Fitch Affirms Driver Australia One Trust and Driver Australia Two Trust
OREANDA-NEWS. Fitch Ratings has affirmed Driver Australia One Trust (Driver One) and Driver Australia Two Trust's (Driver Two) asset-backed floating-rate notes. The recent Volkswagen (VW) scandal relating to failed emissions tests may be felt in the transactions primarily through its impact on used car prices. The exposure to affected diesel powered vehicles contained within both portfolios is relatively small with Driver One and Driver Two containing 12.3%, and 9.8%, respectively. The agency expects that any impact on these transactions will relate to recoveries rather than defaults. Even if recoveries on the affected vehicles were assumed to be zero in both transactions, Fitch does not anticipate a rating impact.
These transactions are securitisations that are backed by Australian automotive finance receivables originated by Volkswagen Financial Services Australia Pty Ltd (VWFSA), a wholly-owned subsidiary of Volkswagen Financial Services AG (A/F1, both on Rating Watch Negative). The rating actions are as follows:
AUD111.6m Class A (ISIN AU0000DAOHA1) affirmed at 'AAAsf'; Outlook Stable
AUD15.9m Class B (ISIN AU0000DAOHB9) affirmed at 'AAsf'; Outlook Stable
AUD354.7m Class A (ISIN AU0000DAQHA6) affirmed at 'AAAsf'; Outlook Stable
AUD27m Class B (ISIN AU0000DAQHB4) affirmed at 'A+sf'; Outlook Stable
KEY RATING DRIVERS
The affirmations reflect: the potential interest losses due to prepayments have been substantially lower than Fitch's stressed assumptions; the available credit enhancement has increased due to sequential pay down of the notes; the stable credit quality and performance of the pool; and Fitch's expectations of continued benign economic conditions in Australia in the near term.
At settlement, each respective trust purchased the securitised receivables discounted at a single discount rate equivalent to the aggregate of the fixed swap rate (including margins), and senior expenses and servicing fees. As such, the transactions yield no excess income to cover or reimburse losses, and are exposed to losses should high interest yielding receivables prepay or default. Under the transaction documents VWFSA is obligated to make interest compensation payments to the trusts if a receivable that has an interest rate higher than the discount rate at issuance is discharged. In its initial ratings Fitch assumed various levels of stressed prepayment rates and made the additional assumption that VWFSA was unable to make these payments. Additional credit support was also provided at issuance through a funded cash collateral account available to cover any potential interest shortfalls. Actual prepayments and discharges at August 2015 were well within Fitch's stressed assumptions, and consequently, the credit enhancement available to cover losses increased.
The performance of assets backing Driver One and Driver Two have been in line with, or better than, Fitch's base case expectations. At August 2015, net losses since closing had reached 0.2% (AUD955,408) and 0.0% (AUD5,132) of the original portfolio balance for Driver One and Driver Two, respectively. The 30+ day delinquencies were 0.92%, and 0.32% for Driver One and Driver Two, respectively which are both well below Fitch's 2Q15 ABS Dinkum index of 1.34%.
The notes for Driver One are amortising on a pro-rata basis as targeted overcollateralisation (OC) levels have been met. The Driver Two notes have been amortising sequentially from closing and are expected to amortise on a pro-rata basis when targeted overcollateralisation (OC) levels are reached, subject to cumulative net loss triggers at various points in time. The initial target OC percentages are 26% and 18% for the Class A and B notes respectively, provided net losses remain below the first trigger level of 0.4% (up to March 2016), and 0.8% for any payment date from April 2016 to March 2017, and 1.2% thereafter.
The prospect of downgrades is considered remote at present given the expected performance of both Driver One and Driver Two portfolios, and the level of subordination available for each class of notes for their respective ratings.
DUE DILIGENCE USAGE
No third party due diligence was provided or reviewed in relation to this rating action.
Fitch conducted a file review of 10 sample loan files focusing on the underwriting procedures conducted by VWFSA compared to its credit policy at the time of underwriting. Fitch has checked the consistency and plausibility of the information and no material discrepancies were noted that would impact Fitch's rating analysis.
A comparison of the transaction's representations, warranties and enforcement mechanisms (RW&Es) to those of typical RW&Es for this asset class is available by accessing the reports and/or links under Related Research below.