Fitch Assigns Final Ratings to OSCAR US 2018-2

Orient

27/07/2018 06:11

(The following statement was released by the rating agency)


Fitch Ratings-Tokyo-July 27: Fitch Ratings has assigned final ratings to the 
notes issued by OSCAR US Funding IX LLC. The transaction, OSCAR US 2018-2, is 
ultimately backed by a pool of auto loan receivables originated by Orient 
Corporation (Orico) in Japan.

The final ratings are as follows:

USD65.6 million Class A-1 notes (initial credit enhancement (CE): 86.5%*): 
'F1+sf';

USD115.3 million Class A-2a notes (initial CE: 48.5%*): 'AAAsf'; Outlook Stable

USD70.1 million Class A-2b notes (initial CE: 48.5%*): 'AAAsf'; Outlook Stable

USD97.6 million Class A-3 notes (initial CE: 28.5%*): 'AAAsf'; Outlook Stable

USD92.2 million Class A-4 notes (initial CE: 9.6%*): 'AAAsf'; Outlook Stable

JPY500.0 million A-5 senior Beneficial Interests (BIs): 'NRsf'	

JPY3,200.0 million Class M loan: 'NRsf'

JPY1,600.8 million Subordinated BIs: 'NRsf'

*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

As of the cut-off date, the collateral pool consisted of auto loan receivables 
with a total principal balance of JPY55.0 billion. All loan receivables are 
fully amortising with equal monthly instalments and a weighted-average remaining 
term of 57 months.

KEY RATING DRIVERS

Sufficient Credit Enhancement: OSCAR US 2018-2 incorporates sufficient CE so 
that all classes of rated notes can withstand Fitch's 'AAAsf' stress scenario 
with its base case cumulative default rate of 1.55%. In addition to the CE, 
excess spread available in the trust interest distribution will provide 
additional credit support to the transaction.

Stable Auto Loan Performance: Orico's auto loan portfolio has performed well 
throughout the observation period since 2009, especially in the recent vintages 
due to stronger origination quality and the improvement in the Japanese economy.

 

Stable Origination and Servicing: Orico demonstrates adequate abilities as 
originator and servicer, as evidenced by its historical portfolio performance.

Adequate Liquidity: Liquidity support is provided by the cash reserve. The 
reserve is initially funded on the closing date by the entrustment of cash. This 
covers expenses for servicer replacement, a four-month interest rate payment and 
ongoing transaction costs.

 

Transfer and Convertibility Risk Mitigated: The notes are issued in a foreign 
currency, which potentially exposes the transaction to transfer and 
convertibility (T&C) risk. However, this risk is sufficiently mitigated in the 
transaction structure. The head office of the swap counterparty, The Hongkong 
and Shanghai Banking Corporation Limited (AA-/Stable/F1+), is obligated to make 
payments to the note-paying agent if US dollar payments under the swap agreement 
are not made by the swap counterparty.

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 ratings to an increased cumulative default rate and decreased 
asset yield.

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-2a and A-2b: AAAsf/ AAAsf/ AAAsf

Class A-3: AAAsf/ AAAsf/ AAAsf

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

Rating sensitivity to decreased asset yield:

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

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

Class A-2a and A-2b: AAAsf/ AAAsf/ AAAsf

Class A-3: AAAsf/ AAAsf/ AAAsf

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

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-2a and A-2b: 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-2a and A-2b: AAAsf

Class A-3: AAAsf

Class A-4: AA+sf

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

Class A-1: F1+sf

Class A-2a and A-2b: AAAsf

Class A-3: AAAsf

Class A-4: Asf

A foreign-currency note can exceed the Country Ceiling of the country of the 
assets or the issuer by up to four notches if T&C risk is mitigated in the 
transaction structure. Japan's Country Ceiling is currently 'AA'. A downgrade of 
the Country Ceiling to 'A' or lower would result in a downgrade of the notes.

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 its analysis and it did not 
have an effect on Fitch's 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. on 
delinquencies, defaults and prepayments up to April 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 

Ben McCarthy

Managing Director

+61 2 8256 0388

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

Additional information is available on www.fitchratings.com

Applicable Criteria 

Consumer ABS Rating Criteria (pub. 11 Dec 2017)

https://www.fitchratings.com/site/re/907089

Exposure Draft: Structured Finance and Covered Bonds Counterparty Rating 
Criteria (pub. 31 May 2018)

https://www.fitchratings.com/site/re/10029890

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

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

Structured Finance and Covered Bonds Counterparty Rating Criteria: Derivative 
Addendum (pub. 31 May 2018)

https://www.fitchratings.com/site/re/10029891

Structured Finance and Covered Bonds Country Risk Rating Criteria  (pub. 18 Sep 
2017)

https://www.fitchratings.com/site/re/903496

Related Research 

OSCAR US Funding IX LLC - Appendix

https://www.fitchratings.com/site/re/10036574

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/10039616

https://www.fitchratings.com/site/abs-due-diligence/10039616/1

Solicitation Status 

https://www.fitchratings.com/site/pr/10039616#solicitation

Endorsement Policy 

https://www.fitchratings.com/regulatory

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