Fitch to Rate Fifth Third Auto Trust 2015-1; Issues Presale
--$187,000,000 class A-1 'F1+sf(EXP)';
--$224,000,000 classes A-2A and A-2B 'AAAsf(EXP)'; Outlook Stable;
--$264,000,000 class A-3 'AAAsf(EXP)'; Outlook Stable;
--$75,000,000 class A-4 'AAAsf(EXP)'; Outlook Stable.
KEY RATING DRIVERS
Strong Credit Quality: The pool is generally consistent with those of recently issued FITAT transactions, exhibiting a weighted average FICO score of 754 with no scores below 650. The pool also benefits from 15 months of seasoning and includes a diverse pool mix from a make/model and geographic perspective.
Extended Term/Used Vehicle Exposure: The pool does include heavy concentrations in loans over five years (76.6%), notably 4.8% of 84 month loans. Additionally, used vehicle loans total 49.6%, which could expose the pool to higher loss severity.
Sufficient CE Structure: Initial hard credit enhancement (CE) for the class A notes is 4.50% (target of 5.00%). Under Fitch's analysis, the structure is able to support stressed losses commensurate with the expected ratings, given the base case loss expectation of 1.10%.
Improved Loss Performance: Losses on Fifth Third's auto loan portfolio and recent securitizations have declined significantly from peak levels in 2006 to 2008 due to strong underwriting standards and improved credit quality.
Evolving Wholesale Market: The U.S. wholesale vehicle market is normalizing following strong performance in recent years. Fitch expects increasing used vehicle supply from off-lease vehicles and trade-ins to pressure ABS recovery rates leading to moderately higher loss rates, which has been accounted for in the derivation of Fitch's base case loss expectation.
Stable Origination, Underwriting, and Servicing: Fitch believes Fifth Third demonstrates adequate abilities as originator, underwriter, and servicer to service FITAT 2015-1.
Integrity of the Legal Structure: The legal structure of the transaction should provide that a bankruptcy of Fifth Third would not impair the timeliness of the 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. In turn, it could result in potentially adverse rating actions on the notes. Fitch evaluated the sensitivity of the ratings assigned to all classes of Fifth Third Auto Trust 2015-1 to increased losses over the life of the transaction. Fitch's analysis found that the notes display some sensitivity to increased defaults and losses. In fact, they could lead to potential downgrades of up to one category 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 recomputing certain information with respect to 125 loans from the statistical data file. Fitch considered this information in its analysis, and the findings did not have an impact on our 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 (RAC).
Fitch's analysis of the Representations and Warranties (R&W) of this transaction can be found in Fifth Third Auto Trust 2015-1 - 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.