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 'Criteria for Rating U.S. Auto Lease ABS', dated Oct. 19, 2015.
The report presents Fitch's analytical approach to rating U.S. Auto Lease ABS and outlines the unique features of these transactions. Additionally, the report details key rating drivers associated with U.S. auto lease ABS as detailed below.
KEY RATING DRIVERS
Lease-End Residual Risk: Fitch's analysis of auto lease securitizations places a large focus on RV risk (see page 8). Fitch's RV risk analysis is driven by the issuer's historical RV loss rates and the potential volatility of the future used vehicle market. Historical worst case 12-18 month observations set the 'BBsf' rating level, with increased residual realization stresses given to investment-grade ratings, as described in this report.
Forward-Looking Approach to Loss Proxy: The credit risk analysis of auto leases is consistent with the approach for auto loan ABS. Fitch derives its base case credit loss proxy by examining fully amortized historical vintage loss curves, extrapolating incomplete vintage curves, matching future expectations with any relevant previous vintage data, and weighting by relevant pool credit characteristics. Additionally, a margin of safety is built into the base case by weighting previous recessionary vintages and adding adjustments for future unemployment expectations and/or wholesale vehicle market conditions, where applicable.
Concentration Risks: Auto lease pools and, notably, residual loss performance can be impacted by concentrations in the underlying leases or vehicles. Concentrations in vehicle model or segment can expose the trust to idiosyncratic risks affecting specific vehicle types. Additionally, material concentrations in the timing of lease maturities can expose the ABS performance disproportionately to periods of elevated residual losses. Fitch's quantitative analysis accounts for concentration risks, as described in this report.
Counterparty Exposures: Counterparty exposures can pose a risk to transactions if the relevant counterparties are a source of credit or performance weakness. Fitch's analysis includes a review of counterparties in accordance with our counterparty criteria titled 'Counterparty Criteria for Structured Finance and Covered Bonds' (published May 2014).
Seller/Servicer Operational Reviews: Disruption to servicing is a potential risk to the performance of auto loan ABS transactions. Fitch's analysis includes a review of the corporate and operational activities (originations, underwriting and servicing) of the seller/servicer(s) to assess operational risks and the ability of the servicer to assume the servicing role for the transaction.
Macroeconomic Risks: The economic environment can have a material impact and auto lease ABS ratings. Fitch takes into consideration the strength of the economy, as well as future expectations, by assessing key macroeconomic indicators correlated with lease performance (e.g. unemployment).
Additional information is available at
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