Fitch Rates Navitas Equipment Receivables LLC, Series 2016-1
--$60,100,000 class A-1 asset-backed notes 'NRsf';
--$109,968,000 class A-2 asset-backed notes 'Asf'; Outlook Stable;
--$25,489,000 class B asset-backed notes 'BBBsf'; Outlook Stable;
--$6,319,000 class C asset-backed notes 'BB+sf'; Outlook Stable;
--$3,213,000 class D asset-backed notes 'B+sf'; Outlook Stable.
KEY RATING DRIVERS
Ratings Capped at 'Asf': The ratings for 2016-1 are capped at 'Asf' given that this is the first Navitas ABS transaction rated by Fitch, a relatively limited operating history of managed portfolio performance through a full economic cycle, and no paid in full (PIF) ABS transactions.
Diversified Equipment Types: Equipment types are highly diversified within 2016-1, with the highest concentration being titled equipment (primarily trucks) at 14.61%. The next two largest concentrations are industrial and medical laser at 8.17% and 6.91%, respectively. This diversification is consistent with Navitas' managed portfolio.
Prefunding Account: The 2016-1 transaction includes a prefunding account sized to 20% of the total collateral balance. As this introduces uncertainty regarding the final makeup of the collateral pool, a prefunding stress was incorporated into Fitch's CGD proxy derivation.
Improving but Limited Asset Performance: Despite limited performance data, Navitas' managed static performance has improved in recent years. As such, Fitch reflected the use of proxy data from comparable small-ticket equipment originators in the derivation of its CGD proxy, which is 3.60% after incorporating the prefunding stress mentioned above.
Sufficient Credit Enhancement: All classes benefit from a cash reserve account and overcollateralization (OC). Total initial hard credit enhancement (CE) is 21.85%, 9.95%, 7.00% and 5.50% for the class A, B, C and D notes, respectively.
Quality of Origination, Underwriting and Servicing: Navitas has 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 Navitas 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 CNL levels higher than the base case and could result in potential rating actions on the notes. Fitch evaluated the sensitivity of the ratings assigned to Navitas Equipment Receivables LLC, Series 2016-1 to increased CNL over the life of the transaction. Fitch's analysis found that the transaction displays varying sensitivity to increased CNL for different classes.
The class A notes display little to no sensitivity under Fitch's severe (2.5x base case) loss scenario and would likely retain their initial rating. The class B notes display increased sensitivity under Fitch's severe loss scenario and would likely be downgraded into the 'Bsf' category. The class C and D notes display the most sensitivity to Fitch's severe loss scenario, which would likely result in them being downgraded into a distressed rating category.
USE OF THIRD-PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G-10
Fitch was provided with Form ABS Due Diligence-15E (Form 15E) as prepared by KPMG LLP. The third-party due diligence described in Form 15E focused on comparing or recalculating certain information with respect to 150 receivables. Fitch considered this information in its analysis, and it did not have an effect on Fitch's analysis or conclusions.
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.