Fitch Expects to Rate BMW Vehicle Lease Trust 2016-1; Presale Issued

CHICAGO--(BUSINESS WIRE)-- Fitch Ratings expects to assign the following ratings and Outlooks to the BMW Vehicle Lease Trust 2016-1 (BMWLT 2016-1) notes:

--$183,000,000 class A-1 notes 'F1+sf';

--$400,000,000 class A-2a/A-2b notes 'AAAsf'; Outlook Stable;

--$337,000,000 class A-3 notes 'AAAsf'; Outlook Stable;

--$80,000,000 class A-4 notes 'AAAsf'; Outlook Stable.

KEY RATING DRIVERS

Stable Collateral Quality: The 2016-1 pool is consistent with that of 2015-2, with a strong weighted average (WA) FICO score of 778 and 10 months of seasoning. The top vehicle model has shifted to the 5 Series at 24.7% of the pool compared to the 3 Series at 22.8% in 2015-2 and the residual value (RV) maturity profile is more diversified compared to 2015-2.

Adequate CE Structure: Initial credit enhancement (CE) is consistent with 2015-2, but down 0.10% from 2015-1. CE is composed of a 0.25% reserve account and overcollateralization (OC) of 16.80% growing to a 18.95% target of the initial securitization value (once class A-2a and class A-2b have been paid in full, then the target OC drops to 17.95%). Initial excess spread is expected to be 4.82%.

Strong Loss Performance: Credit and residuals performance on BMW FS's portfolio has been strong in recent years. This is a result of robust obligor credit quality and wholesale market that is consistently producing gains on BMW vehicles.

Evolving Wholesale Market: The U.S. wholesale vehicle market has been normalizing following strong performance in recent years. Fitch expects that increasing off-lease vehicle supply and pressure from increased production levels will lead to decreased residual realizations during the life of the transaction.

Stable Origination/Underwriting/Servicing: BMW FS demonstrates adequate abilities as originator, underwriter, and servicer to service 2016-1 as evidenced by historical portfolio delinquency and loss experience and securitization performance.

Legal Structure Integrity: The legal structure of the transaction should provide that a bankruptcy of BMW FS would not impair the timeliness of payments on the securities.

RATING SENSITIVITIES

Unanticipated decreases in the value of returned vehicles and/or increases in the frequency of defaults and loss severity on defaulted receivables could produce loss levels higher than the base case and would likely result in declines of CE and loss coverage levels available to the notes. Hence, Fitch conducts sensitivity analyses by increasing the transaction's initial base case RV and credit loss assumptions and examining the rating implications on all classes of issued notes. The increases to the base case losses are applied such that they represent moderate (1.5x) and severe (2.5x) stresses, and are intended to provide an indication of the rating sensitivity of notes to unexpected deterioration of a trust's performance.

DUE DILIGENCE USAGE

Fitch was provided with third-party due diligence information from KPMG, LLP. The third-party due diligence focused on comparing or recalculating certain information with respect to 100 receivables. 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 at the bottom of the rating action commentary.

Key Rating Drivers and Rating Sensitivities are further described in the presale report dated Feb. 4, 2016. Fitch's analysis of the Representations and Warranties (R&W) of this transaction can be found in 'BMW Vehicle Lease Trust 2016-1 -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.

Key Rating Drivers and Rating Sensitivities are further described in the accompanying presale report, available at 'www.fitchratings.com' or by clicking on the link.

Additional information is available at www.fitchratings.com.

BMW Vehicle Lease Trust 2016-1

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=877433

Applicable Criteria

Counterparty Criteria for Structured Finance and Covered Bonds (pub. 14 May 2014)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=744158

Criteria for Interest Rate Stresses in Structured Finance Transactions and Covered Bonds (pub. 19 Dec 2014)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=838868

Criteria for Rating U.S. Auto Lease ABS (pub. 19 Oct 2015)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=872539

Criteria for Servicing Continuity Risk in Structured Finance (pub. 17 Dec 2015)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=875586

Fitch's Interest Rate Stress Assumptions for Structured Finance and Covered Bonds - Excel File (pub. 22 Dec 2014)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=840189

Global Structured Finance Rating Criteria (pub. 06 Jul 2015)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=867952

Related Research

BMW Vehicle Lease Trust 2016-1 Appendix

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=877472

Additional Disclosures

Dodd-Frank Rating Information Disclosure Form

https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=999019

ABS Due Diligence Form 15E 1

https://www.fitchratings.com/creditdesk/press_releases/content/ridf15E_frame.cfm?pr_id=999019&flm_nm=15e_999019_1.pdf

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=999019

Endorsement Policy

https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

View source version on businesswire.com: http://www.businesswire.com/news/home/20160204005838/en/

Fitch Ratings
Primary Analyst
Margaret Rowe
Director
+1-312-368-3167
Fitch Ratings, Inc.
70 W Madison Street
Chicago, IL 60602
or
Secondary Analyst
Hylton Heard
Senior Director
+1-212-908-0214
or
Committee Chairperson
John Bella, Jr.
Managing Director
+1-212-908-0243
or
Media Relations:
Sandro Scenga, +1-212-908-0278
[email protected]

Source: Fitch Ratings

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