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Fitch: French Auto ABS Ratings Can Resist Supreme Court Opinion
April 25, 2017 / 2:16 PM / 5 months ago

Fitch: French Auto ABS Ratings Can Resist Supreme Court Opinion

(The following statement was released by the rating agency) PARIS, April 25 (Fitch) French Auto ABS ratings show limited sensitivity to lower recovery rate assumptions making them largely resistant to the potential effects from the French Supreme Court Opinion regarding "retention of title" clauses in auto loan contracts, Fitch Ratings says. Based on the sensitivities undertaken at closing or at the last surveillance date by Fitch, most of the French auto loan transactions show limited sensitivity to recovery assumptions. For example, a 25% decrease of the respective base-case recovery assumption would result in a maximum one-notch downgrade for the most senior tranches, while the subordinated tranches would be downgraded by two notches at most. The French Supreme Court, known as Cour de Cassation in French, released an Opinion in November 2016 on clauses usually inserted into French auto loan contracts relating to the possible transfer of title rights to a vehicle, by way of subrogation, from a seller to a lender. The court considered clauses that allow such a transfer to be not valid. It also considered that clauses that allow the lender to waive the benefit of the retention of the title to unilaterally register a pledge over the car, without any obligation to inform the debtor, to be unfair. A retention of title clause means that the seller retains the legal ownership over the contracted goods until certain obligations are fulfilled by the buyer - usually the payment in full of the purchase price. Although the Opinion is not case law and judges can decide whether or not to follow it, the clauses will then be deemed not to be valid if the Opinion is largely followed by the courts, meaning that such loans effectively become unsecured. The Opinion may mainly affect recoveries obtained through legal proceedings that, according to data provided by various French originators, do not constitute the majority of recoveries. In addition, if such clauses are absent or considered void, lenders could still resort to other legal options to repossess a vehicle (as any unsecured creditors could do), but such recourse take a longer timeframe than the one based on the retention of the title clause. This Opinion would therefore mean that the recovery process could be delayed, resulting in reduced car sales proceeds, as the vehicle price is typically a decreasing function of time. In Fitch's view, this Opinion should only apply to either the loan contracts that are not already amended or to those signed before the below amendments took place. Nevertheless, based on discussions with originators, Fitch believes they have either already amended their standard form loan contracts (to implement a new binding retention of title clause based on article 1346-2 of the Code Civil), or that they are undertaking studies to decide how they intend to amend their contracts. Finally, contracts where no retention of title clauses was inserted by originators prior to the release of the Opinion are not affected. Fitch will continue to monitor the evolution of the legal environment regarding this matter and the recovery performance of French auto ABS transactions. Contact: Alexandre Adwokat Analyst +33 1 44 29 91 46 Fitch Ratings S.A.S. 60 Rue Monceau 75008 Paris Emmanuelle Ricordeau Senior Director +33 1 44 29 91 48 Media Relations: Athos Larkou, London, Tel: +44 203 530 1549, Email: athos.larkou@fitchratings.com. Additional information is available on www.fitchratings.com ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE. DIRECTORS AND SHAREHOLDERS RELEVANT INTERESTS ARE AVAILABLE here. 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