NEW YORK--(BUSINESS WIRE)--Fitch Ratings has assigned the following ratings and Outlooks to the notes issued by Ford Credit Auto Owner Trust 2016-REV1:
--$1,000,000,000 class A 'AAAsf'; Outlook Stable;
--$40,541,000 class B 'AAsf'; Outlook Stable;
--$40,541,000 class C 'Asf'; Outlook Stable.
KEY RATING DRIVERS
Consistent Initial Credit Quality: The 2016-REV1 pool is largely consistent with prior FCAOT and REV transactions, with an initial weighted average (WA) FICO score of 732, nearly 90% new vehicles and just over seven months of seasoning. However, as the transaction will incorporate a five-year revolving period, with additional receivables sold into the trust, the focus of the analysis was placed on future receivables' eligibility parameters.
Restrictive Pool Composition Requirements: The 2016-REV1 pool includes strict criteria on new receivable eligibility, mitigating potential pool deterioration during the revolving period. Fitch's base case credit loss proxies of 2.45% (floor credit enhancement [CE] test) and 2.90% (pool composition test) reflect the performance of the worst potential pool composition under these two sets of criteria.
Increased Extended Term: Of the 2016-REV1 initial pool, 57.0% is composed of extended-term contracts (> 60-month), well above the historical range for the FCAOT platform. Consistent with broader market trends, FMCC has increased extended-term originations and expects further growth in the near future for these contracts. As such, FMCC has adjusted the criteria in 2016-REV1 versus 2015-REV1 to allow for more of these contracts to be potentially funded into the pool in the future
Adequate CE Structure: Initial hard CE for class A, B and C notes totals 9.50%, 5.75% and 2.00%, respectively. Loss coverage provided by the structure under the floor CE and pool composition test scenarios is adequate to support loss multiples consistent with the expected ratings.
Consistent Origination and Servicing: Ford Credit demonstrates adequate abilities as an originator and servicer, as evidenced by historical performance, with delinquencies and net losses for the managed portfolio and securitizations vastly improved since the recession. Any potential risks from the long-term nature of the revolving period are mitigated, in part, by the stability of Ford Credit's historical servicing and originations.
Unanticipated increases in the frequency of defaults and loss severity on defaulted receivables could produce loss levels higher than the base case. This could result in potential rating actions on the notes. Fitch evaluated the sensitivity of the ratings assigned to all classes of Ford Credit Auto Owner Trust 2016-REV1 to increased losses over the life of the transaction. Fitch's analysis found that the class B, and C notes display some sensitivity to increased defaults and losses, showing potential downgrades of up to two categories under Fitch's moderate (1.5x base case loss) scenario. All classes of notes could experience downgrades of up to three rating categories under Fitch's severe (2.5x base case loss) scenario.
DUE DILIGENCE USAGE
Fitch was provided with due diligence information from PricewaterhouseCoopers LLC (PwC). The third-party due diligence focused on comparing or re-computing certain information with respect to a 125 contracts from the statistical file. PwC found only one exception in the data points for the files regarding classification of one vehicle for one contract as "New" or "Used". Fitch considered the report for the analysis and believes that the findings did not have an impact on our analysis.
Additional information is available at www.fitchratings.com.
Counterparty Criteria for Structured Finance and Covered Bonds (pub. 14
Criteria for Servicing Continuity Risk in Structured Finance (pub. 17
Global Structured Finance Rating Criteria (pub. 06 Jul 2015)
Rating Criteria for U.S. Auto Loan ABS (pub. 15 Oct 2015)
Ford Credit Auto Owner Trust 2016-REV1 -- Appendix
Structured Finance Tranche Thickness Metrics
Dodd-Frank Rating Information Disclosure Form