Verizon Owner Trust 2018-A — Moody’s upgrades two tranches from Verizon Owner Trust 2018-A
Rating Action: Moody’s upgrades two tranches from Verizon Owner Trust 2018-AGlobal Credit Research – 24 Feb 2021$174 million of asset-backed securities ratedNew York, February 24, 2021 — Moody’s Investors Service (“Moody’s”) upgrades two tranches of notes issued by Verizon Owner Trust 2018-A. The notes are backed by device payment plans that are unsecured consumer installment loans used to finance the purchase of mobile devices. All receivables are originated by Cellco Partnership d/b/a Verizon Wireless, a wholly owned subsidiary of Verizon Communications Inc. (Verizon) and certain other affiliates of Verizon. Verizon Wireless is the servicer for the transaction.The complete rating actions are as follows:Issuer: Verizon Owner Trust 2018-AClass B Notes, Upgraded to Aaa (sf); previously on Oct 10, 2018 Definitive Rating Assigned Aa1 (sf)Class C Notes, Upgraded to Aa1 (sf); previously on Oct 10, 2018 Definitive Rating Assigned Aa3 (sf)RATINGS RATIONALEThe upgrades are a result of the buildup of credit enhancement owing to the structural features including a sequential pay bond structure, a non-declining reserve account and overcollateralization. The buildup of credit enhancement also reflects rapid amortization of the collateral after a two year revolving period, which ended on November 2020 payment date. Due to the fast amortization, the total credit enhancement on Class B has increased to 22.45% from 15.75% at transaction closing and the total credit enhancement on Class C has increased to 16.01% from 11.50% at transaction closing.The lifetime cumulative net loss (CNL) expectation for the transaction was decreased to 3.30% from 4.50%(if floor credit enhancement tests are met) at transaction closing, reflecting the stronger collateral quality following the end of the revolving period relative to a worst possible pool mix permissible by the floor enhancement composition test during the revolving period and historical securitization performance data. This reflects an increase of approximately 10% to our loss expectation to consider potential performance deterioration resulting from a slowdown in US economic activity due to the COVID-19 outbreak.The coronavirus outbreak, the government measures put in place to contain it, and the weak global economic outlook continue to disrupt economies and credit markets across sectors and regions. Our analysis has considered the effect on the performance of consumer assets from the current weak US economic activity and a gradual recovery for the coming months. Although an economic recovery is underway, it is tenuous and its continuation will be closely tied to containment of the virus. As a result, the degree of uncertainty around our forecasts is unusually high.We regard the coronavirus outbreak as a social risk under our ESG framework, given the substantial implications for public health and safety.PRINCIPAL METHODOLOGYThe principal methodology used in these ratings was “Moody’s Approach to Rating Consumer Loan-Backed ABS” published in July 2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBS_1230138. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.Factors that would lead to an upgrade or downgrade of the ratings:UpMoody’s could upgrade the notes if, given current expectations of portfolio losses, levels of credit enhancement are consistent with higher ratings. In sequential pay structures, such as the one in this transaction, credit enhancement grows as a percentage of the collateral balance as collections pay down senior notes. Moody’s expectation of pool losses could decline as a result of better than expected improvements in the economy, changes to servicing practices that enhance collections or upgrades or that result in prepayments. Given the linkage to the carrier, ratings of the subordinate notes could also be upgraded if the rating of Verizon were to be upgraded.DownMoody’s could downgrade the ratings of the notes if pool losses exceed its expectations and levels of credit enhancement are consistent with lower ratings. Credit enhancement could decline if excess spread is not sufficient to cover losses in a given month. Moody’s expectation of pool losses may increase, for example, due to performance deterioration stemming from a downturn in the US economy, deficient servicing, errors on the part of transaction parties, inadequate transaction governance or fraud. In addition, given the linkage to the carrier, ratings of the notes could also come under pressure if the rating of Verizon were to be downgraded.REGULATORY DISCLOSURESFor further specification of Moody’s key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody’s Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.The analysis includes an assessment of collateral characteristics and performance to determine the expected collateral loss or a range of expected collateral losses or cash flows to the rated instruments. As a second step, Moody’s estimates expected collateral losses or cash flows using a quantitative tool that takes into account credit enhancement, loss allocation and other structural features, to derive the expected loss for each rated instrument.Moody’s quantitative analysis entails an evaluation of scenarios that stress factors contributing to sensitivity of ratings and take into account the likelihood of severe collateral losses or impaired cash flows. Moody’s weights the impact on the rated instruments based on its assumptions of the likelihood of the events in such scenarios occurring.For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody’s rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider’s credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.These ratings are solicited. Please refer to Moody’s Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.Moody’s general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1243406.At least one ESG consideration was material to the credit rating action(s) announced and described above.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody’s affiliates outside the EU and is endorsed by Moody’s Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody’s office that issued the credit rating is available on www.moodys.com.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody’s affiliates outside the UK and is endorsed by Moody’s Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody’s office that issued the credit rating is available on www.moodys.com.Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody’s legal entity that has issued the rating.Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating. Prachi Talathi Associate Lead Analyst Structured Finance Group Moody’s Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. 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