NEW YORK & BOGOTA, Colombia--(BUSINESS WIRE)--Fitch Ratings expects to assign the following ratings to the notes issued by Capital Auto Receivables Asset Trust 2016-1:
--$247,000,000 class A-1 notes 'F1+sf'; Outlook Stable;
--$300,000,000 classes A-2a/A-2b notes 'AAAsf'; Outlook Stable;
--$242,000,000 class A-3 notes 'AAAsf'; Outlook Stable;
--$85,660,000 class A-4 notes 'AAAsf'; Outlook Stable;
--$38,360,000 class B notes 'AA-sf'; Outlook Stable;
--$38,360,000 class C notes 'Asf'; Outlook Stable;
--$39,900,000 class D notes 'BBBsf'; Outlook Stable.
The A-2 notes will be split into A-2a fixed and A-2b floating rates notes and will be sized to market demand.
KEY RATING DRIVERS
Stable Collateral Characteristics: The 2016-1 pool is representative of non-prime collateral, with a 633 weighted average (WA) Fair Isaac Corp. (FICO) score, 9.17% WA APR and 105.00% WA loan-to-value ratio (LTV), all relatively consistent with recent pools securitized.
Increasing Extended Term: Of the 2016-1 initial pool, 77% contains extended-term contracts, the highest level for the platform since 2014-1 (not rated by Fitch). Furthermore, 12% of the pool consists of contracts with terms greater than 72 months.
Removal of Revolving Feature: 2016-1 is the first CARAT transaction since re-inception of the platform in 2013 that will not include a one-year revolving feature, with certain structural features removed as a result. Given this, Fitch's initial loss proxy for 2016-1 is 5.25%, decreased from 5.50% in the last Fitch-rated transaction (2015-3), due to the removal of risks associated with the revolving feature. The recommend proxy is consistent with the proxy determined for 2015-3 prior to application of additional stresses relating to the revolving structure.
Adequate Credit Enhancement: Initial hard credit enhancement (CE) for the class A notes totals 15.00%, down from 19.50% in the prior three transactions. The reserve is 0.50% non-declining, subordination totals 11.40%, and initial overcollateralization (OC) is 3.10% growing to a target of 5.00% of the initial pool balance. The OC target will decrease to 3.00% once the A-2 floating-rate notes are paid in full. Excess spread is expected to be approximately 5.85% per annum.
Weakening Portfolio Performance: Delinquencies and losses for Ally Financial Inc.'s (AFIN) non-prime auto loan portfolio have been increasing since 2013, largely driven by weaker collateral underwriting and lower recoveries from softer used vehicle values. Although trending higher, performance is still well below peak levels experienced in the recessionary years.
Stable Corporate Health: Fitch currently rates AFIN 'BB+/B' with a Stable Outlook. AFIN demonstrates solid capabilities as an originator, underwriter, and servicer as evidenced by its historical prime and non-prime portfolio and securitization performance.
Legal Structure Integrity: The legal structure of the transaction should provide that a bankruptcy of AFIN 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. This in turn could result in Fitch taking negative rating actions on the notes.
Fitch evaluated the sensitivity of the ratings assigned to Capital Auto Receivables Asset Trust 2016-1 to increased credit losses over the life of the transaction. Fitch's analysis found that the transaction displays some sensitivity to increased defaults and credit losses. We saw a potential downgrade of one category under Fitch's moderate (1.5x base case loss) scenario, especially for the subordinate bonds. The notes could experience downgrades of up to two rating categories, potentially leading to distressed ratings, under Fitch's severe (2.0x base case loss) scenario.
DUE DILIGENCE USAGE
Fitch was provided with third-party due diligence information from Deloitte & Touche LLP. The third-party due diligence focused on comparing or recomputing certain information with respect to 225 loans from the statistical data file. We considered this information in our analysis, and the findings did not have an impact on our analysis. A copy of the ABS Due Diligence Form-15E received by Fitch in connection with this transaction may be obtained through the link at the bottom of this rating action commentary (RAC).
Fitch's analysis of the Representations and Warranties (R&W) of this transaction can be found in the reports titled 'Capital Auto Receivables Asset Trust 2015-3 -- 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 March 26, 2015.
Additional information is available at www.fitchratings.com.
Capital Auto Receivables Asset Trust 2016-1
Counterparty Criteria for Structured Finance and Covered Bonds (pub. 14 May 2014)
Criteria for Interest Rate Stresses in Structured Finance Transactions and Covered Bonds (pub. 19 Dec 2014)
Criteria for Servicing Continuity Risk in Structured Finance (pub. 17 Dec 2015)
Global Structured Finance Rating Criteria (pub. 06 Jul 2015)
Rating Criteria for U.S. Auto Loan ABS (pub. 15 Oct 2015)
Capital Auto Receivables Asset Trust 2016-1 Appendix
Dodd-Frank Rating Information Disclosure Form
ABS Due Diligence Form 15E 1