the payment reserve and cash reserve (2) The outstanding amount of auto loan receivables, less the amount of defaulted receivables retained within the trust account, then multiplied by the appropriate percentage listed below (3) The maximum of the sum of scheduled principal payment amounts of two consecutive months (4) Any excess above the required amount of the cash reserve, after adjustments in the waterfall From closing date to Sept. 25, 2017: 6.9% Oct. 25, 2017, to Sept. 25, 2018: 7% Oct. 25, 2018, to Sept. 25, 2019: 8% Oct. 25, 2019, to Sept. 25, 2020: 9% Oct. 25, 2020, to Sept. 25, 2021: 10% After Oct. 25, 2021: 11% The priority of interest and principal payments before any early amortization events are as follows (see table 1): Table 1 Payment Waterfall (Simplified) Payment from interest collection account 1. Tax (if any) 2. Payments in the following order of priority until the sum of such payments reaches 15 million: (a) trustee fee, (b) servicing fee, and (c) any other expenses 3. The following payments, pari passu: (a) scheduled and unpaid interest on the senior BIs, and (b) scheduled and unpaid interest on the ABLs 4. Payment exceeding the 15 million ceiling in (2) above 5. Transfer of the amount of outstanding principal of defaulted receivables to the principal collection account (If the originator entrusts cash equivalent to 50% of defaulted receivables, this transferred amount will be up to 50% of the principal on the defaulted receivables.) 6. Transfer of the amount of shortfall in scheduled principal repayments on the senior BIs and ABLs to the principal collection account 7. Transfer of the remaining amount to the subordinate beneficial interest holder as interest payment Payment from principal collection account 1. Transfer of the amount of shortfall in fees, expenses, and interest payable to the interest collection account 2. Transfer of the amount of shortfall in the required amount of the cash reserve to the cash reserve account 3. Payments in the following order of priority, with any amount in the payment reserve account allocated for shortfalls: (a) scheduled principal on the A-1 senior BI and ABL, (b) scheduled principal on the A-2a and A-2b senior BIs and ABLs, (c) scheduled principal on the A-3 senior BI and ABL, (d) scheduled principal on the A-4 senior BI and ABL, and (e) scheduled principal on the A-5 senior BI 4. Payments or transfers in the following order, within the scope of the amount available for redemption of the subordinate BI: (a) amount of shortfall in the required amount of the payment reserve to the payment reserve account, and (b) redemption of principal on the subordinate BI 5. Remaining amount to be retained in the principal collection account SEPTEMBER 9,

8 Early amortization triggers This transaction will be structured with early amortization triggers that help protect the notes from any potential adverse impact in terms of redemption. Early amortization trigger events will include, but will not be restricted to, the following: It is discovered that the scheduled redemption amount for the senior BIs and ABLs will not be redeemed in whole or in part on any calculation date; The three-month moving average of the monthly default rate exceeds 0.45% for two consecutive months; A tax event (such as the imposition of withholding tax on transaction cash flows) occurs; A servicer replacement event occurs; and Funds in the cash reserve account become less than the required amount. In the early amortization period, the Japan trustee will repay the ABLs via a pass-through, sequential structure. The Japan trustee will transfer all of the cash in the interest collection account, the cash reserve account, and the payment reserve account to the principal collection account. After the Japan trustee pays an amount equivalent to the sum of tax, trustee fees, servicing fees, and the management and administration fee, it will pay interest on the senior BIs and ABLs pari passu. After the Japan trustee transfers the shortfall in the required amount of cash reserves, it will repay the principal in the following order: (1) A-1 senior BI and ABL, (2) A-2a and A-2b senior BIs and ABLs, (3) A-3 senior BI and ABL, (4) A-4 senior BI and ABL, and (5) A-5 senior BI. Interest payments and principal repayments on the subordinate BI will cease during the early amortization period. Upon termination of the trust, the Japan trustee will use any cash retained in the interest and principal collection accounts and the cash and payment reserve accounts (less trustee fees, servicing fees, the management and administration fee, etc.) to pay interest on the senior BIs and ABLs pari passu. Then the Japan trustee will repay the principal on the A-1 senior BI and ABL first, and then the A-2a/A-2b to A-5 senior BIs and A-2a/A-2b to A-4 ABLs. If the amounts of outstanding principal on the senior BIs and ABLs become 10% or less of the initial issue amounts of the senior BIs or if a tax event such as the imposition of withholding tax on transaction cash flows occurs, Orico may purchase all outstanding auto loan receivables remaining by giving written notice to the Japan trustee. Originator Orico is a major Japanese consumer credit company ("shinpan gaisha") that was incorporated in The company's main lines of business are extending auto loans, shopping credit, credit cards, direct cash loans, and bank loan guarantees. It became an equity-method affiliate of Mizuho Financial Group Inc. in It had total consolidated assets of about 5,153 billion and about 4,416 employees as of March 31, Originator review meeting Orico began offering the first auto loans among Japan's consumer credit companies about 30 years ago and has the top share of Japan's auto loan market. The company extends loans with equal monthly repayments, loans with repayment amounts that borrowers can set and change freely, and loans with large term-end balloon payments. As of the end of fiscal 2015 (ended March 31, 2016), it had an outstanding balance of about 1,661 billion in auto loans and 1.56 million auto loan borrowers, and it provided auto loans totaling about 817 billion in the same fiscal year. SEPTEMBER 9,

9 According to Japan Consumer Credit Association's statistics, major credit providers such as consumer credit companies, retailer-affiliated credit companies, and manufacturer-affiliated credit companies extended a total of 3.9 trillion in auto loans in fiscal 2015, giving Orico a 20% share of the market. Table 2 Overview Of Orico's Auto Loan Products Loan product Auto loans with equal monthly repayments ("equal installment auto loans") Loans with repayment amounts that borrowers can set and change freely ("New Budget Loans" [NBLs]) Loans with large, term-end balloon payments ("balloon auto loans") Description Borrowers can make bonus repayments in addition to monthly repayments. Borrowers make equal or unequal monthly repayments. Later, subject to certain conditions, borrowers can change the repayment method and term (step-up, step-down, partial prepayment, or full prepayment). These loans have smaller equal monthly repayments and a large balloon payment at the end of the loan term. Origination/Underwriting. Orico receives auto loan applications through its network of roughly 180,000 member dealers. There are two types of auto loans: (1) auto loans for which Orico reimburses the dealer an amount equivalent to the purchase price of the vehicle on the borrower's behalf; and (2) auto loans for which an affiliated lender extends a loan guaranteed by Orico to a borrower (an "affiliated loan"). To secure the loan, Orico retains ownership of the vehicle that a dealer's customer has purchased and, as a general rule with respect to loans of 1.5 million or more, perfects the retained ownership of the vehicle against third-party claims by registering itself as the owner under the Road Trucking Vehicle Law. Orico's credit officers use an automated examination system that provides a credit score and alarm message to be reviewed as part of the credit analysis to determine whether an applicant qualifies for an auto loan. During the credit screening process, the credit officer uses applicant data retrieved from Orico's and Credit Information Center Corp.'s (CIC's; see the next paragraph) databases to check an applicant's debt and payment status and to verify that the data provided by the applicant in the loan application do not contradict CIC's and Orico's existing data on the applicant. Finally, the credit officer approves the loan after contacting the applicant via telephone to confirm his or her intention to enter into an auto loan agreement as well as certain aspects of the application. The revised Installment Sales Act, which became fully effective in December 2010 to prevent multiple debtors and excessive credit sales from occurring, prohibits credit companies from entering into a credit contract if the transaction amount exceeds the purchaser's estimated maximum affordable amount. The law requires that the credit company use credit information (about the purchaser's debt to other credit companies and the person's payment history) provided by state-designated credit information bureaus to calculate the purchaser's estimated maximum affordable amount. CIC is a designated credit bureau under both the Installment Sales Act and the Money-Lending Business Act. CIC holds more than 680 million credit reports, including registered data provided by about 950 members that engage in credit activities and data obtained from other credit bureaus. Orico checks the financial status, sales records, sales methods, and reputation of its member auto dealers to prevent misstatements and fraud, and manages its auto dealers accordingly. Servicing. Borrowers make payments on the 27th of each month through automatic bank transfer from their bank accounts. If a payment is not made by the beginning of the third day of the following month, Orico's three service centers use their autocall system to make multiple payment requests to borrowers. If an auto loan is three months SEPTEMBER 9,

10 overdue, on the 10th of the following month Orico considers that the loan has defaulted and one of its 14 loan management centers located across Japan initiates legal proceedings and takes any other action deemed necessary. Collateral Description The outstanding amount of the mother pool is billion. The mother pool includes only equal installment auto loan receivables and does not include "New Budget Loans" (NBLs), receivables guaranteed by CAL Credit Guarantee Co. Ltd., or balloon auto loan receivables. Some of the receivables in the mother pool failed to meet the eligibility criteria for the entrusted pool, such as loans in arrears, affiliated loans, and already-securitized receivables. The collateral pool backing the transaction comprises 34,712 auto loans with a total principal balance of about 41.5 billion. The assets meet the following major eligibility criteria. The obligor is a resident of Japan. Installment payments must be paid on the 27th of each month. Either no delay of payment or default has occurred, or the initially agreed payment period has not been extended. The borrower makes monthly payments in equal monthly installments, and without skipped or irregular payments (except for the first and last installment payments and any bonus payments). As of Aug. 10, 2016 (the cutoff date), the outstanding loan amount of each receivable was 20,000,000 or less. The remaining number of monthly installments is no fewer than three and no more than 84 as of the cutoff date. The annual interest rate on the auto loan is not less than 0.9%. An overview of the mother pool and the entrusted pool as of the cutoff date is shown below (see table 3). The attribute data of the mother pool is based on the aggregate pool of principal and interest, while that of the entrusted pool is based on a pool that comprises the principal portion only. Orico originated more than 98% of the receivables in the entrusted pool in As of the cutoff date, the average size of the outstanding receivables is about 855,000 in the mother pool and 1,195,580 in the entrusted pool. Also, the average initial loan size is 1,243,000 in the mother pool and 1,202,000 in the entrusted pool. On the other hand, the weighted average of the original loan term is 59 months in the mother pool and 57 months in the entrusted pool. About 11.6% of the obligors in the mother pool are corporate, whereas the proportion is 16.0% in the entrusted pool. ("Corporate" obligors refer to sole proprietors who made auto loan agreements under their business' name after purchasing the vehicles for private use.) This is because affiliated loans usually do not deem corporate contracts as eligible, so the proportion of corporate contracts in the securitized pool, which does not include affiliated loans, tends to be higher. The geographical distributions show diversified pools, reflecting the distribution of residences in Japan. About 64% of the mother pool comprises auto loan contracts extended for the purchase of used cars, while the proportion is 74% in the entrusted pool. SEPTEMBER 9,

11 Table 3 Attribute Data Of Receivables Pool Total pool (as of Aug. 10, 2016) Pool type Mother pool Entrusted pool County of origin Japan Japan Total receivables balance ( 000s) 599,146,077 41,500,966 No. of contracts 700,889 34,712 Average outstanding receivables size ( 000s) 855 1,196 Customer type Retail (88.4%); Corporate (11.6%) Retail (84.0%); Corporate (16.0%) Vehicle type New (32.6%); Used (64.1%); Motorbike (3.2%) New (26.5%); Used (73.5%); Motorbike (0.0%) Geographic concentration Saitama (6.8%); Tokyo (6.6%); Osaka (6.3%); Aichi (6.2%); Hokkaido (6.0%) Hokkaido (7.0%); Tokyo (6.8%); Saitama (6.6%); Osaka (6.5%); Aichi (6.4%) Average initial loan size ( 000s) 1,243 1,202 Weighted average interest rate (%) Weighted average original term (months) Weighted average remaining term (months) N.A N.A. 56 Origination timing N.A. Between August 2010 and November 2014 (0.2%); 2015 (1.3%); Between January and August 2016 (98.5%) Note: The pool characteristics data were provided in total sum numbers. Therefore, the weighted average figures of the mother pool are rough estimates based on the middle number within each range. (When the upper and lower limits are not indicated, a voluntary number is used.) The weighted average figures of the entrusted pool are provided by the originator. N.A.--Not available. Changes in the annual default rate and monthly prepayment rate of the mother pool are shown below (see charts 2 and 4). Cumulative gross losses on the loans since the vintage year and changes in the monthly cancellation rate based on monthly static data are also shown below (see charts 3 and 5). SEPTEMBER 9,

12 Chart 2 SEPTEMBER 9,

13 Chart 3 SEPTEMBER 9,

14 Chart 4 SEPTEMBER 9,

15 Chart 5 Credit Analysis Of Underlying Collateral Performance outlook for Japanese auto loan receivables Japanese auto loans have traditionally shown stable performance. We attribute this to the relatively high credit quality of auto loan obligors, which we believe reflects the following: Apart from a few exceptions, such as nonregular employees, auto loan borrowers usually have relatively stable incomes and purchase automobiles based on concrete financial plans that consider vehicle maintenance costs; These borrowers tend to repay their loans to avoid repossession of their vehicles, which they need for everyday life; and When their finances are under pressure during the loan period, they can opt to sell their cars and repay their loans. Indeed, defaults by borrowers of auto loans did not surge even when employment conditions deteriorated quickly and wages dropped in 2008 and Since then, the performance of auto loan receivables has improved and the default rates of these receivables remained stable and low in We expect such strong performance to endure in SEPTEMBER 9,

16 Assessment of the credit quality of the underlying assets We examined the following data related to the mother pool that Orico provided: Monthly static data of the pool of monthly installment auto loans (from August 2009 to July 2016); Monthly dynamic data of the pool of monthly installment auto loans (from January 2004 to July 2016); and Attribute data as of Aug. 10, We assessed the major parameters that will affect the credit quality of the underlying assets of this transaction based on a comprehensive analysis of trends in the auto loan sector and economic trends in Japan. Default rate The transaction defines defaulted loans as: Receivables that are 70 or more days delinquent; Receivables of an obligor who has died; Receivables of an obligor against whom bankruptcy or other insolvency proceedings have commenced; and Receivables determined to be bad debt in accordance with standards that Orico prescribed. Under this transaction, upon the entrustment of an auto loan, the originator will transfer its withheld ownership of the relevant purchased vehicle to the Japan trustee, although the withheld ownership will not be registered in the Japan trustee's name. Also, in this transaction, defaulted receivables will be delivered to the subordinate BI holder in the following month, and the recoveries from vehicle repossession and sales will not be passed to the Japan trustee. Therefore, we do not incorporate recoveries from defaulted receivables as a result of repossession and liquidation of vehicles. For the base-case cumulative default rate, we arrived at 1.2% of the total initial principal amount of the receivables (0.57% per year when the prepayment rate is 0.8% per month). Under a stress scenario consistent with our 'AAA' rating, we arrived at a cumulative default rate of 6.0% (about 5.0x the average cumulative default rate assumption under our base-case scenario). According to the dynamic data in chart 2, the annual default rate of the mother pool exceeded 2% between 2005 and 2007 but gradually decreased to below 1% around 2010, and the average annual default rate in the most recent year was below 0.6%. Even in 2008 and 2009, when employment conditions deteriorated quickly, the default rate decreased, albeit more slowly than before. Looking at the cumulative default rates of different vintage pools in chart 3, the cumulative default rates of the 2009 and 2010 vintages have reached approximately 1.5% in the mother pool. The cumulative default rates of the vintages originated after 2011 are generally lower than those of 2009 and We attribute the decrease in the cumulative default rates in both the dynamic and static data to the accumulation of credit information at Orico and the refinement of Orico's screening model. Following the revision of the Installment Sales Act, finance companies are obliged to evaluate the paying capability of obligors using designated credit bureaus. This has, in our view, contributed to the accumulation of credit information at CIC, and ultimately helps to refine Orico's credit assessments. SEPTEMBER 9,

17 We expect the performance of the securitized pool in this transaction to be similar to that of more recent vintages. In our view, the proportion of corporate obligors is slightly higher and that of new cars is lower in the securitized pool, which are negative factors. Although the original term is shorter than the mother pool's, we project that the securitized pool will show slightly worse performance than the mother pool. As a result, we assumed 1.2% for the base-case cumulative default rate. Prepayment rate Dynamic data that Orico provided on the mother pool indicate a monthly prepayment rate of 0.8% of the receivables' outstanding balance at the end of the previous month. For our base-case prepayment rate, we assumed 0.8% (monthly). In addition, under our 'AAA' stress scenario, we arrived at a prepayment rate of 0% at minimum and 1.6% at maximum (monthly). Cancellations Under this transaction, Orico has to repurchase cancelled receivables. However, Orico would be unable to fulfill its repurchase obligations if it went bankrupt. Because payments on the cancelled receivables would stop as a result of Orico's bankruptcy, temporarily disrupting cash flow to the transaction, cancellations would impair the performance of the transaction. Generally, cancellations are strongly related to an obligor's payment history (seasoning). Apart from cancellations that occur immediately after the origination of loan agreements, the number of cancellations of auto loan receivables is limited. According to the static data that Orico provided, the historical cancellation rate during the first three months averages about 0.35%. We consider the cancellation risk to be limited in this transaction because the cancellation rate is minimal and we expect the rate to decrease further as the loans age. Structural Analysis Servicing risk and backup servicer arrangement Orico acts as the transaction's servicer. We conducted an operational review meeting with Orico, and queried the company regarding various issues, including its organizational structure as a servicer, its methods for managing receivables, and its system development activities. We believe Orico has sufficient capability to fulfill its respective roles in this transaction. The Japan trustee could discharge Orico from its servicing activities if certain credit events involving the company occur in the future. Choosing a new servicer and entrusting servicing operations with that company may be a time-consuming process, and may temporarily disrupt collections from the receivables pool. This would, in turn, impair the performance of the transaction. In this transaction, MU Frontier Servicer will be appointed as a backup servicer at the closing date, which mitigates this risk. Liquidity risk This transaction will fund a cash reserve sufficient to cover four months' worth of interest payments and transaction expenses at the transaction's closing to cover the temporary disruption of collections from the receivables pool upon the servicer's default. The required amount of the cash reserve will decrease as the senior BIs and ABLs are repaid, but SEPTEMBER 9,

18 the excess amount will be allocated to principal repayment for the senior BIs and ABLs. Commingling risk and setoff risk Commingling risk appears to be greater in Japan than in other markets. The primary reason is that most Japanese finance companies, including Orico, require all borrowers to repay their loan installments on one specified date (the 27th in Orico's case) every month. The concentration of payments increases the risk of payments becoming commingled with the servicer's funds. This issue is further exacerbated by the great majority of borrowers that use automatic bank account transfers to settle their payments. (Personal checks are rarely used in Japan.) These transfers mean that payments on all performing loans will be received by the 27th. Furthermore, employees in Japan typically receive semiannual salary bonuses around December/January and June/July. Many of the automobile loan contracts are tailored such that borrowers pay relatively large installments after receiving their bonuses (see chart 6). In a worst-case scenario, where the servicer goes bankrupt sometime after the 27th of a month in which large bonus payments are due, a significant amount of commingled payments may be lost. Considering the timing when repayments on the underlying receivables are made to the servicer and the collection proceeds are remitted from the servicer to the Japan trustee, there is a risk that up to two months' worth of collected funds may not be transferred to the Japan trustee because of commingling if the servicer defaults. In this transaction, overcollateralization mitigates commingling risk. We consider this exposure in our cash flow analysis. Chart 6 SEPTEMBER 9,

19 Regarding the setoff risk, Orico is not a deposit-taking financial institution. Therefore, it does not generally owe counterclaims to obligors. Currency and interest mismatch risk The collateral assets of this transaction are denominated in Japanese yen and carry fixed interest rates, whereas the notes are denominated in U.S. dollars and the A-2b notes carry a floating interest rate. This leads to currency and interest mismatches. To address these risks, OSCAR US Funding Trust V will enter into cross-currency interest rate swaps, exchanging the required amounts of U.S. dollars and Japanese yen for interest and principal cash flows using a calculation method that ensures the cash flows are matched. Counterparty risk We will review whether the transaction's downgrade provisions and replacement or remedy mechanisms adequately mitigate its exposure to counterparty risk arising from the transaction account provider and the swap counterparty. We will apply our current counterparty criteria to analyze the transaction's exposure to counterparty risk. Ratings above the sovereign A transfer and convertibility (T&C) assessment reflects our view of the likelihood of a sovereign restricting a securitization's access to foreign exchange needed to satisfy the securitization's debt service obligations. Despite the currency mismatch between the underlying assets and the payments to investors, the transaction can be rated above 'AA+', our T&C assessment for Japan. This is because payment transfers outside Japan occur in yen, and the currency swap counterparty, which is a non-japanese entity, will swap yen received outside Japan for U.S. dollars with an adequate replacement commitment in line with our counterparty criteria. We believe these structural features of the transaction, including the definition of a termination event in the currency swap agreement, sufficiently mitigate its T&C risk. In addition, we consider the maximum potential rating on the notes in this transaction to be 'AAA'. This is because the securitization has no direct exposure to sovereign obligations and has sufficient credit support to withstand our sovereign default stress test, and the sensitivity of the underlying asset type to country risk is moderate according to our criteria, "Ratings Above The Sovereign - Structured Finance: Methodology And Assumptions," published Aug. 8, Legal Risk We will perform a thorough review of the legal structure and transaction documents, including a review of all relevant legal opinions. We expect to finalize our analysis of all legal issues by the transaction's closing date. Cash Flow Analysis Based on various stressed cash flow analyses using assumptions consistent with our 'AAA' rating that we applied to the cash flow schedule provided by the originator, we expect the following regarding the notes under our worst-case scenario: SEPTEMBER 9,

20 Interest payments will be made in full without delay; and Principal payments will be made in full by the respective legal final maturity dates. The 'AAA' stress scenario includes various default timings and prepayment levels as well as servicer default timings. With regard to any cash the originator entrusts for defaulted receivables, we don't consider it as credit support because we assume in our stress scenario that this entrustment will have ceased. Table 4 Assumed Scenarios And Break-Even Overcollateralization Level (%) Base-case scenario 'AAA' stress scenario Cumulative default rate Loss timing by months outstanding (12/24/36/48) 41/ 28 / 17 / 9 23 / 41 / 21 / 10 Monthly prepayment rate Commingling losses Excess spread Servicer default timing - 5th month Break-even overcollateralization level Money market tranche The proposed legal final maturity date for the A-1 notes is Sept. 15, To test whether the A-1 notes can be fully repaid by that date, we also conducted a cash flow analysis based on the following assumptions: No prepayments or defaults; and Reduction in the maximum consecutive three-months' worth of collection amounts applicable to principal redemption, assuming collected funds would not be transferred in a timely manner to the Japan trustee after a servicer default and delinquency of auto loans. In addition, we also ran the above described 'AAA' default and prepayment stress scenarios instead of the scenario under which no prepayments or defaults occurred. Based on our cash flow runs, we estimate that the A-1 notes will be fully redeemed by the legal final maturity date. Legal final maturity To test the legal final maturity dates set for the A-2a/A-2b and A-3 notes, we also conducted cash flow analyses based on the same assumptions as those for the A-1 notes. We estimate that the A-2a, A-2b, and A-3 notes will be fully redeemed by the respective legal final maturity dates. Scenario Analysis We formulated scenarios for the underlying assets relating to this transaction, assuming a set of circumstances. Specifically, in our scenario analysis, we assumed that the performance of the underlying assets would diverge from the assumptions under our base-case scenario and examined how this would affect the transaction. Setting scenarios and assumptions In our opinion, the default rate is the parameter that most affects the ratings on ABS transactions backed by auto loan receivables. Specifically, we set two scenarios with higher default rates than our base-case assumption and calculated SEPTEMBER 9,

21 the coverage multiples during the transaction period (see table 5). We calculate the coverage multiples by dividing the amount of available credit support by our cumulative default rate assumption. In this scenario analysis, we assume all conditions other than the default rate would be the same as those used in the initial rating analysis. Hence, even if the default rate parameter follows any of the scenarios described below, final outcomes may differ from the results of our scenario analysis. Furthermore, we will base the actual rating analyses of this transaction on the conditions and assumptions we make at the time of the analyses, and we will take rating actions accordingly. Table 5 Assumptions Of Scenario Analysis (%) Scenario 1 Scenario 2 Scenario 3 Cumulative default rate 1.2 (1.0x base-case assumption) 1.8 (1.5x base-case assumption) 2.4 (2.0x base-case assumption) Default rate (annualized) Results of the scenario analysis Under a scenario where the cumulative default rate is 2.4% (about 2.0x the cumulative default rate assumption under our base-case scenario), the possibility of a downgrade to the 'AA' category arises in the case of the A-4 notes. However, if the default rate remains flat thereafter, the coverage multiple will increase, and such performance may not result in a downgrade. SEPTEMBER 9,

22 Chart 7 Surveillance We will analyze regular servicer reports detailing the performance of the underlying collateral, monitor supporting ratings, and make regular contact with the servicer to ensure it maintains minimum servicing standards and any material changes in its operations are communicated and assessed. The key performance indicators in the surveillance of this transaction are: Default rates; Delinquency rates; Prepayment rates; and Increases in credit enhancement for the obligations. Related Criteria And Research SEPTEMBER 9,

23 Related Criteria Ratings Above The Sovereign - Structured Finance: Methodology And Assumptions, Aug. 8, 2016 Global Methodology And Assumptions For Assessing The Credit Quality Of Securitized Consumer Receivables, Oct. 9, 2014 Global Framework For Cash Flow Analysis Of Structured Finance Securities, Oct. 9, 2014 Global Framework For Assessing Operational Risk In Structured Finance Transactions, Oct. 9, 2014 Japanese Asset Isolation And Special-Purpose Entity Criteria--Structured Finance, Aug. 21, 2013 Counterparty Risk Framework Methodology And Assumptions, June 25, 2013 Global Derivative Agreement Criteria, June 24, 2013 Methodology: Credit Stability Criteria, May 3, 2010 Standard & Poor's Revises Criteria Methodology For Servicer Risk Assessment, May 28, 2009 Legal Criteria For U.S. Structured Finance Transactions: Special-Purpose Entities, Oct. 1, 2006 Related Research Japan Structured Finance 2016 Outlook: Securitized Assets Will Likely Show Stable Performance, Feb. 8, 2016 Japanese Structured Finance Scenario And Sensitivity Analysis: The Effects Of Major Macroeconomic Factors; Update For 2014, Aug. 8, 2014 Global Structured Finance Scenario And Sensitivity Analysis: Understanding The Effects Of Macroeconomic Factors On Credit Quality, July 2, 2014 Analytical Team Primary Credit Analyst: Toshiaki Shimizu, Tokyo (81) ; toshiaki.shimizu@spglobal.com Secondary Contact: Hiroshi Sonoda, Tokyo (81) ; hiroshi.sonoda@spglobal.com SEPTEMBER 9,