Hannover Funding Company LLC (Hannover)

Transcription

1 Hannover Funding Company LLC (Hannover) CREDIT OPINION Update ABCP Program Review Ratings Exhibit 1 Hannover Funding Company LLC Closing Date Securities July 31, 2000 Commercial Paper (ABCP) TABLE OF CONTENTS Ratings Summary Rating Rationale Credit Strengths Credit Challenges Key Characteristics Program Overview Program Description Program Analysis Asset Overview Asset Description Asset Analysis Methodology and Monitoring ABCP Program Contact Moody's Related Research Ratings Prime-2 (sf)(1) (1) On July 11, 201 Moody's confirmed the Prime-2 (sf) rating of Hannover's ABCP. This rating action was prompted by Moody's decision on June 30, 201 to confirm NORD/LB's short-term CR Assessment at Prime-2(cr). Source: Moody s Investors Service Summary Rating Rationale Highlights The rating assigned to the ABCP issued by Hannover is primarily based upon: The full credit and liquidity support furnished by a liquidity asset purchase agreement (LAPA) provided by Norddeutsche Landesbank GZ (NORD/LB); Structural protections to ensure the bankruptcy-remote structure of Hannover; and The experience and capability of NORD/LB as Administrative Agent to provide day-today administrative services to Hannover and ensure timely issuance and repayment of ABCP. Credit Strengths Contacts Monica Chau Analyst monica.chau@moodys.com ABCP is fully supported by a LAPA provided by NORD/LB. Investors are not exposed to losses on the underlying collateral financed through Hannover; and Lisa Singman VP-Sr Credit Officer/ Manager lisa.singman@moodys.com NORD/LB, as conduit Sponsor, Administrative Agent, and Liquidity Agent, has demonstrated a strong commitment to Hannover. Credit Challenges CLIENT SERVICES Americas Asia Pacific Japan EMEA The rating of Hannover s ABCP is highly dependent on NORD/LB s counterparty risk assessment (CR Assessment). A change in NORD/LB s CR Assessment would likely result in a change in the rating assigned to Hannover s ABCP.

2 Key Characteristics Part of our analysis when assigning a rating to the notes issued by an ABCP conduit, and on an ongoing basis, is to determine the appropriate reference point1 that accurately addresses the risk of the conduit. The following are the relative reference points for Hannover.2 Exhibit 2 Reference Points Type of Support Support Provider Liquidity Provider Norddeutsche Landesbank GZ, Ltd. CR Assessment Baa2(cr)/Prime-2(cr) Depositary (US ABCP) Deutsche Bank Trust Company Americas CR Assessment A3(cr)/Prime-2(cr) Issuing and Paying Agent (Euro ABCP) Deutsche Bank AG, London Branch CR Assessment A3(cr)/Prime-2(cr) Reference Points Source: Moody's Investors Service Exhibit 3 ABCP Notes Rating: Prime-2 (sf) Securities: Asset-backed commercial paper (ABCP) Program Type: Fully supported, post review multi-seller ABCP program Authorized Amount: $5 billion Operating Agent: Norddeutsche Landesbank GZ (NORD/LB) Owners: Hannover Member Inc. Placement Agents: Barclays Capital Inc.,BNY Mellon Capital Markets, LLC, Citigroup Global Markets Inc., Credit Suisse Securities (USA) LLC, Mitsubishi UFJSecurities (USA), Inc., Norddeutsche Landesbank Girozentrale, RBC Capital Markets,LLC US ABCP - Depositary: Deutsche Bank Trust Company Americas (DBTCA) Euro ABCP - Issuing and Paying Agent: Deutsche Bank AG, London Branch Securities Act Exemption: Section 4(2) Source: Moody's Investors Service Exhibit 4 Program Liquidity Support Type: Master Liquidity Asset Purchase Agreement (Master LAPA) Support Provider: NORD/LB Maximum Dollar Amount: $5 Billion Funding Basis: Face amount of ABCP Out to Funding: Bankruptcy of Hannover Seller Recourse Coverage: Yes Source: Moody's Investors Service Exhibit 5 Program Credit Enhancement Support Type: None Source: Moody's Investors Service This publication does not announce a credit rating action. For any credit ratings referenced in this publication, please see the ratings tab on the issuer/entity page on for the most updated credit rating action information and rating history. 2

3 Exhibit 6 Program Assets Assets: Term and trade receivables Source: Moody's Investors Service Program Overview Hannover Funding Company LLC. (Hannover) is a fully supported, post review multi-seller ABCP program sponsored and administered by Norddeutsche Landesbank GZ (NORD/LB). Hannover is the sole US ABCP program sponsored by NORD/LB. Program Description Structural Diagram Description of Notes The ABCP issued by Hannover is commercial paper with tenor limitations of up to 20 days. ABCP is issued at a discount or on an interest bearing basis. Under the program documents, floating rate, callable, puttable and extended notes are not eligible notes. Support to Hannover s ABCP Program: Liquidity Support Hannover s ABCP is supported by a master liquidity asset purchase agreement (Master LAPA) provided by NORD/LB. The liquidity facility is available to support up to $5.0 billion of outstanding ABCP. The liquidity commitment under the Master LAPA is sized at 102% of the maximum authorized purchase limit, which covers both the principal and interest on the ABCP. On any day there are insufficient funds to repay maturing ABCP, liquidity will be drawn to cover the insufficient amount, up to the commitment. Liquidity will not be available if Hannover were to become bankrupt. In addition to liquidity, Hannover may also obtain funds to repay maturing ABCP by selling and assigning assets financed through Hannover, if the terms of such sale provide for timely payment. 3

4 Bankruptcy Remote Structure Hannover is a special purpose limited liability company organized under the laws of Delaware. Hannover is not owned by or affiliated with NORD/LB. Its sole member is Hannover Member Inc. a Delaware special purpose corporation owned by Global Securitization Services, LLC.. Hannover is structured to be bankruptcy-remote. First, Hannover limits its ability to incur liabilities other than ABCP, loans under the Master LAPA, draws under the other permitted bank facilities, and limits liabilities and amounts due to available funds not needed to repay ABCP. Second, Hannover limits their activities to what is permitted under their program documents. Lastly, any parties that enter into any agreements with Hannover are required to agree not to put the conduit into bankruptcy for at least one year and one day after all ABCP has matured. Security Interest Investors in Hannover s ABCP benefit from a security interest in the underlying assets funded by Hannover. In the unlikely event that Hannover were to become the subject of bankruptcy proceedings, liquidity banks would have a senior interest to ABCP investors in collections on the underlying assets with respect to any assets for which the liquidity banks have already purchased an interest. Program Administrator NORD/LB is the Administrative Agent of the Hannover ABCP program, and has been administering the ABCP conduit since As Administrative Agent, NORD/LB is responsible for all of Hannover s administrative functions and operations. NORD/LB regulates and coordinates all of Hannover s transactions including issuing and paying ABCP, managing foreign exchange risk, drawing under the liquidity and record keeping. Depositary/Issuing and Paying Agent Deutsche Bank Trust Company Americas (DBTCA) is the US ABCP Depositary for Hannover. Deutsche Bank AG, London Branch is the Euro ABCP Issuing and Paying Agent for Hannover. The respective parties are primarily responsible for issuing and paying maturing notes. This includes ensuring that proper accounts have been set up to deposit proceeds from the issuance of notes and repay maturing notes. They are responsible to enter all necessary information regarding the issued notes (amounts, interest rates, tenor, etc.) into the appropriate systems, and maintain necessary records for each note issued. They will withdraw amounts from the appropriate account to repay maturing notes and will notify the Administrative Agent if there are insufficient amounts to repay any notes maturing on a given day. Additionally, any proceeds from the support providers will be deposited into the Hannover CP Account held by each agent in order for them to repay ABCP. All excess funds not needed to repay ABCP will be remitted to the conduit to be placed in investments permitted pursuant to the program documents. No cash will be held overnight with either entity. Wind-Down Events Hannover must cease issuing ABCP if any of the following events occur: 4 Bankruptcy of Hannover and Hannover's failure to pay ABCP when due

5 Program Analysis When assigning a rating to Hannover s ABCP our primary analysis focuses on the amount of liquidity available to help support the ABCP and the credit quality of the support providers. Our rating also reflects our analysis of Hannover s bankruptcy-remote structure, and administrative and operational support. The credit quality of the receivables is not material to the rating of Hannover since ABCP is fully supported through liquidity. Primary Analysis LIQUIDITY SUPPORT Liquidity support is provided by a Master LAPA provided by NORD/LB. The maximum commitment is $5.0 billion. We reviewed the timing of when draws under liquidity are made. Draws need to be made on the same day, and at a specific time, to repay maturing ABCP. This ensures that there s no timing risk to pay off maturing ABCP. Additionally we reviewed the agreement to ensure that no deductions in the amount drawn occur that may cause investors to incur losses. As mentioned above, liquidity will not be available if Hannover were to become bankrupt. Since Hannover is structured to be bankruptcy-remote, this out to liquidity is consistent with the rating of Hannover s ABCP. Dependency on NORD/LB's Credit Quality Significant reliance is placed on NORD/LB to provide liquidity and credit support, and to act as Administrative Agent of Hannover. Therefore, the rating assigned to Hannover's ABCP is highly dependent on the assessment or rating of the reference point assigned to NORD/LB. Currently, the CR Assessment is used as the reference point for NORD/LB, as liquidity. The CR Assessment is Prime-2(cr). A change in NORD/LB's CR Assessment would likely result in a change in the rating assigned to Hannover s ABCP. Additional Analysis BANKRUPTCY REMOTENESS We reviewed Hannover s program and corporate documents to ensure that Hannover is structured to be bankruptcy-remote. Bankruptcy risk takes three forms, all of which need to be mitigated: voluntary bankruptcy, involuntary bankruptcy and substantive consolidation. Voluntary bankruptcy and substantive consolidation are mitigated through the corporate structure of Hannover. The owner of Hannover is not affiliated with any other party that does business with Hannover, included NORD/LB. Additionally, the owner is required to have at least one independent director and single-purpose business covenants. The non-petition covenants and the limited ability of Hannover to incur indebtedness reduce the likelihood of the commencement of involuntary bankruptcy proceedings against Hannover and minimize related preference concerns. Our review of Hannover s structure, the mitigants and structural protections are common across all ABCP programs rated by Moody s.3 SECURITY INTEREST The security interest in the assets is a strong feature of Hannover s program. The liquidity provider has a senior interest in the assets with respect to any assets for which the liquidity banks have already purchased an interest. The security interest does not add any significant benefit from a short-term rating perspective. The security interest nonetheless would likely reduce investors losses under the extremely remote instance of Hannover s bankruptcy. PROGRAM ADMINISTRATOR We view NORD/LB in its role as Administrative Agent as a strength. Hannover is a shell company with no employees. All of its operational functions are outsourced to other parties. NORD/LB, as Administrative Agent, plays a major part in the operational functions of Hannover both on the asset and liability ends of the business. NORD/LB has been the conduit administrator for Hannover since inception in 2000 and has proven to be committed to this business and Hannover. NORD/LB performs duties under this program with the same degree of care, diligence, and skill that a reasonably prudent person would exercise in connection with the administration of its own or similar operations. Additionally, NORD/LB indemnifies Hannover from and 5

6 against any and all losses and damages resulting from their gross negligence or willful misconduct to perform its duties or obligations in accordance with the program documents. The capabilities of NORD/LB and the indemnities that NORD/LB provides in its capacity as Administrative Agent have contributed to Moody's assignment of the program's rating. NORD/LB, headquartered in Germany, is one of the largest German banks. It has a CR Assessment of Baa2(cr)/Prime-2(cr). In NORD/LB s role as administrative agent, we consider their CR Assessment to be an appropriate measure of the operational risk for Hannover s ABCP. Therefore, this indemnification is consistent with the rating of the ABCP. INCENTIVE STRUCTURE FOR NORD/LB NORD/LB s interests are often aligned with the holders of ABCP in ensuring the best possible performance and management of the conduits. This incentive structure plays a role in determining the likelihood that operational risk will materialize. NORD/LB has set up this ABCP program as a permanent operating vehicle to fund its clients assets. Liquidity is also provided by NORD/LB. The market place tends to associate Hannover with NORD/LB, meaning that a problem at the conduit level will expose the sponsor to potential reputational risk. Also, as support provider, NORD/LB takes on even more risk than ABCP investors since it fully supports each transaction in Hannover. DEPOSITARY/ISSUING AND PAYING AGENT DBTCA and Deutsche Bank AG have proven to be highly reliable and experienced issuing and paying agents. The reference point used for both entities is the CR Assessment. DBTCA and Deutsche Bank AG, London Branch have a Prime-2(cr) assessment. All excess funds not needed to repay ABCP will be invested in permitted investments and will not remain with the banks overnight. Therefore the current CR assessment is consistent with the rating assigned to Hannover's ABCP.4 6

7 Asset Overview Hannover is a fully supported ABCP conduit. Hannover mainly purchases term and trade receivables. However, Moody's does not review these assets give the full credit and liquidity support provided by NORD/LB. Post Review Status Hannover may purchase all asset interests without prior review by Moody s. Hannover s post review status is based on the funding obligations of NORD/LB and its extensive experience as an administrator for Hannover. Asset Description Limitations on Purchases Hannover is not limited to purchasing any particular types of receivables. Hannover primarily targets NORD/LB's US and European customer base. Although they are not limited to purchasing any particular types of receivables, Hannover's asset purchases are concentrated in the more traditional asset types, such as auto loans and trade receivables. Asset Analysis Moody s does not perform any asset analysis on the individual pools financed in Hannover. All assets are fully supported through a Master LAPA. Therefore ABCP investors are not exposed to any losses incurred on the underlying collateral. For information on the current assets in Hannover and portfolio performance of the largest assets, please see the most recent Performance Overview on Moody s website: Methodology and Monitoring The rating methodologies used for this ABCP program are described in the publications listed below. ABCP programs rated by Moody s are monitored and analyzed on an ongoing basis. Some programs have monthly updated performance information, which is published in the Performance Overviews. The methodologies and performance overviews are available on Moody s website: ABCP Program Contact Edward M. Weber Managing Director Head of Asset Backed Finance NORD/LB Norddeutsche Landesbank Girozentrale 1114 Avenue of the Americas, 20th Floor New York, NY USA Phone: edward.weber@nordlb.com Website: Hannoverfunding.com

8 Moody's Related Research For a more detailed explanation of Moody s approach to this type of transaction as well as similar transactions please refer to the following report: Rating Methodology: Moody s Approach to Rating Asset-Backed Commercial Paper, July 201 To access any of these reports, click on the entry above. Note that these references are current as of the date of publication of this report and that more recent reports may be available. All research may not be available to all clients. Moody s publishes a weekly summary of structured finance credit, ratings and methodologies, available to all registered users of our website, at 8

9 Endnotes 1 See our complete list of reference points for all ABCP programs globally, which can be accessed with this link. 2 See our methodology, Moody s Approach to Rating Asset-Backed Commercial Paper for more information, which can be access with this link. 3 Bankruptcy Remoteness Criteria for Special Purpose Entities in Global Structured Finance Transactions (October 2014). 4 Moody's Approach to Assessing Counterparty Risks in Structured Finance (July 201) 9

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