Fitch to Rate Honda Auto Receivables 2016-4 Owner Trust; Issues Presale

NEW YORK--()--Fitch Ratings expects to assign the following ratings and Rating Outlooks to the notes issued by Honda Auto Receivables 2016-4 Owner Trust:

--$300,000,000 class A-1 Not Rated (NR);

--$475,000,000 class A-2 'AAAsf'; Outlook Stable;

--$375,000,000 class A-3 'AAAsf'; Outlook Stable;

--$100,000,000 class A-4 'AAAsf'; Outlook Stable;

--$32,093,757 certificates 'NR'.

KEY RATING DRIVERS

Strong Credit Quality: The credit quality of 2016-4 as measured by the weighted average (WA) Fair Isaac Corp. (FICO) score of 765 and internal credit score tiering is consistent with recent pools. New vehicles total 95.1% and the WA seasoning is 13.6 months.

Consistent Credit Enhancement Structure: The cash flow distribution is a sequential-pay structure. Initial hard credit enhancement (CE) is 2.75% (subordination of 2.50% and a 0.25% reserve). A yield supplement account (YSA) increases the effective WA APR, resulting in excess spread (XS) of 2.30%. All structural features are consistent with 2015-2016 transactions.

Strong Portfolio/Securitization Performance: Losses on AHFC's portfolio and 2010-2016 securitizations have been low historically and remained well below peak levels in 2008 due to stronger quality originations, the improved U.S. economy and healthy used vehicle values.

Stable Corporate Health: Fitch rates AHFC 'F1' and Honda, its parent, 'F1'/'A' with a Stable Rating Outlook. AHFC has recorded positive corporate financial results in recent years, while the overall health of Honda has remained strong.

Consistent Origination/Underwriting/Servicing: AHFC demonstrates adequate capabilities as originator, underwriter and servicer, as evidenced by historical portfolio delinquency and loss experience and securitization performance. Fitch deems AHFC capable of servicing this series.

Legal Structure Integrity: The legal structure of the transaction should provide that a bankruptcy of AHFC would not impair the timeliness of payments on the securities.

RATING SENSITIVITIES

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 potential rating actions on the notes. Fitch evaluated the sensitivity of the ratings assigned to all classes of 2016-4 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 no expected impact on the rating of the notes under Fitch's moderate (1.5x base case loss) scenario. The notes could experience a downgrade of up to two rating categories under Fitch's severe (2.5x base case loss) scenario

USE OF THIRD-PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G-10

Fitch was provided with third-party due diligence information from KPMG LLP. The third-party due diligence focused on a random sample of 287 receivables selected from the 128,973 receivables (as of Aug. 31, 2016). A comparison was made of the various attributes of each of the selected receivables (first payment date, original amount financed, among others) in the data file to contractual documents provided by the company. Based on the results of the procedures, KPMG concluded with a 99% confidence level that the maximum estimated error occurrence rate for each of the attributes does not exceed 5%.

A copy of the ABS Due Diligence Form-15E received by Fitch in connection with this transaction may be obtained through the link found at the end of this rating action commentary.

REPRESENTATIONS, WARRANTIES AND ENFORCEMENT MECHANISMS

Fitch's analysis of the Representations and Warranties (R&W) of this transaction can be found in the report titled 'Honda Auto Receivables 2016-4 Owner Trust -- 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 May 31, 2016.

Additional information is available at www.fitchratings.com.

Applicable Criteria

Counterparty Criteria for Structured Finance and Covered Bonds (pub. 01 Sep 2016)

https://www.fitchratings.com/site/re/886006

Global Structured Finance Rating Criteria (pub. 27 Jun 2016)

https://www.fitchratings.com/site/re/883130

Rating Criteria for U.S. Auto Loan ABS (pub. 21 Mar 2016)

https://www.fitchratings.com/site/re/878723

Related Research

Honda Auto Receivables 2016-4 Owner Trust (US ABS)

https://www.fitchratings.com/site/re/888996

Honda Auto Receivables 2016-4 Owner Trust - Appendix

https://www.fitchratings.com/site/re/889035

Additional Disclosures

Dodd-Frank Rating Information Disclosure Form

https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=1013055

ABS Due Diligence Form 15E 1

https://www.fitchratings.com/creditdesk/press_releases/content/ridf15E_frame.cfm?pr_id=1013055&flm_nm=15e_1013055_1.pdf

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1013055

Endorsement Policy

https://www.fitchratings.com/regulatory

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Contacts

Fitch Ratings
Primary Analyst
Kate Manion
Director
+1-212-908-0792
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Puloma Mukherjee
Associate Director
+1-212-908-0131
or
Committee Chairperson
John H. Bella, Jr.
Managing Director
+1-212-908-0243
or
Media Relations:
Sandro Scenga, New York, +1 212-908-0278
Email: sandro.scenga@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst
Kate Manion
Director
+1-212-908-0792
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Puloma Mukherjee
Associate Director
+1-212-908-0131
or
Committee Chairperson
John H. Bella, Jr.
Managing Director
+1-212-908-0243
or
Media Relations:
Sandro Scenga, New York, +1 212-908-0278
Email: sandro.scenga@fitchratings.com