Preliminary Ratings Assigned To Youni 2019-1's French ABS Notes


  • We have assigned preliminary ratings to Youni 2019-1's class A to G-Dfrd asset-backed notes.
  • Youni 2019-1 is a French asset-backed-securities (ABS) fund backed by a pool of French consumer loans granted to individual private borrowers, which Younited originated.
MILAN (S&P Global Ratings) April 17, 2019--S&P Global Ratings today assigned 
its preliminary credit ratings to Youni 2019-1's class A to G-Dfrd 
asset-backed notes. Our ratings on the class B-Dfrd to F-Dfrd notes address 
the ultimate payment of interest and principal, while our preliminary rating 
on the class G-Dfrd notes addresses the ultimate repayment of principal only. 

Youni 2019-1 is a French asset-backed-securities (ABS) fund backed by a pool 
of French consumer loans granted to individual private borrowers, which 
Younited originated. The issuer is a French securitization fund (fonds commun 
de titrisation, or FCT), which is bankruptcy remote by law.

RATING RATIONALE

Economic outlook 
In our base-case stress scenarios, we considered that the French economy will 
increase by 1.4% and 1.5% in real terms in 2019 and 2020, respectively. 
Consumers will benefit from tax cuts, lower inflation on the back of weaker 
energy prices, and further acceleration in wage growth as the labor market 
tightens further. These favorable conditions have contributed to households' 
purchasing power, which we expect will remain dynamic and support further 
household consumption. Protests in France are now less disruptive to economic 
activity compared to past months (see "European Economic Snapshots For 1Q2019 
Published," published on Dec. 18, 2018, and "The European Economy Lurches 
Ahead - In The Slow Lane," published on March 28, 2019).

Credit analysis
We analyzed credit risk under our European consumer finance criteria, using 
cumulative gross loss vintage curves for the personal loans and debt 
consolidation loan subpools (see "European Consumer Finance Criteria," 
published on March 10, 2000). We used static cohort data to size our base-case 
default rate. Based on the historical data, the increase in volume in the last 
year by around 35% compared to the end of 2017, and the fact that the 
performance information does not cover the entire life of the loans, we have 
sized our base-case default rate at 10% in the securitized pool. This 
base-case also incorporates our current French macroeconomic forecast. We have 
used high-range multiples to address that the originator is a new market 
player in the French consumer loan market and that this is the first 
securitization transaction since it started its business in 2011. In addition, 
we've considered that the company has a riskier business plan and a high 
growth target to make business profitable compared with typical French 
lenders.

On the recovery side, we have received data split for over-indebtness and 
non-over-indebtness borrowers. Over-indebtness borrowers might benefit of 
protection arrangements by French law, which might include measures to defer 
or reschedule debt payments. Overall, we have assumed a base-case recovery 
rate at 32%, with a 25% rate after 28 months and the residual 75% after 40 
months, based on the recovery curves' patterns. The overall transaction data 
we have received meets our minimum data standards, and we have sufficient 
information to rate the transaction.

Payment structure
We have analyzed the transaction's payment structure and other structural 
features under our European consumer finance criteria. The transaction has 
separate principal and interest waterfalls. A PDL comprising seven subledgers 
(one each for the class A, B-Dfrd, C-Dfrd, D-Dfrd, E-Dfrd, F-Dfrd, and G-Dfrd 
notes) records defaults and principal used to cover senior interest 
deficiency. The results of our cash flow runs are in line with our preliminary 
ratings on the notes.

The transaction has a liquidity reserve, being equal to 0.8% of the 
outstanding aggregate balance of the class A, B, C, D, E, and F notes, thus 
amortizing with the notes' amortization, with no floor. It provides liquidity 
support to the class A and B-Dfrd notes as long as they're outstanding and 
then to the other rated notes once they become the most-senior notes 
outstanding. Furthermore, if required, available principal proceeds can be 
applied to cover any remaining interest deficiency on the most-senior classes. 
Any interest shortfalls covered through the use of principal receipts will 
result in a corresponding debit to the PDL.

Interest on the class A to F-Dfrd notes is based on floating-rate one-month 
(apart from the class G-Dfrd notes, which does not bear any coupon). The loans 
pay a fixed rate of interest. An interest rate cap with a strike rate of 1% 
partially mitigates the impact of rising interest rates. 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 equal, front-loaded, and 
back-loaded default curves. We also ran a sensitivity with interest rate at 
the strike rate of 1% for life. Our cash flow runs at the assigned rating 
levels show that the rated notes pay timely interest and ultimate principal 
for the class A notes, while we rated the class B-Dfrd, C-Dfrd, D-Dfrd, 
E-Dfrd, and F-Dfrd notes based on the payment of ultimate interest and 
principal.

The class G-Dfrd notes do not bear any coupon and only receive any residual 
excess spread under the interest waterfall. Since there is no promise to pay 
interest on the class G-Dfrd notes under the terms and conditions, our rating 
addresses only the repayment of principal and not any payment of interest. 
Therefore, we have added a qualifying subscript 'p' to the preliminary rating 
on class G-Dfrd notes. This class of notes does not pass our stresses at the 
'B' rating level for full repayment of principal by maturity. They are 
currently vulnerable and depend upon favorable financial and economic 
conditions to not default, in our view. Therefore, we assigned a preliminary 
rating of 'CCCp' on the class G notes (see "Criteria For Assigning 'CCC+', 
'CCC', 'CCC-', And 'CC' Ratings," published on Oct. 1, 2012).

Counterparty risk 
The transaction's documented replacement language for all of its relevant 
counterparties is in line with our current counterparty criteria (see "
Counterparty Risk Framework: Methodology And Assumptions," published on March 
8, 2019, and "Guidance: Counterparty Risk Framework: Methodology And 
Assumptions," published on March 8, 2019). 

Commingling risk is mitigated by the use of French special dedicated accounts 
(SDAs), held by Credit Mutuel Arkea (A/Negative/A-1), with proper downgrade 
language if we lower our long-term rating on the SDA holder below 'BBB'. All 
of the borrowers pay their collections by direct debit to the SDA, thus 
protecting collections if Younited, as servicer, were to become insolvent. We 
applied commingling risk for collections as a liquidity stress in our analysis 
in case money is not immediately dispensable. There is the risk that 
prepayments and recoveries could get lost if the servicer becomes insolvent.

Since roughly 30% of the prepayments are first paid to Younited, and it takes 
one week before they are transferred to the SDA, we have assumed a commingling 
loss over 30% of prepayments received in one week, assuming a base-case 
constant prepayment rate of 15%. We expect the monthly recovery inflows to be 
spread over the transaction's life, and we assumed a limited amount of 
recoveries in our stressed scenario. Therefore, we consider the commingling 
risk arising from recoveries to be negligible.

Our preliminary analysis shows that counterparty risk does not constrain our 
preliminary ratings on the notes.

Legal risk 
The issuer is an FCT and is considered bankruptcy remote under French law and 
according to our legal criteria (see "Structured Finance: Asset Isolation And 
Special-Purpose Entity Methodology," published March 29, 2017). We have 
reviewed the transaction documents, and we will receive French legal opinions. 
We expect them to be compliant with our criteria.

Ratings stability 
We have analyzed the effect of moderate stress on our credit assumptions and 
its ultimate effect on the preliminary ratings that we have assigned. The 
scenario results are in line with our credit stability criteria (see "
Methodology: Credit Stability Criteria," published on May 3, 2010).
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