Reuters logo
Fitch: Europe Auto ABS Appear Robust to New Emission Allegations
February 3, 2017 / 12:06 PM / 8 months ago

Fitch: Europe Auto ABS Appear Robust to New Emission Allegations

(The following statement was released by the rating agency) LONDON, February 03 (Fitch) The experience of European Volkswagen (VW) ABS suggests that there is little near-term threat to transaction performance from new allegations regarding possible emissions irregularities by other manufacturers, Fitch Ratings says. Nevertheless, it will be important to monitor the potential impact of legal, regulatory and commercial developments. Since VW admitted understating emissions in the US in 2015, other investigations have emerged, although no other manufacturer has been found to be using illegal defeat devices. Last month, the US Environmental Protection Agency (EPA) issued a notice of violation to Fiat Chrysler Automobiles (FCA) for allegedly failing to disclose engine management software in some models. French authorities said in January that they had begun a preliminary investigation into Renault (which says its models conform to laws where they are sold). PSA Group said last year that it had been visited by anti-fraud investigators, but that its vehicles are compliant "in pollutant emissions." Investigations appear to be at an early stage and details are emerging gradually. As far as Fitch is aware, the severity of the allegations concerning other manufacturers seems less than those relating to Volkswagen and the number of affected vehicles is lower. Fitch considers that there are two primary risks for ABS transactions: whether borrowers or lessees have legal claims against dealers or manufacturers that, if not satisfied, could be set-off against payments due under their loan or lease agreement; and the potential impact on car prices and hence recovery rates and residual value sale proceeds. So far, these risks have not crystalised to a material extent in Fitch-rated European VW ABS transactions. VW's stated commitment to repair affected vehicles has limited borrowers' and lessees' desire to make legal claims. Legal analysis presented to Fitch by transaction counsel says that customers in Germany and France have rights against the dealer which sold the vehicle in the first place and not primarily against the originator or issuing SPV. In the UK, buyers using personal contract purchase (PCP) or hire purchase (HP) agreements can make direct claims against the originator. However, the wide-ranging termination rights in applicable UK consumer legislation mean Fitch has always stress-tested the resilience of UK auto ABS transactions to unprecedented termination rates, so any increase would have to be very severe to have a rating impact. VW's repair proposals also appear to have contained any price impact. Fitch has not seen any substantial change in used VW diesel vehicle prices. Our analysis still incorporates a 10% haircut to our base case recovery assumptions for these vehicles, as the majority of cars have yet to be repaired. Strong underlying portfolio performance, stable prices, and the ongoing repair process were reflected in the positive rating actions announced in November 2016 (see 'Fitch Upgrades 6 Tranches of VW ABS; Affirms 10 Tranches '). However, Fitch will continue to monitor developments and whether we need to reconsider our assumptions. Potential legal risks continue to evolve, depending on the outcome of current cases, meaning that the risk of claims which could threaten cash flows in ABS transactions cannot be fully excluded. This would increase credit dependency on VW and dealers. In Germany, customer court proceedings against dealers claim that repairs are taking too long or are incomplete, while a case directly against VW claims that a car was sold without a valid operating permit and should be taken back. In the UK, an application for a Group Litigation Order has been filed, claiming purchasers were misled. The European Commission is investigating whether consumer law was violated. News-flow around emission irregularities is increasing regulatory pressure to encourage a shift away from diesel engines. We think this could eventually hit used car prices, notwithstanding the lack of impact so far. As long as regulatory changes are gradual and not sudden and disruptive, the impact on ABS should remain limited. Contact: Markus Papenroth Senior Director Structured Finance +44 20 3530 1707 Fitch Ratings Ltd 30 North Colonnade London E14 5GN Eberhard Hackel Senior Director Structured Finance +49 69 768076 117 Mark Brown Senior Analyst Fitch Wire +44 20 3530 1588 Media Relations: Athos Larkou, London, Tel: +44 203 530 1549, Email: athos.larkou@fitchratings.com. The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings. ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE. Copyright © 2017 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. The manner of Fitch's factual investigation and the scope of the third-party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third- party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. Users of Fitch's ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. As a result, despite any verification of current facts, ratings and forecasts can be affected by future events or conditions that were not anticipated at the time a rating or forecast was issued or affirmed. The information in this report is provided "as is" without any representation or warranty of any kind, and Fitch does not represent or warrant that the report or any of its contents will meet any of the requirements of a recipient of the report. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion and reports made by Fitch are based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings and reports are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating or a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. Fitch is not engaged in the offer or sale of any security. All Fitch reports have shared authorship. Individuals identified in a Fitch report were involved in, but are not solely responsible for, the opinions stated therein. The individuals are named for contact purposes only. A report providing a Fitch rating is neither a prospectus nor a substitute for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the securities. Ratings may be changed or withdrawn at any time for any reason in the sole discretion of Fitch. Fitch does not provide investment advice of any sort. Ratings are not a recommendation to buy, sell, or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature or taxability of payments made in respect to any security. Fitch receives fees from issuers, insurers, guarantors, other obligors, and underwriters for rating securities. Such fees generally vary from US$1,000 to US$750,000 (or the applicable currency equivalent) per issue. In certain cases, Fitch will rate all or a number of issues issued by a particular issuer, or insured or guaranteed by a particular insurer or guarantor, for a single annual fee. Such fees are expected to vary from US$10,000 to US$1,500,000 (or the applicable currency equivalent). The assignment, publication, or dissemination of a rating by Fitch shall not constitute a consent by Fitch to use its name as an expert in connection with any registration statement filed under the United States securities laws, the Financial Services and Markets Act of 2000 of the United Kingdom, or the securities laws of any particular jurisdiction. Due to the relative efficiency of electronic publishing and distribution, Fitch research may be available to electronic subscribers up to three days earlier than to print subscribers. For Australia, New Zealand, Taiwan and South Korea only: Fitch Australia Pty Ltd holds an Australian financial services license (AFS license no. 337123) which authorizes it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001

Our Standards:The Thomson Reuters Trust Principles.
0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below