Fitch Ratings has assigned Cembra Money Bank AG's (Cembra) first auto covered bonds a final rating of 'AAA' with a Stable Outlook.
This is the second covered bond programme backed by auto lease receivables rated by Fitch and is based on a similar issuance template to other Swiss contractual covered bonds.
The bonds are backed by a cover pool of Swiss auto lease receivables, including residual value (RV), and have a conditional pass-through feature, with a maturity extension of seven years, longer than the maximum tenor of 61 months for the eligible assets.
Cembra's inaugural issuance is a CHF150 million fixed-rate bond, with a five-year maturity. The covered bonds are issued under a contractual framework governed by Swiss law. They constitute senior unsecured obligations of Cembra, guaranteed by Cembra Auto Finance AG, a special-purpose entity that has been granted security of the cover assets.
KEY RATING DRIVERS
Uplifts Above Cembra's Rating: The 'AAA' covered bonds' rating is notched up from Cembra's private Long-Term Issuer Default Rating (IDR), as the auto covered bonds benefit from strong liquidity protection, as well as prospects of recoveries given default, as Fitch has not identified any material downside risk to recovery expectations. Both the covered bonds and assets are denominated in Swiss francs. The Stable Outlook on the covered bonds' rating reflects the buffer against a downgrade of Cembra's IDR.
Overcollateralisation Protection: The 'AAA' break-even asset percentage (AP) of 89% supports timely payments on the bonds and recoveries given default to support a 'AAA' rating under Fitch's criteria. Fitch's analysis relies on the AP of 88% that is applied in the contractual asset coverage test at inception.
Liquidity Provisions Drive Uplifts: Fitch's payment continuity uplift reflects the strength of the liquidity protection under the conditional pass-through liability profile with a seven-year principal maturity extension that goes beyond the maximum tenor of the cover assets of 61 months. The programme also includes a liquidity reserve fund held at the account bank that covers the higher of three months' interest payments on the outstanding auto covered bonds and senior expenses, and accrued interest and senior expenses since the last payment date.
Recovery Expectations: Fitch has granted a recovery uplift to the covered bonds. This reflects our view that in the event of a covered bonds default, the cover pool, which comprises standard Swiss auto lease receivables, should allow for outstanding recoveries on the covered bonds. The recovery uplift takes into account that Fitch has not identified material downside risks to the covered bonds' recovery expectations. The issuance is in Swiss francs, the same currency as the assets.
No Resolution Uplift: Fitch does not expect resolution to be applied for Cembra in case of failure or default. The issuer has not been classified by FINMA as a domestically systemically important bank, and therefore is not required to build up a buffer of loss-absorbing debt for recapitalisation.
Auto-Lease Cover Pool: The initial CHF175.1 million pool consists of auto lease receivables originated in Switzerland by Cembra and granted to private and commercial customers. The lease contracts do not include any other products or services such as insurance or maintenance. Given the nature of the assets, Fitch analysed the portfolio using the framework applicable in its 'Consumer ABS Rating Criteria' and 'Consumer ABS Rating Criteria - Residual Value Addendum', available at www.fitchratings.com.
RV Risk: All the cover pool auto lease receivables include the RV at contract maturity. RV risk arises where obligors have an option to return the vehicle in lieu of paying a large final instalment at lease maturity. Car dealers must pay the contractual RV to the issuer, but a dealer default or customer prepayments could expose the issuer to the risk of RV losses if used vehicle prices decline. The RV loss contributes to the cover pool's overall credit loss, alongside the expected loss from lessees' defaults.
Wide Brand Distribution: The eligible pool analysed by Fitch contains a wide range of brands, reflecting the non-captive nature of Cembra's business, which is also conducive to lower RV setting. In addition, the high granularity of the cover pool dealer exposure, with limited dependence on a single manufacturer, led Fitch to assume a lower default rate for dealers in a 'AAA' rating stress than for peers.
Stressed RV Assumed: The RV of the leased vehicle cannot exceed 70% of the outstanding lease balance upon inclusion in the cover pool, but this still allows the RV portion to increase due to portfolio seasoning. The RV can also change, depending on the characteristics of new assets added to the pool, which will reflect any changes to Cembra's RV-setting policy. We have therefore assumed the RV will increase to 58%, from the current 45.2% in the eligible pool.
RV Component of Break-even OC: Overall RV losses and early termination losses contribute 9.1% to the break-even OC for the 'AAA' rating, based on a combination of timely payment stresses and recoveries given default.
Large Share of Used Vehicles: Fitch's expected loss on Cembra's auto-lease assets reflects the larger share of used vehicle leases (75.4% of the pool by lease balance at 30 June 2025), for which Fitch has higher associated default rate and lower recovery rate assumptions than for new vehicle leases. We have assigned a weighted average (WA) default base case of 2.4% to the overall cover pool. We accounted for a possible increase in defaults in a stressed environment by applying a multiple of 5.2x at 'AAA'. Overall losses from lessees' defaults contribute 7.2% to the break-even OC for the 'AAA' rating, based on a combination of timely payment stresses and recoveries given default.
Substantial Excess Spread: The programme benefits from ample excess spread between the modelled yield from the assets compared with the coupon on the inaugural five-year covered bond. This is despite Fitch modelling a stressed yield of 4.75% on the assets, compared with 5.8% for the eligible pool at 30 June 2025, due to the lack of restrictive covenants on the yield and the decreasing interest rate environment in Switzerland.
ALM Loss Reduces Break-even AP: The large excess spread, in combination with the conditional pass-through nature of the bonds, results in an assets and liabilities mismatch (ALM) loss of -1.4%, reducing the break-even OC for the rating. The 'AAA' break-even OC also factors in the negative carry component of the asset coverage test, which adds around 2.5% OC protection.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade
The covered bonds' 'AAA' rating could be downgraded if Cembra was downgraded below a certain level.
The covered bonds' rating could also be downgraded if the AP Fitch relies on increases above the 89.0% 'AAA' break-even AP.
Fitch's break-even AP for the covered bonds' rating will be affected, among other factors, by the profile of the cover assets relative to outstanding covered bonds, which can change over time, even in the absence of new issuance. Therefore, the break-even AP to maintain the covered bonds' rating cannot be assumed to remain stable over time.
Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade
The covered bonds' rating is at the highest level on Fitch's scale and cannot be upgraded.
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
PUBLIC RATINGS WITH CREDIT LINKAGE TO OTHER RATINGS
The covered bonds' rating is driven by Cembra's credit risk.
ESG Considerations
The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. For more information on Fitch's ESG Relevance Scores, visit https://www.fitchratings.com/topics/esg/products#esg-relevance-scores.
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