Fitch Rates GM Financial Automobile Leasing Trust 2016-3
--$119,000,000 class A-1 asset backed notes 'F1+sf';
--$320,000,000 class A-2-A asset backed notes 'AAAsf'; Outlook Stable;
--$75,000,000 class A-2-B floating rate asset backed notes 'AAAsf'; Outlook Stable;
--$287,000,000 class A-3 asset backed notes 'AAAsf'; Outlook Stable;
--$89,300,000 class A-4 asset backed notes 'AAAsf'; Outlook Stable;
--$41,740,000 class B asset backed notes 'AAsf'; Outlook Stable;
--$38,490,000 class C asset backed notes 'Asf'; Outlook Stable;
--$29,820,000 class D asset backed notes 'BBBsf'; Outlook Stable.
KEY RATING DRIVERS
Strong Collateral Quality: 2016-3 has a strong weighted average (WA) non-zero obligor FICO score of 751, a relatively diverse mix of vehicles and a higher concentration of shorter term contracts compared to prior GMALT transactions.
Lease Platform's Limited History: GMF began originating auto leases in December 2010. Therefore, empirical data are somewhat limited. Fitch supplemented the GMF data with proxy data from comparable origination platforms to derive a credit loss expectation, while RV performance data for GM vehicles were used to derive a residual loss expectation. Fitch's credit and RV loss proxies for 2016-3 are 1.15% and 12.70%, respectively.
Sufficient Credit Enhancement Structure: Initial hard credit enhancement (CE) totals 18.40%, 14.55%, 11.00%, and 8.25% for class A, B, C, and D notes, respectively. Based on a 1.15% credit loss proxy stressed for each rating category and stressed RV loss expectations of 31.0% to 17.2% for 'AAAsf' down to 'BBBsf', available CE is sufficient to support each rating.
Evolving Wholesale Market: The U. S. wholesale vehicle market has been normalizing following strong performance in recent years. Fitch expects that increasing off-lease vehicle supply and pressure from rising production levels will lead to lower residual realizations during the life of the transaction.
Stable Corporate Health: Fitch rates GMF 'BBB-'/Outlook Positive. Fitch believes GMF to be a capable originator, underwriter, and servicer, as evidenced by historical performance of its managed portfolio.
Legal Structure Integrity: The legal structure of the transaction should provide that a bankruptcy of GMF 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 and would likely result in declines of CE and loss coverage levels available to the notes. Decreased CE may make certain note ratings susceptible to potential negative rating actions, depending on the extent of the decline in coverage. Hence, Fitch conducts sensitivity analyses by increasing a 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 and severe stresses, respectively, 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 Deloitte & Touche LLP. The third-party due diligence information was provided in Form ABS Due Diligence-15E and focused on a comparison and re-computation of certain characteristics with respect to 200 sample leases. Fitch considered this information in its analysis and the findings did not have an impact on the agency'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 at the end of this 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