Fitch to Rate Mercedes-Benz Auto Lease Trust 2015-B; Issues Presale
OREANDA-NEWS. Fitch Ratings expects to assign the following ratings and Rating Outlooks to the notes issued by Mercedes-Benz Auto Lease Trust (MBALT) 2015-B listed below:
--$218,000,000 class A-1 'F1+sf';
--$440,000,000 classes A-2A and A-2B 'AAAsf'; Outlook Stable;
--$230,000,000 class A-3 'AAAsf'; Outlook Stable; and
--$123,560,000 class A-4 'AAAsf'; Outlook Stable.
KEY RATING DRIVERS
Strong Collateral Quality: The 2015-B pool has a weighted-average (WA) FICO score of 784, the strongest to date for any MBALT pool; strong WA seasoning of 11 months; and increased vehicle model diversity in the pool. In addition, the pool has a smaller concentration of leases with terms greater than 36 months, typically a higher driver of residual value (RV) losses.
Adequate Credit Enhancement (CE) Structure: Initial CE totals 16.65%, consistent with 2015-A (NR), growing to a target of 17.75% and then decreasing to 16.75% of the initial securitization value once the A-2B floating-rate notes are paid in full. Initial excess spread is expected to be 4.50%, down from recent transactions due to higher anticipated bond pricing. Loss coverage is adequate to support Fitch's 'AAAsf' stressed assumptions.
Weakening RV Losses: Despite continued low credit losses, MBFS's residual losses have trended higher recently, with higher losses for the C and E classes. MB vehicle values continue to be affected by the large amount of off-lease vehicle supply and introduction of refreshed classes over the past year or so.
Stable Corporate Health: Fitch rates Daimler AG, the parent of MBFS, 'A-/F2' with a Stable Rating Outlook. Fitch believes MBFS to be an adequate originator, underwriter and servicer, as evidenced by historical performance of its managed portfolio and prior securitizations.
Evolving Wholesale Vehicle Market: The U.S. wholesale vehicle market (WVM) has been normalizing following strong performance in recent years. Fitch expects that pressure from increased off-lease vehicle supply and high production levels will lead to decreased residual realizations during the life of the transaction.
Legal Structure Integrity: The legal structure of the transaction should provide that a bankruptcy of MBFS 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.
Under a moderate stress scenario of 1.5x the base case credit loss, the targeted loss coverage would not likely decrease enough to warrant a downgrade in excess of a single rating category to the class A notes, if at all. The resilience is partially due to the strength of the nondeclining structure of the CE, as well as the tradeoff that occurs when credit defaults are increased. As credit defaults are increased, less of the collateral is subject to residual stresses upon lease end. Under the more severe credit loss stress of 2.5x the base case credit loss, changes in target coverage would likely result in a downgrade of one rating category for the class A notes.
Comparatively speaking, the class A ratings are more sensitive to fluctuations in RV losses than credit losses, as is the case for most auto lease ABS transactions. A moderate stress to the RV loss estimate (an increase in the base case to 25%) would likely result in a negative rating action of approximately two rating categories for the class A notes. Under the severe RV loss stress (an increase in the base case to 30%), the class A notes could be downgraded by three rating categories but would be expected to remain investment grade.
DUE DILIGENCE USAGE
Fitch was provided with third-party due diligence information from KPMG LLP. The third-party due diligence information was provided on Form ABS Due Diligence-15E and focused on a comparison and re-computation of certain characteristics with respect to 100 sample leases. Fitch considered this information in its analysis, and the findings did not affect its analysis. 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.
Fitch's analysis of the Representations and Warranties (R&W) of this transaction can be found in 'Mercedes-Benz Auto Lease 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 2015.