Fitch Expects to Rate John Deere Owner Trust 2015-B; Presale Issued
--\\$228,000,000 class A-1 'F1+sf';
--\\$245,000,000 class A-2 'AAAsf'; Outlook Stable;
--\\$203,000,000 class A-3 'AAAsf'; Outlook Stable;
--\\$75,000,000 class A-4 'AAAsf'; Outlook Stable;
--\\$19,260,178 certificates not rated.
Fitch's stress and rating sensitivity analysis are discussed in the presale report titled 'John Deere Owner Trust 2015-B', dated Aug. 20, 2015, which is available on Fitch's web site. The presale report details how Fitch addresses the key rating drivers summarized below.
KEY RATING DRIVERS
High Concentration of Agricultural Equipment (AG): JDOT 2015-B is comprised of approximately 75% AG equipment, consistent with the prior transactions dating back to 2011. While AG equipment historical losses have been low, the high concentration in the pool limits diversification. However, geographic diversity, diversification within the AG sector, and equipment versatility help mitigate the high concentration.
Consistent Collateral Concentrations: The pool contains 75.3% AG and 24.7% construction equipment (CO). These concentrations are consistent with those of JDOT 2015. Furthermore, the pool consists of 64.4% annual-pay contracts, which historically have experienced a lower level of losses versus other payment types.
Sufficient Credit Enhancement: Initial hard credit enhancement (CE) for JDOT 2015-B is 3.50%, unchanged from JDOT 2015. The initial reserve in JDOT 2015-B is 1.00%, while the subordinated certificates provide 2.50% enhancement. Initial excess spread in JDOT 2015-B is expected to be approximately 1.56%, down from 1.73% in JDOT 2015. Under Fitch's 'AAAsf' scenario, CE for the class A notes was able to withstand more than 5.0x the expected net loss rate of 1.00%.
Stable Origination, Underwriting and Servicing: JDCC has demonstrated strong capabilities as originator, underwriter and servicer, as evidenced by historical delinquency and loss performance of securitized trusts and its managed portfolio. All securitizations issued and rated by Fitch have performed within initial base case expectations.
Integrity of Legal Structure: The legal structure of the transaction should provide that a bankruptcy of the trust 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 loss levels higher than the base case and could result in potential rating actions on the notes. Fitch evaluated the sensitivity of the ratings to increased losses over the life of the transaction. Fitch's analysis found that the notes display limited sensitivity to increased defaults and losses, showing limited impact on the rating of the notes under Fitch's moderate (1.5x base case loss) scenario. The notes could experience downgrades of up to two rating categories under Fitch's severe (2.5x base case loss) scenario.
DUE DILIGENCE USAGE
Additionally, Fitch was provided with third-party due diligence information from Deloitte & Touche LLP. The third-party due diligence focused on comparing or recalculating certain information with respect to 120 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 contained on the bottom of the related rating action commentary (RAC).
Key Rating Drivers and Rating Sensitivities are further described in the presale report dated Aug. 20, 2015. Fitch's analysis of the Representations and Warranties (R&W) of this transaction can be found in ' John Deere Owner Trust 2015-B - 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 June 12, 2015.