Rating Action: Moody’s assigns provisional ratings to Absolute Master 2203 backed by auto loan receivablesGlobal Credit Research – 07 Mar 2022JPY16.0 billion in debt securities affectedTokyo, March 07, 2022 — Moody’s SF Japan K.K. has assigned provisional ratings to the following transaction.The complete rating action is as follows:Transaction Name: Absolute Master 2203Class, Scheduled Dividend/Interest Rate, RatingClass I Series2203 Senior Beneficial Interests, Fixed, (P)Aaa (sf)Series2203 ABL, Fixed, (P)Aaa (sf)Series2203 Total Issue Amount: JPY16.0 billionClosing Date: March 31, 2022Final Maturity Date: March 25, 2032Underlying Asset: Auto loan receivablesTotal Principal Amount of Receivables (Master Trust): JPY96,967,207,447Arranger: The Norinchukin Trust & Banking Co., Ltd.RATINGS RATIONALEThe underlying assets are auto loans which allow obligors to set irregular payment schedules and make partial prepayments under specific conditions. The underlying pool mainly consists of loans which also allow obligors to defer principal payments and change payment schedules during the loan periods under specific conditions.The seller, being both originator and initial servicer, entrusts an additional pool of its auto loan receivables to the first trustee. The first trustee then issues the Class I Series2203 Senior Beneficial Interests, the Class II Series2203 Senior Beneficial Interests (“Class I Series Senior Beneficial Interests” and “Class II Series Senior Beneficial Interests” respectively) and the Subordinated Beneficial Interests.Entrustment of the receivables is perfected against third parties under the Perfection Law. Perfection against obligors is not made unless certain events occur.The seller holds the Subordinated Beneficial Interests and transfers the Class I Series Senior Beneficial Interests to investors through the arranger and the Class II Series Senior Beneficial Interests to the second trustee.The transfer of the Class I Series Senior Beneficial Interests and the Class II Series Senior Beneficial Interests is perfected against the asset trustee and third parties under Article 94 of Japan’s Trust Law.The settlor entrusts cash to the second trustee. The second trustee receives limited recourse loans, the Series2203 ABL (“Series ABL”), from ABL investors. The proceeds are used to purchase the Class II Series Senior Beneficial Interests. The principal and dividend of the Class II Series Senior Beneficial Interests are used to pay the principal and interest of the Series ABL.The Class I Series Senior Beneficial Interests and the Class II Series Senior Beneficial Interests are structured pari-passu in the principal and dividend waterfall under the first trust agreement.The underlying assets of the master trust are shared by all Series Senior Beneficial Interests and Series ABL.Principal collection from the underlying assets is allocated according to the initial issuance amount of each Series Senior Beneficial Interests and Series ABL. The Series Senior Beneficial Interests and the Series ABL are redeemed on a monthly pass-through basis.Credit enhancement is provided by the senior/subordinated structure at the master trust level and available excess spread. Subordination at the master trust level (excluding that corresponding to a cash reserve) comprises approximately 14.8% of the total initial principal balance of the receivables.The redemption of the Subordinated Beneficial Interests is suspended until the full repayment of all the Series Senior Beneficial Interests and the Series ABL (sequential payment mechanism).If any early amortization events occur, the dividend waterfall to the Subordinated Beneficial Interests is suspended, and excess spread is used to redeem all the Series Senior Beneficial Interests and the Series ABL.Key early amortization events include a servicer replacement event occurring, or asset performance triggers being reached.If any servicer replacement events occur, the first trustee can dismiss the servicer and have a back-up servicer take over the servicing operations. A back-up servicer is appointed at closing.In preparation for servicer replacement, liquidity is provided in the form of a cash reserve at closing. This reserve covers scheduled dividend/interest payments on the Series Senior Beneficial Interests and Series ABL, trust fees, and fees relating to the start of back-up servicer operations, etc.Commingling risk is covered by the Subordinated Beneficial Interests.The ratings are based mainly on the credit quality of the receivables, the transaction structure, and the servicer’s experience.Moody’s estimated the annualized expected default rate of the underlying assets at approximately 0.66% (Cumulative expected default rate: approximately 1.45%, Aaa credit enhancement: approximately 8.9%), after taking into consideration the receivable attributes, historical data on the seller’s entire pool, performance data on existing securitization pools, and industry trends.The expected default rate is based on the default definition used in Moody’s analysis and may not be comparable to other rates.To determine the ratings, Moody’s also conducted a cash flow analysis in which it added stress consistent with the assigned ratings on parameters such as the expected default rate.Given the structure of this master trust, Moody’s considered how the initial issuance amounts and the outstanding balances of each series and the timing of losses on the underlying pool will affect the loss allocation between each series. Moody’s considers that the issuance of this series and the additional entrustment will not affect the ratings of all the outstanding series issued by the master trust.Moody’s assumes that, given the structure of the transaction as well as other factors, the risk of interruption to the cash flow from the assets in the event of the seller’s or the first trustee’s bankruptcy is sufficiently minimized to achieve the ratings assigned.Moody’s considers the seller sufficiently capable of servicing the pool, after having taken into account the seller’s business experience and the servicing operations.The principal methodology used in these ratings was “Moody’s Global Approach to Rating Auto Loan- and Lease-Backed ABS (Japanese)” published in September 2021 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBS_1264322. 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:The primary factor that could lead to a downgrade of the ratings is worse performance of the underlying assets than Moody’s expected.Moody’s has also conducted the sensitivity analysis below which provides the number of notches by which the model-indicated output of the deal would have varied if different assumptions had been made as to certain key model parameters. The analysis assumes that the deal has not aged.If the expected default rate was changed from 0.66% to 1.65% and 3.30% and other assumptions remained unchanged, the model-indicated output of the rated classes would change by 0 and 1 notch respectively.The analysis results are model-indicated outputs, which are one of the many quantitative and qualitative factors considered by rating committees in determining actual ratings. This analysis does not intend to measure how the rating of the deal might migrate over time, but rather, how the initial model-indicated output of the deal might have differed if certain key model parameters had been varied.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 relies on an assessment of collateral characteristics to determine the collateral loss distribution, that is, the function that correlates to an assumption about the likelihood of occurrence to each level of possible losses in the collateral. As a second step, Moody’s evaluates each possible collateral loss scenario using a model that replicates the relevant structural features to derive payments and therefore the ultimate potential losses for each rated instrument. The loss a rated instrument incurs in each collateral loss scenario, weighted by assumptions about the likelihood of events in that scenario occurring, results in the expected loss of the 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 http://www.moodys.com/researchdocumentcontentpage.aspx?docid=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 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.Moody’s SF Japan K.K. is a registered credit rating agency under the Financial Instrument and Exchange Act but not a Nationally Recognized Statistical Rating Organization (“NRSRO”). Therefore the credit ratings assigned by Moody’s SF Japan K.K. are Registered Credit Ratings to the FSA, but are not NRSRO Credit Ratings.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. Atsushi Karikomi VP – Senior Credit Officer Structured Finance Group Moody’s Japan K.K. Atago Green Hills Mori Tower 20fl 2-5-1 Atago, Minato-ku Tokyo 105-6220 Japan JOURNALISTS: 81 3 5408 4110 Client Service: 81 3 5408 4100 Yusuke Seki Associate Managing Director Structured Finance Group JOURNALISTS: 81 3 5408 4110 Client Service: 81 3 5408 4100 Releasing Office: Moody’s SF Japan K.K. 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