NEW YORK--(BUSINESS WIRE)--Fitch Ratings expects to rate John Deere Owner Trust 2014-B (JDOT 2014-B) as follows:
--$317,000,000 class A-1 notes 'F1+sf';
--$225,000,000 class A-2a notes 'AAAsf'; Outlook Stable;
--$100,000,000 class A-2b notes 'AAAsf'; Outlook Stable;
--$283,000,000 class A-3 notes 'AAAsf'; Outlook Stable;
--$84,915,000 class A-4 notes 'AAAsf'; Outlook Stable;
--$25,896,582 certificates Not Rated.
Fitch's stress and rating sensitivity analysis are discussed in the presale report titled 'John Deere Owner Trust 2014-B', dated Aug. 21, 2014, which is available at 'www.fitchratings.com' or by clicking on the link below.
KEY RATING DRIVERS
High Concentration of Agricultural (AG) Equipment: JDOT 2014-B is the seventh transaction to contain 75% AG equipment. Although AG equipment historical losses have been low, a high concentration in the pool limits diversification and exposes the trust to other factors, such as natural disasters (e.g. droughts and floods). However, geographic diversity and equipment versatility help mitigate the high concentration.
Consistent Collateral Concentrations: The pool contains 75.37% AG and 24.63% Construction (CO) equipment. These concentrations are consistent with those of JDOT 2014. Furthermore, the pool consists of 65.66% annual-pay contracts, which historically have experienced a lower level of losses versus other payment types.
Sufficient Credit Enhancement: Initial hard credit enhancement (CE) for JDOT 2014-B is 3.50%, unchanged from JDOT 2014. The initial reserve in JDOT 2014-B is 1.00%, while the subordinated certificates provide 2.50% enhancement. Initial excess spread in JDOT 2014-B is expected to be approximately 1.90%, down from the JDOT 2014 transaction's 2.12%. Under Fitch's 'AAAsf' scenario, CE for the class A notes was able to withstand more than 5.0x the expected net loss rate.
Stable Origination, Underwriting and Servicing: John Deere Capital Corporation (JDCC) has demonstrated strong capabilities as originator, underwriter and servicer, as evidenced by historical delinquency and loss performance of securitized trusts and its managed portfolio. All securitizations issued and rated by Fitch have performed within initial base case expectations.
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 assigned to JDOT 2014-B to increased cumulative net losses (CNL) over the life of the transaction. Fitch's analysis found that the transaction displays some sensitivity to increased defaults and CNL, showing a potential downgrade of one category under Fitch's moderate (1.5x base case loss) scenario. The notes could experience downgrades of up to three rating categories, although still remaining investment grade, under Fitch's severe (2.5x base case loss) scenario.
Key Rating Drivers and Rating Sensitivities are further described in the accompanying pre-sale report.
Fitch's analysis of the Representations and Warranties (R&W) of this transaction can be found in 'John Deere Owner Trust 2014-B - 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 April 17, 2012.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Criteria for Rating U.S. Equipment Lease and Loan ABS' (Dec. 19, 2013);
--'Global Structured Finance Rating Criteria' (Aug. 4, 2014);
--'Counterparty Criteria for Structured Finance and Covered Bonds' (May 14, 2014);
--'Criteria for Interest Rate Stresses in Structured Finance Transactions and Covered Bonds' (Jan. 23, 2014);
--'Representations, Warranties, and Enforcement Mechanisms in Global Structured Finance Transactions' (April 17, 2012);
--'John Deere Owner Trust 2014-B' (Aug. 21, 2014);
--'John Deere Owner Trust 2014-B- Appendix' (Aug. 21, 2014).
Applicable Criteria and Related Research: John Deere Owner Trust 2014-B (US ABS)
Criteria for Rating U.S. Equipment Lease and Loan ABS
Global Structured Finance Rating Criteria
Counterparty Criteria for Structured Finance and Covered Bonds
Criteria for Interest Rate Stresses in Structured Finance Transactions and Covered Bonds
Representations, Warranties, and Enforcement Mechanisms in Global Structured Finance Transactions