ARC Ratings Assigns Public Rating of 'AAA(sf)'

COMPANY PROFILE

Hitachi Capital (UK) PLC is 100% owned by Hitachi Capital Corporation of Japan, and has had a successful conduit securitisation programme in place since 2002. This facility funds origination of interest-free and interest-bearing consumer finance contracts from a specific division of Hitachi Capital (UK) PLC, Hitachi Capital Consumer Finance (“HCCF”).

HCCF originate four main types of finance contracts that it sells into the consumer receivables programme: Interest-Free Credit (IFC), Deferred Interest-Free Credit (DIFC), Interest-Bearing Credit (IBC), and Deferred Interest-Bearing Credit (DIBC).

TRANSACTION OVERVIEW & CAPITAL STRUCTURE

• The transaction size is £200,000,000.
• Hitachi Capital (UK) PLC has at present, and expects to have in the future, receivables owed to it that arise in the course of its business.
• Hitachi Capital (UK) PLC sells the legal title to eligible UK Consumer loan receivables on a revolving basis.

RATING RATIONALE

• Credit Enhancement (CE): CE is provided by the transaction structure in the form of dynamic overcollateralization (OC). ARC considers the available OC sufficient to protect the transaction against losses at an ‘AAA(sf)’ rating level (taking into account default and recovery expectations, amongst others). 
• Strong Recovery Expectations: As part of the rating process, ARC stressed the recoveries of the underlying assets by assuming a higher concentration of assets with weak recovery prospects, applying a haircut (45%), resulting in a stressed recovery rate of 11.5% in ARC’s ‘AAA(sf)’ scenario. The calculated recovery expectations are considered reasonable for the asset class in question, particularly given the magnitude of the applied stresses.
• Modest historical defaults: The underlying assets have relatively low levels of historical defaults and losses. ARC applied ‘AAA’ rating stresses to the scenario, resulting in a stressed default rate commensurate with an ‘AAA(sf)’ rating level.
• Diversification of underlying assets: The loans comprising the asset pool are diversified: geographically within the UK, by industry, size and product.
• ARC deems the level of support provided to be sufficient to support a ‘AAA(sf)’ rating.