Fitch Expects to Rate Ford Credit Auto Owner Trust 2016-REV1; Presale Issued
OREANDA-NEWS. Fitch Ratings expects to assign the following ratings and Outlooks to the notes issued by Ford Credit Auto Owner Trust (FCAOT) 2016-REV1:
--$750,000,000 class A notes 'AAAsf'; Outlook Stable;
--$30,406,000 class B notes 'AAsf'; Outlook Stable;
--$30,406,000 class C notes 'Asf'; Outlook Stable.
KEY RATING DRIVERS
Consistent Initial Credit Quality: The 2016-REV1 pool is largely consistent with prior FCAOT and Ford REV transactions, with an initial weighted average (WA) FICO score of 732, nearly 90% new vehicles and just over seven months of seasoning. However, as the transaction will incorporate a five-year revolving period, with additional receivables sold into the trust, the focus of the analysis was placed on future receivables' eligibility parameters.
Restrictive Pool Composition Requirements: The 2016-REV1 pool includes strict criteria on new receivable eligibility, mitigating potential pool deterioration during the revolving period. Fitch's base case credit loss proxies of 2.45% (floor credit enhancement [CE] test) and 2.90% (pool composition test) reflect the performance of the worst potential pool composition under these two sets of criteria.
Increased Extended Term: Of the 2016-REV1 initial pool, 57% is composed of extended-term contracts, well above the historical range for the FCAOT platform. Consistent with broader market trends, Ford Motor Credit Company (Ford Credit) has increased extended-term (> 60-month) originations and expects further growth in the near future for these contracts. As such, Ford Credit has adjusted the criteria to allow for more of these contracts to be potentially funded into in the pool with future receivables.
Adequate CE Structure: Initial hard CE for class A, B and C notes totals 9.50%, 5.75% and 2.00%, respectively. Loss coverage provided by the structure under the floor CE and pool composition test scenarios is adequate to support loss multiples consistent with the expected ratings.
Consistent Origination/Underwriting/Servicing: Ford Credit demonstrates adequate abilities as an originator and servicer, as evidenced by historical performance, with delinquencies and net losses for the managed portfolio and securitizations vastly improved since the recession. Any potential risks from the long-term nature of the revolving period are mitigated, in part, by the stability of Ford Credit's servicing and originations, as well as the investment-grade ratings for both Ford and Ford Credit.
Positive Corporate Performance: Fitch currently has a long-term Issuer Default Rating (IDR) of Ford Motor Company (Ford), the parent of Ford Credit, and Ford Credit of 'BBB-' with a Positive Rating Outlook.
Integrity of the Legal Structure: The legal structure of the transaction should provide that a bankruptcy of Ford Credit 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 potential rating actions on the notes. Fitch evaluated the sensitivity of the ratings assigned to all classes of 2016-REV1 to increased losses over the life of the transaction.
Fitch's analysis found that the notes display some sensitivity to increased defaults and losses. Under Fitch's moderate (1.5x base case loss) scenario the notes would be unlikely to experience any downgrade. However, the notes could experience downgrades of up to two rating categories under Fitch's severe (2.5x base case loss) scenario
DUE DILIGENCE USAGE
Fitch was provided with third-party due diligence information from PricewaterhouseCoopers LLP. The third-party due diligence focused on comparing or re-computing 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 its 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 'Ford Credit Auto Owner Trust 2016-REV1 -- 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 Jan. 21, 2016.