OREANDA-NEWS. More-->S&P Global Ratings has assigned its 'AA - (sf)' 'A (sf)', 'BBB+ (sf)', 'BBB (sf)', and 'B (sf)' credit ratings to AURORUS 2016 B. V.'s asset-backed floating-rate class A, B, C, D, and E notes, respectively. At closing, AURORUS 2016 also issued unrated class F and G notes, and subordinated variable funding notes (VFN) (see list below).

At closing, AURORUS 2016 used the issuance proceeds to purchase receivables from the originator on a true sale basis. On each monthly payment date, AURORUS 2016 will issue the class A notes up to their target amount. Under the transaction documents, the senior notes' target amount equals 68% of the borrowing base. Additionally, the maximum amount of the class A notes is capped at €240 million and the mezzanine notes are issued at a fixed amount. Consequently, the credit enhancement at closing exceeds the minimum required credit enhancement.

Our ratings on the class A, B, C, D, and E notes reflect our assessment of the underlying asset pool's credit and cash flow characteristics, as well as our analysis of the transaction's exposure to counterparty, legal, and operational risks. Our analysis indicates that the class A, B, C, D, and E notes' available credit enhancement is sufficient to mitigate noteholders' exposure to credit and cash flow risks at the assigned ratings.


Economic OutlookWe expect GDP growth of 1.8% for 2016 and 1.4% in 2017 in the Netherlands, compared with 2.0% in 2015. We estimate unemployment to decrease to 6.2% in 2016 and 6.0% in 2017, from 6.9% in 2015. Against this backdrop, we expect stable collateral performance for Dutch securitizations in the next few years (see "Europe's Economic Outlook After The Brexit Vote," published on July 4, 2016). We have considered this outlook when determining our base-case assumptions. However, we have also taken into account the potential long life of the assets which, due to the relatively long timeframes for which the notes will be outstanding, results in a greater potential for the economy to decline.

Credit Risk We have analyzed credit risk for the non-credit card loans by applying our European consumer finance criteria (see "European Consumer Finance Criteria," published on March 10, 2000). We have used the originator's historical performance data to size our base-case gross loss and recovery rate assumptions for the consumer loans. We have analyzed credit risk for the credit card loans by applying our global consumer finance criteria to size base-case charge-off, yield, and payment rates for the credit card loans (see "Global Methodology And Assumptions For Assessing The Credit Quality Of Securitized Consumer Receivables," published on Oct. 9, 2014).

Borrowers can obtain further advances for 57% of the loans in the portfolio, which have a revolving feature. The portfolio's weighted-average borrowers' age is 50 years. The loan accelerated amortization period begins once the borrowers have reached the age of 65. From that date the loan amortizes fully until the borrower reaches 73 (with the exception of full balance revolving credits, which can be originated without age limit, but the credit limit decreases to €2,500 from the age of 75). We have set our base-case assumptions by considering the long loan terms, the revolving period, and the further advance feature, which could extend the transaction's life, thereby exposing it to external shocks arising from any further deterioration in the Dutch economy. After the end of the revolving period, the initial purchase price related to further advance receivables is either funded by the subordinated notes or its payment is subordinated in the priority of payments.

Following our view of the increased uncertainty associated with the transaction's potentially longer life, we have applied high rating level loss multiples and recovery rate haircuts (discounts) for the assigned ratings.

Payment StructureWe have analyzed the payment structure and other structural features of the transaction under our European consumer finance criteria for the consumer loans and our global consumer finance criteria for the credit card loans. The transaction has a combined principal and interest waterfall. A principal deficiency test is in place for each set of notes to ensure that interest on any junior note is not paid if a principal deficiency exists at a senior level.

The principal deficiency test is defined as the difference, if positive, between:

The outstanding principal amount of the notes and subordinated drawings, andThe sum of the outstanding amount of the receivables held by the issuer on the previous cut-off date minus the amount of initial purchase price and additional purchase price due but unpaid on the previous cut-off date, the available amounts remaining on such monthly payment date after application of the priority of payments, the cash reserve, and the amount of collections on the receivables held by the issuer on the previous cut-off date standing to the credit of the collection foundation account on the previous cut-off date. The results of our cash flow runs are in line with our 'AA - (sf)', 'A (sf)', 'BBB+ (sf)', 'BBB (sf)', and 'B (sf)' ratings on the class A, B, C, D, and E notes, respectively.

The issuer can use collections and any of the notes proceeds to purchase additional loan receivables and further advance receivables. The transaction has a reserve account that was initially sized at 3.0% of the net present value of the portfolio and that is funded by the subordinated notes facility. The reserve amortizes in line with the portfolio, subject to a floor (minimum level) of €600,000. Once the class A, B, C, D, E, F, and G notes are fully repaid, or once the portfolio has fully amortized, the reserve amortizes to zero.

The interest on the notes is based on floating-rate one-month Euro Interbank Offered Rate (EURIBOR). The loans bear both fixed and variable rates and the borrowing base excludes loans with an interest rate lower than 6.25% if the weighted-average interest rate of all receivables is lower than 8.00%. An interest rate swap is also in place. This covers 100% of the net present value of the fixed rate amortizing loans and 80% of the outstanding amount of the revolving and amortizing loans held by the issuer on the previous cut-off date.

Under our European consumer finance criteria, we ran a high and low prepayment scenario, as well as up, flat, and down interest rate vectors and an equal default curves. Our cash flow runs at the assigned rating levels show that the rated notes pay timely interest and ultimate principal.

Counterparty RiskABN AMRO Bank N. V. is the issuer account bank, ING Bank N. V. is the collection account bank, and BNP Paribas is the swap counterparty. Our long - and short-term issuer credit ratings on the bank and swap counterparty, and the documented replacement triggers support our ratings on the class A, B, C, D, and E notes under our current counterparty criteria (see "Counterparty Risk Framework Methodology And Assumptions," published on June 25, 2013).

Legal RiskWe consider that the issuer is bankruptcy remote under our European legal criteria (see "Europe Asset Isolation And Special-Purpose Entity Criteria--Structured Finance," published on Sept. 13, 2013).

Set-Off RiskIf a borrower cannot obtain a further advance due to the originator's insolvency, the borrower may have the right to set off the cost of a substitute loan during the two-month notice period to terminate the loan. We have sized a stressed set-off amount, which we deducted from our cash flow run at closing.

The pool does not contain loans granted to the originator's employees and the originator is a not deposit-taking institution, so set-off risk does not occur from these sources.

Rating StabilityWe have analyzed the effect of a moderate stress on our credit assumptions and their ultimate effect on the ratings assigned to the class A, B, C, D, and E notes. We ran two scenarios and the results are in line with our credit stability criteria (see "Methodology: Credit Stability Criteria," published on May 3, 2010).