Taurus 2022-1 Trust — Moody’s assigns provisional ratings to Taurus Finance Holdings’ inaugural auto ABS transaction

Rating Action: Moody’s assigns provisional ratings to Taurus Finance Holdings’ inaugural auto ABS transactionGlobal Credit Research – 06 Sep 2022Sydney, September 06, 2022 — Moody’s Investors Service has assigned provisional ratings to notes issued by BNY Trust Company of Australia Limited in its capacity as the trustee of the Taurus 2022-1 Trust. »IMPORTANT NOTICE: MOODY’S RATINGS AND PUBLICATIONS ARE NOT INTENDED FOR USE BY RETAIL INVESTORS. SUCH USE WOULD BE RECKLESS AND INAPPROPRIATE. SEE FULL DISCLAIMERS BELOW. »Issuer: Taurus 2022-1 Trust….AUD204.60 million Class A1 Notes, Assigned (P)Aaa (sf)….AUD28.00 million Class A2 Notes, Assigned (P)Aaa (sf)….AUD18.20 million Class B Notes, Assigned (P)Aa2 (sf)….AUD8.70 million Class C Notes, Assigned (P)A2 (sf)….AUD3.98 million Class D Notes, Assigned (P)Baa2 (sf)….AUD2.52 million Class E Notes, Assigned (P)Baa3 (sf)….AUD5.60 million Class F Notes, Assigned (P)Ba2 (sf)The AUD8.40 million Class G Notes are not rated by Moody’s.Taurus 2022-1 Trust (Taurus 2022-1) transaction is a static cash securitisation of consumer and commercial auto loan receivables extended to prime borrowers in Australia by Taurus Finance Holdings Pty Limited (Taurus, unrated). Taurus is a finance company that originates retail auto loans and provides floorplan finance to automotive dealers. Taurus was founded in 2016 and started originating retail auto loans in October 2019. Taurus has originated AUD463.4m of retail auto loans as of 30 June 2022.RATINGS RATIONALEThe ratings take into account, among other factors, evaluation of the underlying receivables and their expected performance, evaluation of the capital structure and credit enhancement provided to the notes, availability of excess spread over the life of the transaction, the liquidity facility in the amount of 1.50% of the rated notes balance subject to a floor of AUD330,000, the legal structure, and the experience of Taurus as servicer.According to Moody’s, the transaction benefits from the prime nature of the obligors and the strong historical performance of Taurus’ loan portfolio with delinquencies and losses lower than comparable auto loan originators since October 2019. However, the limited historical of the performance data, with just over two and a half years of meaningful performance data available presents a challenge as the future performance of auto loans could be subject to greater variability than the current data indicates.KEY PORTFOLIO AND STRUCTURAL FEATURESKey structural features include:- Once step-down conditions are satisfied, all notes, excluding Class G notes, will receive their pro-rata share of principal. Step-down conditions include, among others, 30% subordination to the Class A notes and no unreimbursed charge-offs.- A swap provided by National Australia Bank Limited (Aa3/P-1/Aa2 (cr)/P-1(cr)) will hedge the interest rate mismatch between the assets bearing a fixed rate of interest, and floating rate liabilities. The notional balance of the swap will follow a schedule based on amortisation of the rated notes assuming no prepayments.- BNY Trust Company of Australia Limited (BNY), a wholly owned subsidiary of The Bank of New York Mellon (Aa1/P-1) acts as the back-up servicer. If Taurus is terminated as servicer, BNY will take over the servicing role in accordance with the standby servicing deed and its back-up servicing plan.KEY MODEL AND PORTFOLIO ASSUMPTIONSMoody’s base case assumptions are a mean default rate of 3.75%, a recovery rate of 30.0%, and a Aaa portfolio credit enhancement (« PCE ») of 18.00%. The expected defaults and recoveries capture our expectations of performance considering the current economic outlook, while the PCE captures the loss we expect the portfolio to suffer in the event of a severe recession scenario. Expected defaults and PCE are parameters used by Moody’s to calibrate its lognormal portfolio default distribution curve and to associate a probability with each potential future default scenario in its ABSROM cash flow model.Moody’s assumed mean default rate is stressed compared to observed levels of default, with only four loans written off between October 2019 and June 2022. To address the limited performance history, we have benchmarked Taurus’s portfolio performance, portfolio characteristics, underwriting and credit policies to comparable originators. We have also overlaid additional stresses into our loss assumptions to account for the limited origination and operational history.The PCE of 18.00% is broadly in line with other Australian auto ABS deals and is based on Moody’s assessment of the pool taking into account (i) historical data variability, (ii) quantity, quality and relevance of historical performance data, (iii) originator quality, (iii) servicer quality, (iv) certain pool characteristics, such as asset concentration.Key pool features are as follows:- The pool consists of 97.8% consumer loans and 2.2% of commercial loans.- Interest rates in the portfolio range from 3.5% to 14.4%, with a weighted average interest rate of 7.6%.- The weighted average seasoning of the portfolio is 9.0 months, while the weighted average remaining term of the portfolio is 58.9 months.Methodology Underlying the Rating ActionThe principal methodology used in these ratings was « Moody’s Global Approach to Rating Auto Loan- and Lease-Backed ABS » published in July 2022 and available at https://ratings.moodys.com/api/rmc-documents/390478. Alternatively, please see the Rating Methodologies page on https://ratings.moodys.com for a copy of this methodology.Please note that a Request for Comment was published in which Moody’s requested market feedback on potential revisions to one or more of the methodologies used in determining these Credit Ratings. If the revised methodologies are implemented as proposed, it is not currently expected that the Credit Ratings referenced in this press release will be affected.Request for Comments can be found on the rating methodologies page on https://ratings.moodys.com.Factors that would lead to an upgrade or downgrade of the ratings:UpLevels of credit protection that are greater than necessary to protect investors against current expectations of loss could lead to an upgrade of the ratings. Moody’s current expectations of loss could be better than its original expectations because of fewer defaults by underlying obligors. The Australian job market is a primary driver of performance.DownLevels of credit protection that are insufficient to protect investors against current expectations of loss could lead to a downgrade of the ratings. Moody’s current expectations of loss could be worse than its original expectations because of more defaults by underlying obligors. The Australian job market is a primary driver of performance. Other reasons for worse performance than Moody’s expects include poor servicing, error on the part of transaction parties, a deterioration in credit quality of transaction counterparties, lack of transactional governance and fraud.REGULATORY DISCLOSURESFor further specification of Moody’s key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody’s Rating Symbols and Definitions can be found on https://ratings.moodys.com/rating-definitions.The analysis relies on an assessment of collateral characteristics to determine the collateral loss distribution, that is, the function that correlates to an assumption about the likelihood of occurrence to each level of possible losses in the collateral. As a second step, Moody’s evaluates each possible collateral loss scenario using a model that replicates the relevant structural features to derive payments and therefore the ultimate potential losses for each rated instrument. The loss a rated instrument incurs in each collateral loss scenario, weighted by assumptions about the likelihood of events in that scenario occurring, results in the expected loss of the rated instrument.Moody’s quantitative analysis entails an evaluation of scenarios that stress factors contributing to sensitivity of ratings and take into account the likelihood of severe collateral losses or impaired cash flows. Moody’s weights the impact on the rated instruments based on its assumptions of the likelihood of the events in such scenarios occurring.For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody’s rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider’s credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the issuer/deal page for the respective issuer on https://ratings.moodys.com.For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.These ratings are solicited. Please refer to Moody’s Policy for Designating and Assigning Unsolicited Credit Ratings available on its website https://ratings.moodys.com.Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.Moody’s general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://ratings.moodys.com/documents/PBC_1288235.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody’s affiliates outside the EU and is endorsed by Moody’s Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody’s office that issued the credit rating is available on https://ratings.moodys.com.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody’s affiliates outside the UK and is endorsed by Moody’s Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody’s office that issued the credit rating is available on https://ratings.moodys.com.Please see https://ratings.moodys.com for any updates on changes to the lead rating analyst and to the Moody’s legal entity that has issued the rating.Please see the issuer/deal page on https://ratings.moodys.com for additional regulatory disclosures for each credit rating. John Paul Truijens VP – Senior Credit Officer Structured Finance Group Moody’s Investors Service Pty. Ltd. 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