Research: Rating Action: Moody’s assigns definitive Aaa (sf) to Shinhan Card’s cross-border credit card deal


USD400 million of asset-backed securities rated

Hong Kong, August 18, 2022 — Moody’s Investors Service has assigned definitive Aaa (sf) ratings to two classes of floating rate secured notes issued by Shinhan Card 2022-2 International Ltd.

The complete rating action is as follows:

Issuer: Shinhan Card 2022-2 International Ltd

…. US$200,000,000 Class A1 Floating Rate Secured Notes due 2027, Assigned Aaa (sf)

…. US$200,000,000 Class A2 Floating Rate Secured Notes due 2027, Assigned Aaa (sf)

RATINGS RATIONALE

The definitive ratings of the notes are based on: (1) the credit quality of the portfolio; (2) the credit enhancement level of 20%; (3) the excess spread and liquidity reserve available to the transaction; (4) the minimum seller interest to account for certain risks, such as fraud and dilutions; (5) the credit quality and expertise of Shinhan Card Co., Ltd. (Shinhan Card) in its role as servicer; and (6) the structural and legal integrity of the transaction, including the cross-currency swaps provided by DBS Bank Ltd., Seoul Branch (Aa1(cr) stable for the head office) and MUFG Bank, Ltd., Seoul Branch (A1 (cr) stable for the head office).

Shinhan Card’s long-term issuer rating is A2 with a stable issuer outlook. There is a high degree of linkage between the ratings of the notes to the ratings of Shinhan Card, which is acting as sponsor, seller, and servicer.

DESCRIPTION OF TRANSACTION AND ISSUER

This is a cross-border securitization transaction sponsored by Korea-based Shinhan Card Co., Ltd. (Shinhan Card, A2 stable). The assets backing the notes consist of present and future receivables under designated credit card accounts originated by Shinhan Card.

The portfolio comprises credit card receivables owed by cardholders for their purchases on credit, as well as for drawing cash advances.

Purchases on credit can be repaid, either: (1) in full by the next payment due date (lump sum purchases); (2) on an installment basis, for which equal principal payments will be made over a fixed term (installment purchases); or (3) in part by the next payment date with a monthly minimum for the cardholders granted a revolving credit limit (revolving payment).

Cash advances drawn by cardholders need to be repaid in full and with interest by a designated payment due date, or by the revolving payment method for the revolving payment accounts.

The transactions’s revolving period ends in May 2026, and a six-month controlled amortization period will then follow. The USD-denominated Class A1 Notes and Class A2 Notes pay monthly interest at a one-month SOFR rate plus a spread. The principal will be repaid during the controlled amortization period.

With the occurrence and declaration of any of the early amortization triggers, the revolving or the controlled amortization periods will end immediately, and the principal collections will be passed through to the bondholder and used to accelerate principal repayments on the notes.

DESCRIPTION OF THE METHODOLOGY:

The principal methodology used in these ratings was “Moody’s Approach to Rating Credit Card Receivables-Backed Securities” published in July 2022 and https://ratings.moodys.com/api/rmc-documents/390486. Alternatively, please see the Rating Methodologies page on https://ratings.moodys.com for a copy of this methodology.

Moody’s credit card ABS rating methodology begins by developing a maximum loss that is consistent with a Aaa (sf) rating (Aaa level of credit given enhancement sponsor default [LGSD]), assuming that the sponsor has closed its cardholders’ accounts. This scenario is associated with sponsors that are in or close to default. For Shinhan Card 2022-2 International Ltd, the Aaa LGSD is 26.1%.

The key parameters used to drive the Aaa LGSD are: charge off rates (current, long run and peak); payment rates (current and at the start of early amortization), receivable yield rates (current, at the start of early amortization and the compression level due to potential asset-liability mismatches); servicing fees (current and stressed) and the minimum seller’s interest (as per the documents).

For Shinhan Card 2022-2 International Ltd, Moody’s assumes a long run charge-off rate of 10%, principal payment rate at the start of early amortization of 11% and receivable yield rate at the start of early amortization of 10%.

In a second step, the level of credit enhancement that is consistent with an Aaa (sf) rating is determined by lowering the Aaa LGSD by the applicable “dependency ratio”. This ratio varies according to the sponsor’s credit rating or counterparty risk assessment (CR Assessment), if available.

The higher the sponsor’s credit rating or CR Assessment — as the case may be — the lower the dependency ratio. The ratio reflects the likelihood of the sponsor entering default, so higher-rated sponsors will require lower Aaa enhancement, all else being equal. The result is the minimum Aaa credit enhancement (CE), absent other counterparty or operational risks. For Shinhan Card 2022-2 International Ltd, the minimum Aaa CE is 11.3% as compared to the 20% subordination in the subject transaction.

Factors that would lead to an upgrade or downgrade of the ratings:

Factors that may cause a downgrade of the ratings include a significant decline in the overall performance of the pool and a deterioration of the credit profile of the transaction counterparties, including the originator and the swap counterparties.

REGULATORY DISCLOSURES

For 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 on https://ratings.moodys.com/rating-definitions.

Moody’s took into account one or more third party due diligence assessment(s) regarding the underlying assets or financial instruments (the “Due Diligence Assessment(s)”) in this credit rating action and used the Due Diligence Assessment(s) in preparing the ratings. This had a neutral impact on the ratings.

The Due Diligence Assessment(s) referenced herein were prepared and produced by parties other than Moody’s. While Moody’s uses Due Diligence Assessment(s) only to the extent that Moody’s believes them to be reliable for purposes of the intended use, Moody’s does not independently audit or verify the information or procedures used by third-party due-diligence providers in the preparation of the Due Diligence Assessment(s) and makes no representation or warranty, express or implied, as to the accuracy, timeliness, completeness, merchantability or fitness for any particular purpose of the Due Diligence Assessment(s).

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 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 impairment cash flows.

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 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 issuer/deal page for the respective issuer on https://ratings.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 https://ratings.moodys.com.

Moody’s considers a rated entity or its agent(s) to be participating when it maintains an overall relationship with Moody’s. Unless noted in the Regulatory Disclosures as a Non-Participating Entity, the rated entity is participating and the rated entity or its agent(s) generally provide Moody’s with information for the purposes of its ratings process. Please refer to https://ratings.moodys.com for the Regulatory Disclosures for each credit rating action, shown on the issuer/deal page, and for Moody’s Policy for Designating Non-Participating Rated Entities, shown on https://ratings.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://ratings.moodys.com/documents/PBC_1288235.

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 https://ratings.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 https://ratings.moodys.com.

Please see https://ratings.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 issuer/deal page on https://ratings.moodys.com for additional regulatory disclosures for each credit rating.

The first name below is the lead rating analyst for this Credit Rating and the last name below is the person primarily responsible for approving this Credit Rating.

Elaine Ng
VP – Senior Credit Officer
Structured Finance Group
Moody’s Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong,
China (Hong Kong SAR)
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077

Jerome Cheng
Associate Managing Director
Structured Finance Group
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077

Release Office:
Moody’s Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong,
China (Hong Kong SAR)
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077

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