Fitch Expects to Rate CNH Equipment Trust 2016-B; Presale Issued
OREANDA-NEWS.Fitch Ratings expects to assign the following ratings to the CNH Equipment Trust 2016-B notes:
--$190,500,000 class A-1 'F1+sf';
--$332,600,000 class A-2a/b 'AAAsf'; Outlook Stable;
--$246,600,000 class A-3 'AAAsf'; Outlook Stable;
--$72,790,000 class A-4 'AAAsf'; Outlook Stable;
--$19,390,000 class B 'A+sf'; Outlook Stable.
Fitch's stress and rating sensitivity analysis are discussed in the presale report titled 'CNH Equipment Trust 2016-B', dated May 19, 2016, which is available on Fitch's web site. The presale report details how Fitch addresses the key rating drivers summarized below.
KEY RATING DRIVERS
High AG Concentration: The 2016-B collateral pool consists of 87% agricultural equipment (AG) and 13% construction equipment (CO). While the concentrations are consistent with CNH Industrial Capital securitizations dating back to 2009, the AG concentrations in all these transactions are significantly higher relative to CNH Industrial Capital transactions issued prior to 2009.
Consistent Collateral Concentrations: The pool contains 53% used equipment, one of the highest since 2011-A. While AG concentrations remain high at 87%, historical AG losses have been low. Additionally, geographic diversity, diversification within the AG sector, and equipment versatility help mitigate the high concentration.
Sufficient Credit Enhancement: Credit enhancement (CE) for the 2016-B transaction is consistent with the prior transactions. Class A CE remains at 4.50%, and class B CE remains at 2.25%. The transaction also benefits from 2.34% in excess spread. The available CE is sufficient to support Fitch's 1.15% cumulative net loss (CNL) proxy.
Quality Origination, Underwriting and Servicing: CNH Industrial Capital and affiliates have demonstrated adequate abilities as originator, underwriter and servicer, as evidenced by historical delinquency and loss performance of securitized trusts and the managed portfolio.
Integrity of Legal Structure: The legal structure of the transaction should provide that a bankruptcy of the trust would not impair the timeliness of payments on the securities.
Unanticipated increases in the frequency of defaults and loss severity on defaulted receivables could produce loss levels higher than the base case and could result in potential rating actions on the notes. Fitch evaluated the sensitivity of the ratings to increased losses over the life of the transaction. Fitch's analysis found that the notes display limited sensitivity to increased defaults and losses, showing limited impact on the rating of the notes under Fitch's moderate (1.5x base case loss) scenario. The notes could experience downgrades of up to two rating categories under Fitch's severe (2.5x base case loss) scenario.
DUE DILIGENCE USAGE
Fitch was provided with third-party due diligence information from Ernst & Young LLP. The third-party due diligence focused on comparing or recalculating certain information with respect to 184 receivables. Fitch considered this information in its analysis and the findings did not have an impact on our analysis/conclusions. A copy of the ASB Due Diligence Form-15E received by Fitch in connection with this transaction may be obtained through the link at the bottom of this rating action commentary.
Key Rating Drivers and Rating Sensitivities are further described in the presale report dated May 19, 2016. Fitch's analysis of the Representations and Warranties (R&W) of this transaction can be found in 'CNH Equipment Trust 2016-B - Appendix'. These R&Ws are compared to those of typical R&W for the asset class as detailed in the special report 'Representations, Warranties, and Enforcement Mechanisms in Global Structured Finance Transactions' dated March 2, 2016.