Fitch Rates Hyundai Auto Lease Securitization Trust 2016-C
KEY RATING DRIVERS
Stable Collateral Quality: The 2016-C pool is consistent with that of recently issued HALST transactions, with a WA FICO score of 743 and Hyundai/Kia brand composition of approximately 50% each. Cars make up the majority of the pool at 64%. Securitized residuals represent 64.2% of the securitization value, which is a decrease from 66.2% in 2016-B and 2016-A.
Adequate CE Structure: Initial hard credit enhancement (CE) will be 16.95% and 13.50% for class A and B notes, respectively, growing to 18.95% and 15.50% of the initial SV, consistent with past transactions (although the target OC steps down to 13.5% from 15% when class A-2 pays off). Initial excess spread is 4.30%. Loss coverage is adequate to support Fitch's 'AAAsf' and 'AAsf' stressed assumptions.
Weakening Loss Performance: Credit and residual losses on HCA's portfolio continue to increase from the low levels seen in 2010 and 2011, in part due to rapid origination growth and the resulting increase in off-lease vehicles. Residual performance is expected to see continued pressure but remain below the peaks used to derive the base case. Fitch's credit loss proxy is 1.15% of the SV and the 'BBsf' residual loss proxy is 13.50%.
Evolving Wholesale Market: The U. S. wholesale vehicle market has been normalizing following strong performance in recent years. Fitch Ratings expects the increasing off-lease vehicle supply and pressure from increased production levels to lead to decreased residual realizations during the life of the transaction.
Experienced Origination/Underwriting/Servicing: Fitch believes HCA to be a capable originator, underwriter and servicer, as evidenced by historical portfolio delinquency and loss experience and securitization performance.
Legal Structure Integrity: The legal structure of the transaction should provide that a bankruptcy of HCA would not impair the timeliness of payments on the securities.
Unanticipated decreases in the value of returned vehicles and/or increases in the frequency of defaults and loss severity on defaulted receivables could produce loss levels higher than the base case. This would likely result in declines of credit enhancement and loss coverage levels available to the notes. Hence, Fitch conducts sensitivity analyses by increasing the transaction's initial base case RV and credit loss assumptions and examining the rating implications on all classes of issued notes. The increases to the base case losses are applied such that they represent moderate (1.5x) and severe (2.5x) stresses, and are intended to provide an indication of the rating sensitivity of notes to unexpected deterioration of a trust's performance.
USE OF THIRD-PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G-10
Fitch was provided with third-party due diligence information from KPMG LLP. The third-party due diligence information was provided on Form ABS Due Diligence-15E and focused on a comparison and re-computation of certain characteristics with respect to 150 sample leases. Fitch considered this information in its analysis and the findings did not have an impact on Fitch's analysis. A copy of the ABS Due Diligence Form-15E received by Fitch in connection with this transaction may be obtained through the link contained on the bottom of the related rating action commentary.
REPRESENTATIONS, WARRANTIES AND ENFORCEMENT MECHANISMS
A description of the transaction's representations, warranties and enforcement mechanisms (RW&Es) that are disclosed in the offering document and which relate to the underlying asset pool is available by accessing the appendix referenced under "Related Research" below. The appendix also contains a comparison of these RW&Es to those Fitch considers typical for the asset class as detailed in the Special Report titled "Representations, Warranties and Enforcement Mechanisms in Global Structured Finance Transactions," dated May 2016.
Fitch has assigned the following ratings:
--$181,600,000 class A-1 asset-backed notes 'F1+sf';
--$395,000,000 class A-2 asset-backed notes 'AAAsf'; Outlook Stable;
--$354,000,000 class A-3 asset-backed notes 'AAAsf'; Outlook Stable;
--$114,650,000 class A-4 asset-backed notes 'AAAsf'; Outlook Stable;
--$43,160,000 class B asset-backed notes 'AAsf'; Outlook Stable.