Mercedes 2006 Annual Report Download - page 217

Consolidated Financial Statements | Other Notes | 201
33. Retained Interests in Securitized Sold Receivables
and Sale of Finance Receivables
DaimlerChrysler uses securitization transactions to diversify
its funding sources. In the ordinary course of business, the Group
sells significant portions of its automotive finance receivables
to trusts and third-parties entities in “asset-backed securitiza-
tions” and “whole loan sales”. The information given below
relates only to transfers of finance receivables which qualified for
de-recognition according to the criteria in SFAS 140.
Description of securitization transactions. Asset-backed
securitizations (“ABS”) involve the sale of financial assets
by DaimlerChrysler to trusts that are special purpose entities.
The special purpose entities purchase the assets with cash
raised through the issuance of beneficial interests (usually debt
instruments) to third-party investors. The sold financial assets
consist of retail receivables with an expected average lifetime of
several months at the time of the securitization and short-term
wholesale receivables which are securitized using a revolving-period
structure. The investors in the beneficial interests have recourse
to the assets in the trusts and benefit from credit enhancements
such as overcollateralization. In a subordinated capacity, the
Group retains residual beneficial interests in the sold receivables
designed to absorb substantially all credit, prepayment, and
interest-rate risk of the receivables transferred to the trusts.
The retained interest balance represents DaimlerChrysler’s
right to receive collections on the transferred receivables in excess
of amounts required by the trust to pay interest and principal
to investors, servicing fees, and other required payments. To
support the European ABS-program DaimlerChrysler also
provided subordinated loans to one trust. The Group’s maximum
exposure to loss as a result of its involvement with these
entities is limited to the amount of the carrying value of retained
interests and the provided subordinated loans.
The Group also transfers automotive finance receivables to
third-party trusts in transactions wherein it does not retain
a beneficial interest in the transferred receivables (whole loan
sales). In whole loan sales, all risk of loss related to the sold
receivables is transferred from DaimlerChrysler to the purchaser.
The Group generally remains as servicer for the sold receivables.
Sale of finance receivables. During the year ended December 31,
2006, in asset-backed securitization transactions, Daimler-
Chrysler sold €13,516 million (2005: €10,059 million) and €32,373
million (2005: €33,922 million) of retail and wholesale
receivables, respectively. From these transactions, the Group
recognized gains of €89 million (2005: €11 million) and €181
million (2005: €169 million). During the year ended December 31,
2006, the Group sold €2,344 million (2005: €1,516 million)
of retail receivables in whole loan sales and recognized losses
of €6 million (2005: gains of €2 million).
Cash flows between DaimlerChrysler and the securitization
trusts. The cash flows in connection with the afore mentioned
transactions between DaimlerChrysler and the securitization
trusts were as follows:
Retained beneficial interests in securitized sold receivables.
As there is no active market for retained interests, the Group
determines the value of its retained interests using discounted
cash flow modeling upon the sale of receivables. The valuation
methodology considers historical and projected principal and
interest collections on the sold receivables, expected future
credit losses arising from the collection of the sold receivables,
and estimated repayment of principal and interest on notes
issued to third parties and secured by the sold receivables.
For more details on the valuation of retained interests in
securitized sold receivables, please see Note 1.
The fair value of retained interests in securitized sold
receivables was as follows:
2005
2006
14,979
32,373
213
913
10,988
33,892
214
998
Proceeds from new retail securitizations
Proceeds from collections reinvested in
wholesale securitizations
Servicing fees received
Receipt of cash flows on retained interests in
sold receivables and subordinated loans
(in millions of €)
At December 31,
2005
2006
2,845
(264)
2,581
123
2
2,706
2,266
(286)
1,980
233
2
2,215
Fair value of estimated residual cash flows,
net of prepayments, from sold receivables, before
expected future net credit losses
Expected future net credit losses on sold
receivables
Fair value of net residual cash flows from sold
receivables
Retained subordinated securities
Other retained interests
Retained interests in sold receivables
(in millions of €)