Fitch Rates Mercedes-Benz Auto Receivables Trust 2016-1
--$350,000,000 class A-1 'F1+sf';
--$500,000,000 class A-2 'AAAsf'; Outlook Stable;
--$532,000,000 class A-3 'AAAsf'; Outlook Stable;
--$115,970,000 class A-4 'AAAsf'; Outlook Stable.
KEY RATING DRIVERS
Strong Collateral Quality: The pool has a weighted average (WA) Fair Isaac Corp. (FICO) score of 768, consistent with recent MBART transactions, and has over 15 months of seasoning indicating a strong prime credit quality pool.
Weaker Loan Attributes: Loans with original term greater than or equal to 61 months total 73.9%, the highest to date for an MBART pool, and used vehicles represent the majority of the vehicles in 2016-1. The WA loan to value (LTV) is 106.3%, consistent with 2015-1 (NR) and 2014-1 but up from all transactions prior to 2014.
Sufficient Credit Enhancement: Total initial hard credit enhancement (CE) for class A notes is 2.75%, consistent with 2015-1 (not rated [NR] by Fitch). Yield supplement overcollateralization (OC) is used to boost the transaction's annual percentage rate (APR), providing expected excess spread of 2.64%. CE is sufficient to cover in excess of a 5.0x multiple of Fitch's 1.00% base case cumulative net loss (CNL).
Strong Portfolio/Securitization Performance: MBFS' portfolio and securitization performance has been strong with low delinquencies and losses over the past five years.
Legal Structure Integrity: The legal structure of the transaction should provide that a bankruptcy of Daimler or MBFS would not impair the timeliness of payments on the securities.
Stable Origination/Underwriting/Servicing: Fitch believes MBFS to be a capable originator, underwriter and servicer for prime auto loan collateral, as evidenced by the historical delinquency and loss performance of its securitizations and managed portfolio.
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 potential negative rating actions on the notes. Fitch evaluated the sensitivity of the ratings assigned to MBART 2016-1 to increased losses over the life of the transaction. Fitch's analysis found that the class A notes display minimal sensitivity to a moderate increase in defaults and losses, under Fitch's moderate (1.5x base case loss) scenario. However, class A notes could experience downgrades of up to two 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 KPMG LLP. The third-party due diligence focused on comparing or recomputing certain information with respect to 100 receivables from the data file. Fitch considered this information in its analysis, and the findings did not have an impact on our 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.