CHICAGO--(BUSINESS WIRE)--Fitch Ratings assigns the following ratings to the Kubota Credit Owner Trust 2014-1 notes:
--$62,100,000 class A-1 'F1+sf';
--$93,000,000 class A-2 'AAAsf'; Outlook Stable;
--$94,000,000 class A-3 'AAAsf'; Outlook Stable;
--$50,900,000 class A-4 'AAAsf'; Outlook Stable.
Fitch's stress and rating sensitivity analysis are discussed in the presale report titled 'Kubota Credit Owner Trust 2014-1', dated April 14, 2014, which is available on Fitch's web site. The presale report details how Fitch addresses the key rating drivers summarized below.
Key Rating Drivers
Quality of Receivables: For the 81% of the pool with FICO scores, the obligors have strong credit quality, as evidenced by the WA FICO of 741 for the 2014-1 pool. Additionally, the majority of the 2014-1 pool (approximately 87%) consists of new agricultural (AG) equipment, which is the strongest performing collateral type. The 2014-1 pool is also diversified in terms of geographic concentrations and has limited exposure to obligor concentrations.
Strong Managed Portfolio: KCC's managed portfolio has experienced consistent and low levels of delinquencies and net losses dating back to 2008. As static pool data from a recessionary period were not available, Fitch supplemented the KCC data with proxy data from prime auto loan issuers with similar FICO composition on the consumer portion (81%) of the pool and John Deere and CNH Capital proxy data for the commercial portion (19%) of 2014-1 to derive an expected base case cumulative net loss (CNL).
Credit Enhancement: Initial hard credit enhancement (CE) for 2014-1 is 4.00% for the class A notes. The transaction also benefits from expected excess spread of 2.34% per annum (p.a.). Based on Fitch's stressed cash flow scenarios, the structure can support 6.62% in net loss coverage under a 1.30% base case proxy. This results in loss multiples in excess of 5.0x, consistent with an 'AAAsf' rating for the class A notes.
Quality Origination, Underwriting, and Servicing Platform: KCC has demonstrated adequate abilities as originator, underwriter, and servicer, as evidenced by historical delinquency and net loss performance of 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 to increased losses over the life of the transaction. Fitch's analysis found that the notes display limited sensitivity to increased defaults and losses, showing limited impact on the rating of the notes under Fitch's moderate (1.5x base case loss) scenario. The notes could experience downgrades of at least two rating categories under Fitch's severe (2.5x base case loss) scenario.
Key Rating Drivers and Rating Sensitivities are further described in the presale report dated April 14, 2014. Fitch's analysis of the Representations and Warranties (R&W) of this transaction can be found in 'Kubota Credit Owner Trust 2014-1 - 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 April 17, 2012.
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.
Applicable Criteria and Related Research:
--'Global Structured Finance Rating Criteria' (May 24, 2013);
--'Representations, Warranties, and Enforcement Mechanisms in Global Structured Finance Transactions' (April 2012);
--'Criteria for Rating U.S. Equipment Lease and Loan ABS' (Dec 19, 2013)
--'Rating Criteria for U.S. Auto Loan ABS' (April 7, 2014)
--'Structured Finance Tranche Thickness Metrics' (July 29, 2011);
--'Kubota Credit Owner Trust 2014-1 Presale Report' (April 14, 2014);
--'Kubota Credit Owner Trust 2014-1 Presale Report- Appendix' (April 14, 2014);
Applicable Criteria and Related Research:
Kubota Credit Owner Trust 2014-1 (US ABS)
Kubota Credit Owner Trust 2014-1 -- Appendix
Structured Finance Tranche Thickness Metrics
Rating Criteria for U.S. Auto Loan ABS
Criteria for Rating U.S. Equipment Lease and Loan ABS
Representations, Warranties, and Enforcement Mechanisms in Global Structured Finance Transactions -- Amended
Global Structured Finance Rating Criteria