Fitch Assigns Expected Ratings to OSCAR US 2019-1

Orient

06/03/2019 08:00

(The following statement was released by the rating agency)


Link to Fitch Ratings' Report(s): OSCAR US Funding X LLC - Appendix

https://www.fitchratings.com/site/re/10064567

OSCAR US Funding X LLC

https://www.fitchratings.com/site/re/10064559

Fitch Ratings-Tokyo-March 06: Fitch Ratings has assigned expected ratings to the 
notes to be issued by OSCAR US Funding X LLC. The transaction, OSCAR US 2019-1, 
is ultimately backed by a pool of auto loan receivables originated by Orient 
Corporation (Orico) in Japan.

The expected ratings are as follows (amounts are preliminary and subject to 
change):

USD69.7 million Class A-1 notes (initial credit enhancement (CE): 86.5%*): 
'F1+(EXP)sf';

USD196.4 million Class A-2 notes (initial CE: 48.4%*): 'AAA(EXP)sf'; Outlook 
Stable

USD103.2 million Class A-3 notes (initial CE: 28.4%*): 'AAA(EXP)sf'; Outlook 
Stable

USD97.7 million Class A-4 notes (initial CE: 9.5%*): 'AAA(EXP)sf'; Outlook 
Stable

JPY500.0 million A-5 senior beneficial interests (BIs): 'NR(EXP)sf'

JPY3,300.0 million Class M loan: 'NR(EXP)sf'

JPY1,601.5 million subordinated BIs: 'NR(EXP)sf'

*Subordination ratios are calculated using the following formula: (A+B)/C

A: subordinated BIs (excluding the portion corresponding to the cash reserve)

B: senior BIs ranked junior to the rated debt and series M loan

C: total principal balance of the underlying auto loan receivables

NRsf: Not rated

Final ratings are contingent on receipt of final documentation conforming to 
information already received and review of legal opinions.

As of the cut-off date, the collateral pool consisted of auto loan receivables 
with a total principal balance of JPY57.0 billion. All loan receivables are 
fully amortising with equal monthly instalments and a weighted-average remaining 
term of 58 months.

KEY RATING DRIVERS

Obligor Default Risk: Fitch assumes a base-case cumulative default rate of 1.55% 
for OSCAR US 2019-1. This is based on stable historical default performance over 
the past nine years, including one recessionary period in 2012. Fitch expects 
the stable asset performance to continue in the near term, reflecting our 
expectation of benign economic conditions in Japan.

Cash Flow Dynamics: The transaction incorporates sufficient CE and excess spread 
so that all classes of the rated notes can withstand Fitch's 'AAAsf' stress 
scenario. The class M Loan and subordinated BIs can be redeemed as stipulated in 
the transaction documents. Fitch customised its cash-flow model to reflect the 
transaction specific flow of funds. The rated notes can withstand corresponding 
rating stresses applied in the cash flow analysis.

Structural Risks: The underlying auto loans were truly transferred to the 
trustee and the legal structure of the transaction ensures the loans are 
delinked from the originator's credit profile.

Counterparty Risks: The transaction has structural mechanisms that ensure 
remedial actions are taken if the ratings of the swap counterparty and account 
bank are downgraded. A cash reserve covering four months of interest and 
expenses as well as the servicer replacement costs mitigate the payment 
interruption risk of the transaction.

Servicer, Operational Risk: Orico has demonstrated adequate ability as an 
originator and servicer, evident from its historical auto loan pool performance. 
A backup servicer was appointed at closing and if a servicer replacement event 
occurs and the servicing agreement is terminated, the servicer will be replaced 
by the appointed back-up servicer.

EXPECTED RATING SENSITIVITIES

An unexpected increase in the cumulative default rate and decrease in the asset 
yield could produce loss levels higher than Fitch's base case, which could in 
turn result in negative rating action on the notes. Fitch has evaluated the 
sensitivity of the expected ratings to an increased cumulative default rate and 
decreased asset yield.

Expected rating sensitivity to increased cumulative default rate:

Increase base case cumulative default rate by 10% / 25% / 50%

Class A-1: F1+sf/ F1+sf/ F1+sf

Class A-2: AAAsf/ AAAsf/ AAAsf

Class A-3: AAAsf/ AAAsf/ AAAsf

Class A-4: AAAsf/ AAAsf/ AA+sf

Expected rating sensitivity to decreased asset yield:

Decrease asset yield by 10% / 25% / 50%

Class A-1: F1+sf/ F1+sf/ F1+sf

Class A-2: AAAsf/ AAAsf/ AAAsf

Class A-3: AAAsf/ AAAsf/ AAAsf

Class A-4: AAAsf/ AA+sf/ A+sf

Expected rating sensitivities under a combination of mild, moderate and severe 
stresses on the cumulative default rate and asset yield are as follows:

Increase base-case cumulative default rate by 10% and decrease asset yield by 
10%:

Class A-1: F1+sf

Class A-2: AAAsf

Class A-3: AAAsf

Class A-4: AAAsf

Increase base-case cumulative default rate by 25% and decrease asset yield by 
25%:

Class A-1: F1+sf

Class A-2: AAAsf

Class A-3: AAAsf

Class A-4: AAsf

Increase base-case cumulative default rate by 50% and decrease asset yield by 
50%:

Class A-1: F1+sf

Class A-2: AAAsf

Class A-3: AAAsf

Class A-4: A-sf

Key rating drivers and expected rating sensitivities are further discussed in 
the corresponding presale report entitled "OSCAR US Funding X LLC", published 
today.

USE OF THIRD-PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G-10 

Fitch was provided with Form ABS Due Diligence-15E as prepared by 
PricewaterhouseCoopers Aarata LLC. The third-party due diligence described in 
Form 15E focused on the existence and eligibility of the assigned receivables. 
Fitch took this information into consideration in our analysis and it did not 
have an effect on our analysis or conclusions.

REPRESENTATIONS, WARRANTIES AND ENFORCEMENT MECHANISMS

A description of the transaction's representations, warranties and enforcement 
mechanisms (RW&Es) disclosed in the offering document that relate to the 
underlying asset pool is available by accessing the appendix referenced under 
"Related Research" below. The appendix also contains a comparison of these RW&Es 
to those Fitch considers typical for the asset class as detailed in the Special 
Report titled "Representations, Warranties and Enforcement Mechanisms in Global 
Structured Finance Transactions," dated 31 May 2016.

DATA ADEQUACY

Fitch reviewed the results of a third-party assessment conducted on the asset 
portfolio information and concluded that there were no findings that affected 
the rating analysis.

Overall, Fitch's assessment of the asset pool information relied upon for the 
agency's rating analysis according to its applicable rating methodologies 
indicates that it is adequately reliable.

SOURCES OF INFORMATION

The information below was used in the analysis:

Historical performance data provided by Mizuho Securities Co., Ltd., the 
arranger of the transaction, on delinquencies, defaults and prepayments up to 
December 2018

Transaction documentation provided by Mizuho Securities Co., Ltd.

Contacts: 

Primary Analyst

Hitoshi Hibino

Associate Director

+81 3 3288 2631

Fitch Ratings Japan Limited

Kojimachi Crystal City East Wing 3rd Floor

4-8 Kojimachi, Chiyoda-ku

Tokyo 102-0083

Secondary Analyst

Atsushi Kuroda

Senior Director

+81 3 3288 2692

Committee Chairperson 

Hilary Tan

Senior Director

+852 2263 9904

Media Relations: Wai-Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: 
wailun.wan@thefitchgroup.com.

Additional information is available on www.fitchratings.com

Applicable Criteria 

Consumer ABS Rating Criteria (pub. 29 Jan 2019)

https://www.fitchratings.com/site/re/10060611

Global Structured Finance Rating Criteria (pub. 15 May 2018)

https://www.fitchratings.com/site/re/10029600

Structured Finance and Covered Bonds Counterparty Rating Criteria (pub. 01 Aug 
2018)

https://www.fitchratings.com/site/re/10039504

Structured Finance and Covered Bonds Counterparty Rating Criteria: Derivative 
Addendum (pub. 01 Aug 2018)

https://www.fitchratings.com/site/re/10039505

Structured Finance and Covered Bonds Country Risk Rating Criteria (pub. 23 Oct 
2018)

https://www.fitchratings.com/site/re/10047041

Related Research 

Representations, Warranties and Enforcement Mechanisms in Global Structured 
Finance Transactions

https://www.fitchratings.com/site/re/882358

Additional Disclosures 

Dodd-Frank Rating Information Disclosure Form 

https://www.fitchratings.com/site/dodd-frank-disclosure/10064558

https://www.fitchratings.com/site/abs-due-diligence/10064558/1

Solicitation Status 

https://www.fitchratings.com/site/pr/10064558#solicitation

Endorsement Policy 

https://www.fitchratings.com/regulatory

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