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Fitch Publishes Updated U.S. Auto Loan ABS Rating Criteria

April 10, 2015 9:02 AM EDT

NEW YORK--(BUSINESS WIRE)-- Fitch Ratings today published an updated Asset-Backed sector specific criteria report. There have been no material changes from the previous version, and therefore Fitch expects no impact on outstanding ratings.

This report updates and replaces the prior criteria report with the title 'Rating Criteria for U.S. Auto Loan ABS, dated April 7, 2014.

The report presents Fitch's analytical approach to rating prime and nonprime U.S. Auto Loan ABS and outlines the unique features of these transactions. Additionally, the report details key rating drivers associated with U.S auto loan ABS as detailed below.

KEY RATING DRIVERS

Collateral Performance: Fitch's expectation on collateral performance is a key driver of its ratings. Fitch assesses performance expectations through an analysis of an originator's historical static pool and securitization data, including delinquencies, defaults, net losses, recoveries, loss timing and prepayments. Fitch analyzes granular collateral characteristics and risk concentrations of the pool and/or loan tape to determine credit risks present that drive transaction loss frequency and loss severity.

Payment Structure: A transaction's payment structure and cash flow allocations will be a major driver in assessing credit enhancement (CE) adequacy and to determine rating levels. Fitch uses a Microsoft Excel-based internal cash flow model customized to reflect the transaction payment structure and tests the impact of stressing various assumptions, including prepayments, default timing, recovery rates and recovery lag.

The output of the cash flow modeling is reviewed to assess whether the rated bonds are fully paid, in accordance with the transaction documents, in each stress scenario associated with a bond's rating.

Legal Risks: Legal risks can affect the rating in the event that legal uncertainties pose a threat to the availability of cash flows or the collateral itself. Fitch's legal analysis includes a review of the legal structure and legal opinions furnished by the originator to confirm cash flow derived from the assets will not be impaired (either as a result of the bankruptcy or insolvency of the originator or any other transaction party, such as a swap counterparty, or the trustee's lack of a perfected first-priority security interest in the assets) or diminished (as a result of taxation).

Counterparty Exposures, Including Seller/Servicer Operations: Counterparty exposures can pose a risk to transactions if the relevant counterparties are a source of credit or performance weakness. The analysis incorporates a review of the counterparties of an auto loan ABS transaction, including operational (originations, underwriting and servicing) and corporate reviews, to determine and ensure consistency with Fitch's counterparty criteria titled 'Counterparty Criteria for Structured Finance and Covered Bonds,' dated May 2014, available on Fitch's website at 'www.fitchratings.com'.

Macroeconomic Risks: The economic environment can have a material impact on U.S. auto loan ABS ratings. Fitch takes into consideration the strength of the economy, as well as future expectations, by assessing key macroeconomic indicators that are correlated with asset performance, for example unemployment.

Additional information is available at 'www.fitchratings.com'

Applicable Criteria and Related Research: Rating Criteria for US Auto Loan ABS

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=863979

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.

Fitch Ratings
Hylton Heard
Senior Director
+1 212-908-0214
Fitch Ratings, Inc.
33 Whitehall St.
New York, NY 10004
or
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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