Fitch Assigns Expected Rating to Ford Automotive Finance China's Fuyuan 2015-2
CNY2.625bn senior notes: 'AA(EXP)sf'; Outlook Stable
The notes will be issued by Shanghai International Trust Co., Ltd in its capacity as trustee of Fuyuan 2015-2 Retail Auto Mortgage Loan Securitization.
At the cut-off date, the total collateral pool consisted of 44,968 auto loan receivables with a total balance of CNY3.0bn.
KEY RATING DRIVERS
Stable Performance of Loan Receivables: Fitch assumes lifetime default rates for the FAFC portfolio of 1.50%. The agency applied a stress multiple of 6.0x at 'AAsf' on defaults, to take into account the limited history of car finance in China, and Fitch's expectation that emerging-market securitised assets are more prone to higher levels of stress than those in developed markets for the same rating category.
Strong Portfolio Characteristics: The original weighted average (WA) loan/value (LTV) ratio was 62.88% as of the cut-off date. The pool is well-diversified - the largest single obligor accounted for 0.01% of the outstanding principal balance as of the cut-off date. The portfolio has no loans subject to the refinancing risk.
Experienced Sponsor: FAFC is the subsidiary of an active global originator of auto finance securitisation transactions, and uses structures that are very similar to those used its parent in the US. Fitch believes FAFC to be a capable originator and servicer. These capabilities are underpinned by FAFC's historical portfolio delinquency and loss.
Sector Outlook and Sovereign Cap: The agency views the asset outlook of this portfolio as stable, based on the characteristics of the portfolio. Fitch forecasts China's unemployment rates and GDP growth rates at 4.1% and 6.8% in 2015, respectively, and 4.2% and 6.3% in 2016. The 'AAsf' rating is the cap on Chinese structured finance transactions due to the early stages of development of securitisation markets in China and the Country Ceiling of 'A+'.
Unexpected increases in the default rates and unexpected decreases in the recovery rate on defaulted loans could produce loss levels higher than Fitch's base case, which could result in negative rating actions on the notes. Fitch has evaluated the sensitivity of the ratings assigned to Fuyuan 2015-2 to increased gross default levels and decreased recovery rates over the life of the transaction.
The analysis found that the notes' ratings are susceptible to downgrade in a severe default scenario. The analysis found the senior notes may be downgraded to 'Asf' if base case default rate increases by 100%, assuming all other factors remain constant. The rating on the senior notes is not sensitive to a reduction of recovery rates even when it has been reduced to zero, assuming all other factors remain constant.
DUE DILIGENCE USAGE
No third party due diligence was provided or reviewed in relation to this rating action.
Fitch conducted a file review of 20 sample loan files focusing on the underwriting procedures conducted by FAFC compared to FAFC's 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.
Fitch reviewed the results of the agreed-upon procedures (AUP) conducted on the portfolio. The AUP reported no material errors that would impact Fitch's rating analysis.
Key Rating Drivers and Expected Rating Sensitivities are further discussed in the corresponding presale report titled "Fuyuan 2015-2 Retail Auto Mortgage Loan Securitization Trust", published today. Included as an appendix to the report are a description of the representations, warranties, and enforcement mechanisms.