London, 04 February 2010 -- Moody's Investors Service said today that it is re-evaluating the assumptions it uses to rate auto lease ABS transactions exposed to residual value (RV) risk in EMEA.

RV risk is the risk that a vehicle's realised market value at the end of its lease term differs from its book value. This difference could arise from adverse movements in used car prices or the RV policy pursued by the originator. RV losses on a transaction are a function of the number of lessees exercising their option at the contract maturity date to return the vehicle (the turn-in rate) and the severity of loss on the contractual residual value (the loss on turn-in).

Moody's says its re-evaluation has been driven by the volatility in the used car markets across Europe over the past two years. In several sectors, declines of up to 30% in value were observed over 2008 and although values have since recovered, the observed volatility significantly exceeds expectations.To date, when rating such transactions in EMEA, Moody's has primarily relied on the historical performance data provided by originators.

However, this data is influenced by changes in RV policies and/or does not adequately capture sudden shifts in the used car market.In forming its revised assessment, Moody's will place more emphasis on the current market values of vehicles in the securitised pool, as well as taking into account third-party forecasts of residual values. Until recently, this data was unavailable to Moody's in Europe. To enhance its analysis, Moody's has acquired a large data set of historic and current market values in the UK, and is in the process of acquiring similar data sets for key European jurisdictions. Combined with contract level data received by originators, this allows the rating agency to carry out an analysis similar to that detailed in "Auto Lease Securitization: Moody's Rating Approach", a report published in 1998 relating to the US Auto ABS sector.

Preliminary analysis of the data set implies that haircuts of approximately 50% would be appropriate on reforecast residual values at the Aaa level. Given the RV setting strategy of many originators (who typically set RV levels at 5% to 10% below the breakeven value), a 50% haircut on reforecast RV would translate into a loss assumption of 45% to 40% on the residual value of the securitised portfolio in a Aaa scenario.

The haircuts would be lower for lower rating levels.Moody's is concluding its analysis of the data set, including determining appropriate haircuts at each rating level. Its next steps will be to assess the rating impact on all EMEA auto ABS transactions exposed to RV risk and it will provide an update of the findings of this analysis over the coming weeks.

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London
Benedicte Pfister
Managing Director
Structured Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

London
Nicholas de Swardt
Asst Vice President - Analyst
Structured Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

© Press Release 2010