Fitch Rates Santander Drive Auto Receivables Trust 2016-1; Outlook Stable
--\\$162,800,000 class A-1 notes 'F1+sf';
--\\$120,000,000 class A-2a notes 'AAAsf'; Outlook Stable;
--\\$222,000,000 class A-2b notes 'AAAsf'; Outlook Stable;
--\\$109,120,000 class A-3 notes 'AAAsf'; Outlook Stable;
--\\$142,450,000 class B notes 'AAsf'; Outlook Stable;
--\\$153,040,000 class C notes 'Asf'; Outlook Stable;
--\\$91,240,000 class D notes 'BBBsf'; Outlook Sable;
--\\$58,860,000 class E notes 'BBsf'; Outlook Stable.
KEY RATING DRIVERS
Improved Credit Quality: 2016-1 is backed by collateral consistent with the 2014-2015 pools, with a weighted average (WA) FICO score of 600 and an internal WA loss forecast score (LFS) of 555. The WA seasoning is 2.7 months, new vehicles total 40.9% and the pool is geographically diverse.
Increased Extended-Term Contracts: Loans with terms of 60+ months total 94.8%, driven by 73-75 term loans originated via the Chrysler Capital (CC) platform by SCUSA totalling 15.2%, consistent with 2015-5, but historically high for the platform. Fitch applied a stress to the loss proxy to account for the risk posed by these loans, since there is limited performance history and these loans will likely perform worse than loans with terms less than or equal to 72 months.
Weakening Performance: Although within range of the 2009-2011 performance, recent 2012-2014 portfolio and securitization losses are tracking slightly higher to date, driven by marginally weaker collateral underwriting and lower recoveries from softer used vehicle values. Fitch expects performance for the 2015 vintage to perform in line with the 2013 and 2014 vintages, if not weaker.
Sufficient Credit Enhancement: Initial hard credit enhancement (CE) totals 49.85% for the class A notes, decreased slightly from 2015-5 but consistent with 2015-3 and 2015-4. Excess spread decreased to 10.02% per annum, the lowest historically for the platform, due to higher anticipating pricing of the notes and the significant drop in WA annual percentage rate (APR), down to 16.0% from 16.30% in 2015-5.
Stable Corporate Health: SCUSA recorded solid financial results recently and has been profitable since 2007. Fitch rates Santander, majority owner of SCUSA, 'A-/F2'/Outlook Stable.
Consistent Origination/Underwriting/Servicing: SCUSA demonstrates adequate abilities as originator, underwriter and servicer, as evidenced by historical portfolio and securitization performance. Fitch deems SCUSA capable to service this series.
Legal Structure Integrity: The legal structure of the transaction should provide that a bankruptcy of SCUSA would not impair the timeliness of 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. This in turn could result in Fitch taking negative rating actions on the notes.
Fitch evaluated the sensitivity of the ratings assigned to Santander Drive Auto Receivables Trust 2016-1 to increased credit losses over the life of the transaction. Fitch's analysis found that the transaction displays some sensitivity to increased defaults and credit losses. This shows a potential downgrade of one or two categories under Fitch's moderate (1.5x base case loss) scenario for the directly subordinate bonds, and potential downgrades of even more categories for the deeper subordinate bonds. The notes could experience downgrades of three or more rating categories, potentially leading to distressed ratings (below 'Bsf') or possibly default, under Fitch's severe (2.0x base case loss) scenario.
DUE DILIGENCE USAGE
Fitch was provided with third-party due diligence information from Deloitte and Touche, LLP. The third-party due diligence focused on comparing or recomputing certain information with respect to 150 loans from the statistical data file. Fitch considered this information in its analysis and the findings did not have an impact on our analysis/conclusions. 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 this rating action commentary.
Fitch's analysis of the Representations and Warranties (R&W) of this transaction can be found in the reports titled 'Santander Drive Auto Receivables Trust 2016-1 -- Appendix'. These R&W 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.