Fitch to Rate World Financial Network Credit Card Master Note Trust, Series 2016-B; Presale Issued
--$250,000,000 class A fixed-rate 'AAAsf'; Outlook Stable;
--$15,630,000 class M fixed-rate 'AAsf'; Outlook Stable;
--$12,335,000 class B fixed-rate 'A+sf'; Outlook Stable;
--$37,006,000 class C fixed-rate 'BBBsf'; Outlook Stable;
--$13,980,000 class D zero-rate 'NR'.
KEY RATING DRIVERS
High Collateral Quality: The underlying collateral characteristics play a vital role in the performance of a credit card ABS transaction. Fitch closely examines such collateral characteristics as credit quality (measured by credit bureau scores), seasoning, geographic concentration, delinquencies and utilization rate on the cards.
Adequate Credit Enhancement: Credit enhancement (CE) supporting class A notes totals 24.00% and is derived from 4.75% subordination of class M notes, 3.75% subordination of class B notes, 11.25% subordination of class C notes and 4.25% subordination of class D notes. Class M notes have 19.25% total CE, obtained from 3.75% subordination of class B notes, 11.25% subordination of class C notes and 4.25% subordination of class D notes. Class B notes have 15.50% total subordination, as they are supported by 11.25% subordination of class C notes and 4.25% subordination of class D notes. Class C notes are supported by 4.25% subordination of class D notes.
Quality Servicing Capabilities: Day-to-day servicing will be provided by Comenity Bank. Comenity Servicing LLC will be the subservicer for the trust. A deterioration of Comenity Bank or Comenity Servicing LLC may affect the performance of series 2016-B.
Some of the outstanding subordinate tranches of World Financial Network Credit Card Master Note Trust may be able to support higher ratings based on the output of Fitch's proprietary cash flow model. Since the credit card program is set up as a continuous funding program and requires that any new issuance does not affect the rating of existing tranches, the enhancement levels are set to maintain a constant rating level per class of issued notes and may provide more than the minimum enhancement necessary to retain issuance flexibility. Therefore, Fitch may decide not to assign or maintain ratings above the current outstanding ratings in anticipation of future issuances.
Eligible Investments: Fitch looks to its own ratings in analyzing counterparty risk and assessing a counterparty's creditworthiness, as per the "Counterparty Criteria for Structured Finance and Covered Bonds," dated Sept. 1, 2016. The definition of eligible investments for this deal allows for the possibility of using investments not rated by Fitch, which represents a criteria variation. Since the only available funds to invest are monthly collections, and the funds can only be invested for a short duration of one month given the payment frequency of the notes, Fitch does not believe such variation has a measurable impact upon the ratings assigned.
Eligible Institution: Fitch looks to its own ratings in analyzing counterparty risk and assessing a counterparty's creditworthiness, as per the 'Counterparty Criteria for Structured Finance and Covered Bonds,' dated Sept. 1, 2016. The supplemental indenture for WFN 2016-B requires a trust account bank only to maintain at least investment-grade ratings by Fitch ('BBB-'), which does not meet the Fitch counterparty criteria for a 'AAAsf' rated note. Since U. S. Bank, N. A., as account bank, is currently rated 'AA/F1+'/Stable Outlook, Fitch does not believe such variation has a measurable impact upon the ratings assigned.
Fitch models three different scenarios when evaluating the rating sensitivity compared to expected performance for credit card asset-backed securities transactions: 1) increased defaults; 2) a reduction in purchase rate, and 3) a combination stress of higher defaults and lower monthly payment rate (MPR).
Increasing defaults alone has little impact on rating migration except in the most severe scenario of a 75% increase in defaults, which could result in downgrades. The rating sensitivity to a reduction in purchase rate is less pronounced, with no rating migration even in the severe scenario. The harshest scenario assumes increased defaults and reduced MPR simultaneously. All classes could be downgraded under the moderate stress of a 50% increase in defaults and 25% reduction in MPR.
USE OF THIRD-PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G-10
Form ABS Due Diligence-15E was not provided to, or reviewed by, Fitch in relation to this rating action.
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.