Correction: Fitch Expects to Rate Volvo Financial Equipment LLC, Series 2016-1; Issues Presale
OREANDA-NEWS. This is a correction of a release originally published on Jan. 13, 2016. It includes the Criteria for Servicing Continuity Risk in Structured Finance which was not referenced in the original.)
Fitch Ratings expects to assign the following ratings and Rating Outlooks to the Volvo Financial Equipment LLC, Series 2016-1:
--$186,000,000 class A-1 notes 'F1+sf';
--$186,000,000 class A-2 notes 'AAAsf'; Outlook Stable;
--$186,000,000 class A-3 notes 'AAAsf'; Outlook Stable;
--$65,560,000 class A-4 notes 'AAAsf'; Outlook Stable;
--$18,620,000 class B notes 'AAsf';
--$20,700,000 class C notes 'Asf'.
KEY RATING DRIVERS
Consistent Collateral: The 2016-1 pool consists of 83.86% trucking collateral and 16.14% of CO collateral. Of the pool, 13.04% is composed of dealer term loans (DTLs), which have not experienced credit defaults on the managed portfolio or prior securitizations.
Improved Managed Portfolio Performance: VFS's managed transportation portfolio experienced asset deterioration from 2007 - 2009. However, performance between 2010 and Q3 2015 exhibited improvement in delinquencies and losses.
Strong Securitization Performance: The prior transactions have been performing well. Forecasts of cumulative net losses (CNL) on the outstanding securitizations are extrapolating below 1.00%.
Sufficient Credit Enhancement: Hard credit enhancement (CE) is 10.35%, 7.65% and 4.65% for the class A, B and C notes, respectively. Additionally, the notes benefit from excess spread, expected to be 1.50% per annum. CE levels are sufficient for the ratings under Fitch's 2.45% CNL proxy.
Stable Origination, Underwriting and Servicing Platform: VFS has demonstrated sufficient abilities as originator, underwriter and servicer, as evidenced by historical delinquency and loss performance of securitized trusts and the managed portfolio.
Integrity of Legal Structure: The legal structure of the transaction should provide that a bankruptcy of the trust 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 and could result in potential rating actions on the notes. Fitch evaluated the sensitivity of the ratings assigned to VFET 2016-1 to increased CNLs over the life of the transaction. Fitch's analysis found that the transaction displays some sensitivity to increased defaults and CNL, showing a potential downgrade of one category under Fitch's moderate (1.5x base case loss) scenario. The notes could experience downgrades of up to three rating categories, although still remain investment grade, under Fitch's severe (2.5x base case loss) scenario.
DUE DILIGENCE USAGE
Fitch was provided with third-party due diligence information from Pricewaterhouse Coopers LLP. The third-party due diligence focused on comparing certain attributes with respect to 160 assets. 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.
Fitch's analysis of the Representations and Warranties (R&W) of this transaction can be found in the reports titled ' Volvo Financial Equipment LLC, Series 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.