Fitch Expects to Rate ARI Fleet Lease Trust 2016-A
--\\$204,000,000 class A-1: F1+sf;
--\\$264,000,000 class A-2 'AAAsf' Outlook Stable;
--\\$87,685,000 class A-3 'AAAsf' Outlook Stable.
KEY RATING DRIVERS
Strong Credit-Quality Obligors: A majority of the pool (65.80%) is publicly rated by a nationally recognized statistical rating organization (NRSRO) with 43.77% of the pool carrying an investment-grade rating. The weighted average rating of the rated pool is 'BBB'. Fitch conservatively assumes 'B' for the unrated obligors.
Strong Portfolio Diversification: The portfolio remains well diversified. The top five obligors by lease balance represent 15.96% versus 14.35% in 2015-A; top industry concentrations are comparable at 11.52%.
Minimal Residual Risk: The 2016-A leases are all open-ended, meaning the lessees bear virtually all residual risk. Therefore, the trust is only exposed to wholesale market risk in the event of an obligor default. Even if default occurs, past vehicle dispositions have largely resulted in gains relative to book value.
Sufficient Credit Enhancement: Initial hard credit enhancement (CE; 8.35%) is unchanged from the 2015-A transaction, and excess spread also declined. However, target CE increased to 14.85%. Total proposed CE is sufficient to support Fitch's stressed default and loss assumptions, consistent with the expected ratings of 'F1+sf'/'AAAsf'.
Low Delinquency and Loss History: ARI's historical managed portfolio and prior transactions' delinquency and loss experience are low, even during periods marked by elevated levels in other consumer and commercial asset classes.
Quality Origination, Underwriting and Servicing: Fitch believes ARI to be a capable originator, underwriter and servicer, as evidenced by historical delinquency and loss performance of securitized trusts and the managed portfolio.}
Unanticipated increases in the frequency of defaults and transaction fees, or decreases in recovery rates, 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 assigned to ARI FLT 2016-A to increased default levels and servicing fees, as well as lower recovery rates for the truck component of the collateral pool, over the life of the transaction. Fitch's analysis found that the transaction displays relatively little sensitivity to increased servicing fees and the oil and gas industry. In both cases, the notes showed rating sensitivity of only one rating category. The transaction shows significantly more sensitivity to higher default rates, which Fitch stressed by assuming all unrated obligors carry a 'CCC' rating.
DUE DILIGENCE USAGE
No third-party due diligence was provided to or reviewed by Fitch in relation to this rating action.
Key Rating Drivers and Rating Sensitivities are further described in the presale report dated Feb. 11, 2016. Fitch's analysis of the Representations and Warranties (R&W) of this transaction can be found in 'ARI Fleet Lease Trust 2016-A - 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.