Fitch Expects to Rate BMW Vehicle Lease Trust 2016-2; Presale Issued
--$120,000,000 class A-1 notes 'F1+sf';
--$440,000,000 class A-2a/A-2b notes 'AAAsf'; Outlook Stable;
--$350,000,000 class A-3 notes 'AAAsf'; Outlook Stable;
--$90,000,000 class A-4 notes 'AAAsf'; Outlook Stable.
KEY RATING DRIVERS
Stable Collateral Quality: The 2016-2 pool is consistent with recent transactions, with a strong WA FICO score of 778 and 10 months of seasoning. The top vehicle model has shifted back to the 3 Series at 24.0% of the pool, compared with the 5 Series at 24.7% in 2016-1. The residual value (RV) maturity profile is slightly less diversified compared with 2016-1.
Adequate CE Structure: Initial credit enhancement (CE) decreased to 16.15% from 17.05% in 2016-1. CE is composed of a 0.25% reserve fund and overcollateralization (OC) of 15.90% growing to an 18.05% target of the initial securitization value (the target OC drops to 17.25% once A-2 has paid in full). Initial excess spread is expected to be 4.80%. Fitch's credit loss proxy is 0.80% and the 'BB' residual loss proxy is 13.25%. CE is adequate to support Fitch's stressed loss assumptions.
Strong Loss Performance: Credit and residual performance on BMW FS's portfolio has been strong in recent years. This is a result of robust obligor credit quality and wholesale market that has supported BMW RV performance in recent years, but it has exhibited signs of moderating over the past year.
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 increased production levels will lead to decreased residual realizations during the life of the transaction.
Stable Origination/Underwriting/Servicing: BMW FS demonstrates adequate abilities as originator, underwriter and servicer to service this series as evidenced by historical portfolio and securitization delinquency and loss performance.
Legal Structure Integrity: The legal structure of the transaction should provide that a bankruptcy of BMW FS 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. Hence, Fitch conducts sensitivity analyses by increasing the 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 (1.5x) and severe (2.5x) stresses, 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 KPMG, LLP. The third-party due diligence focused on comparing or recalculating certain information with respect to 100 receivables. Fitch considered this information in its analysis and the findings did not have an impact on our analysis/conclusions. 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 bottom of the rating action commentary.
Key Rating Drivers and Rating Sensitivities are further described in the presale report dated Sept. 29, 2016. Fitch's analysis of the Representations and Warranties (R&W) of this transaction can be found in 'BMW Vehicle Lease Trust 2016-2 - Appendix'. These R&Ws are compared to those of typical R&W for the asset class as detailed in the special report 'Representations, Warranties, and Enforcement Mechanisms in Global Structured Finance Transactions' dated May 31, 2016.