S&P Rates MMCA Auto Owner Trust
20 August 1998
S&P Rates MMCA Auto Owner Trust Asset-Backed 1998-1 Notes
NEW YORK, Aug. 20 -- Standard & Poor's today assigned its
ratings to MMCA Auto Owner Trust 1998-1's various classes of asset backed
notes (see list below).
Credit support will be provided by 6.50% class B subordination, 10.5%
certificates class subordination and a nondeclining reserve account that
builds from 0.15% to 0.75% of the original note and certificate balance from
excess interest collections.
Additional credit enhancement is provided by a yield supplement account
that provides coverage for any yield deficiency due to the inclusion of
incentive rate loans. This account is sized at closing to bring the aggregate
weighted average coupon on the underlying collateral up to a yield of
approximately 8.78% (the sum of the weighted average bond coupon plus the
servicing fee plus 2.00% of excess spread). A supplemental reserve account,
which is funded monthly with excess spread and builds from 0% at closing to
2.00% of the original note and certificate balance, will be used to cover the
current month's principal and interest shortfalls.
MMCA Auto Owner Trust 1998-1 marks Mitsubishi Motors Credit of America
Inc.'s (MMCA) fourth entry into the public asset-backed market. This
transaction is unique in that there is $305.8 million of balloon payments
securing the notes and the transaction structure monetizes 68% of the balloon
payments. In the two previous securitizations, MMCA Auto Owner Trust 1995-1
and MMCA Auto Owner Trust 1997-1, only the level pay portion of the balloon
receivables was securitized and the balloon payments were utilized as credit
enhancement only.
This transaction securitizes a portion of MMCA's retail auto, Fuso
medium-duty truck and retail auto balloon receivable portfolio. The
collateral at closing consists of 53,764 contracts having an aggregate unpaid
principal balance consists of about $930.2 million. The initial pool balance
consists of 44.21% retail auto loans; 1.29% to medium-duty truck loans and
54.5% balloon loans, which amortize the amount financed over a series of fixed
level monthly installments, but which also require a substantially larger
final payment of principal together with one month's interest (the balloon
payment) after payment of the monthly installments.
In 1995 and 1996, MMCA experienced increases in delinquency and credit
losses. Adverse performance was attributable to the use of generic scorecards
which had lost their predictiveness and the disruption in collection
activities caused by centralization of all servicing functions in May 1995.
MMCA addressed these issues by implementing new scorecards in November 1996,
improving the performance of its collection staff with ongoing training and
developing a behavioral collections model in-house.
These changes have translated into improved performance on the serviced
portfolio. Total delinquencies (over 30 days) decreased to 4.93% as of June
30, 1998 from 5.87% in the prior-year comparable period. Net losses as a
percentage of average principal outstanding for the six months ended
June 30, 1998 were 2.59% annualized versus 3.72% for the comparable period in
1997 and 3.38% for the year-ended 1997.
Based on portfolio performance, prior rated static pool performance and a
static pool analysis of originations, Standard & Poor's expects cumulative net
credit losses for this pool to be 3.15% of the level payment portion of the
original pool balance.
To determine the additional enhancement needed to cover balloon payment
loss, Standard & Poor's applied existing methodology employed in auto leasing
transactions to determine the residual value exposure to the trust. Balloon
payment realization depends on the amount booked at the inception of the loan
and the number of vehicles that are returned at loan termination. MMCA has
had a historical return rate of 26.05% for balloon loans originated since 1993
when the company began originating this product. To stress the return rate,
Standard & Poor's assumed a 100% return rate under the triple-'A' scenario and
an 80% return rate under the single-'A' scenario.
The severity of residual loss for these balloon payments and, therefore,
how much would be realized on termination was estimated by comparing the
booked residual values with the residual values for the collateral projected
by the Automotive Lease Guide (ALG), which are based on historical data. The
average residual value for the collateral related to the balloon loans in this
pool is 60.2%. The average ALG estimate is 54.0%. Under a worst case
scenario, the future residual value may fall below the ALG estimate as a large
number of cars have been coming off lease in recent years. Standard & Poor's
has determined that a 20 percent haircut to the ALG estimates would yield a
severity assumption consistent with an triple-'A' stress scenario. The
residual exposure in this transaction was determined by multiplying the
frequency of residual loss (return rate) by the severity of residual loss.
-- CreditWire
RATINGS ASSIGNED
$200 million 5.621% money market class A-1 notes A-1+
$250 million 5.72% class A-2 notes AAA
$322.05 million 5.86% class A-3 notes AAA
$60.46 million 6.07% class B notes A