Fred
Crawley
The assignment of expected
ratings to notes secured by Carlyle Finance motor loans may signal
that the first sale of bonds backed by UK car finance paper in
nearly three years is in the offing.
Go deeper with GlobalData
FirstRand Bank, the South
African owner of sizeable independent lender Carlyle, has packaged
some £289m worth of loans through Turbo Finance, a special purpose
company set up to convert the car loans into securities.
The portfolio backing the
notes comprised 71,705 loans as of the end of October, with an
average size of £5,479.
This mostly comprised used
car loans (at 89.4% of total value), with an average term remaining
of 39 months.
Fitch Ratings assigned the
following expected ratings to the main body of Turbo Finance notes:
“Class A: ‘AAA(EXP)sf’; Outlook Stable; Loss Severity (LS) Rating
‘LS-1’”.
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By GlobalDataIt also assigned A and BB+
ratings to two further tranches of notes, which are worth £63.6m
and £40.26m respectively.
Voluntary termination
risk
A release issued by the
ratings agency commented on the securities: “Although the
underlying contracts do not feature any direct residual value risk,
Fitch notes that 90% of
the underlying receivables are regulated by the Consumer Credit Act
and are therefore exposed to voluntary termination
losses.
“In Fitch’s opinion, average
used car values, original loan to value ratios and original loan
tenors are key drivers of voluntary termination risk.”
Carlyle Finance is the fourth
largest provider of dealer-based motor finance outside the
manufacturer-owned sector in the UK.
It has traditionally gone to
market via car dealers and car finance brokers, and was acquired by
FistRand Bank in 2006.
Carlyle’s sales operation is
headquartered in Cardiff.
If sold, the bonds should
allow FirstRand to raise capital more cheaply than it could by
issuing unsecured debt.
However, a spokesperson at
FirstRand’s London branch said that “nothing is out in the
marketplace yet”, and that no bonds had yet been issued.
February 2008 saw the last sale of bonds backed by UK car
finance receivables, when Volkswagen AG issued nearly £500m pounds
worth of debt.
