Fitch Rates World Omni Auto Receivables Trust 2016-B
--$192,000,000 class A-1 notes 'F1+sf';
--$324,000,000 class A-2 notes 'AAAsf'; Outlook Stable;
--$324,000,000 class A-3 notes 'AAAsf'; Outlook Stable;
--$75,480,000 class A-4 notes 'AAAsf'; Outlook Stable;
--$26,010,000 class B notes 'AAsf'; Outlook Stable.
KEY RATING DRIVERS
Weaker Credit Quality: 2016-B has a WA FICO score of 719, down from 722 in 2016-A, and is geographically concentrated in the Southeast, consistent with historical World Omni originations. New vehicles declined to 89.6% in 2016-B from 94.5% in 2016-A, the lowest level since 2012-B.
High Percentage of Extended-Term Loans: Loans with original terms greater than 60 months total 81.1% in 2016-B, the highest to date in a WOART pool. Extended-term loans have historically produced higher loss rates. Fitch accounted for this risk in its determination of the loss proxy.
Higher Credit Enhancement (CE): Class A hard CE in 2016-B totals 5.20%, up 65 bps versus 2016-A and prior 2012-2015 transactions. Class B hard CE is 2.50%, unchanged from 2016-A while annual excess spread is 3.90%. The structure is able to support the respective multiples of Fitch's 2.40% base case loss proxy, commensurate with the expected ratings.
Evolving Wholesale Market: The U. S. wholesale vehicle market is normalizing following strong performance in recent years. Fitch expects increasing used vehicle supply from off-lease vehicles and trade-ins to pressure ABS recovery rates, leading to moderately higher loss rates.
Stable Portfolio/Securitization Performance: World Omni's portfolio and securitizations have experienced increases in delinquency and net loss performance in the 2013 - 2015 vintages, although they remain below peak levels.
Consistent Origination/Underwriting/Servicing: Fitch believes World Omni to be a capable originator, underwriter and servicer for this series as evidenced by the historical performance of its managed portfolio and securitizations.
Legal Structure Integrity: The legal structure of the transaction should provide that a bankruptcy of World Omni 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. This in turn could result in Fitch taking negative rating actions on the notes.
Fitch evaluated the sensitivity of the ratings assigned to World Omni Auto Receivables Trust 2016-B to increased credit losses over the life of the transaction. Fitch's analysis found that the transaction displays some sensitivity to increased defaults and credit losses. The sensitivity analysis shows a potential downgrade of one category for both classes of notes under Fitch's moderate (1.5x base case loss) scenario. The notes could experience downgrades of up to three rating categories under Fitch's severe (2.5x base case loss) scenario.
USE OF THIRD-PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G-10
Fitch was provided with third-party due diligence information from Ernst & Young LLP (EY). The third-party due diligence focused on an extract of 135 retail instalment sale contracts that were selected by EY and verified for details such as customer name and state, interest rate, monthly payment amount, original term, and FICO. In that sample set, all compared information was in agreement. Fitch considered this information in its analysis and concluded that the findings do not affect our analysis. A copy of the ASB 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 31, 2016.