CHICAGO--(BUSINESS WIRE)--Fitch Ratings expects to assign the following ratings and Outlooks to the notes issued by Ford Credit Auto Owner Trust 2016-C:
--$286,700,000 class A-1 notes 'F1+sf';
--$465,700,000 class A-2a/2b notes 'AAAsf'; Outlook Stable;
--$377,500,000 class A-3 notes 'AAAsf'; Outlook Stable;
--$121,570,000 class A-4 notes 'AAAsf'; Outlook Stable;
--$39,520,000 class B notes 'AAsf'; Outlook Stable;
--$26,350,000 class C notes 'Asf'; Outlook Stable.
KEY RATING DRIVERS
Stable Credit Quality: The pool is consistent with recent deals, with the highest weighted average (WA) FICO score seen to date at 736, and the highest percentage of new vehicles seen to date at 89.8%. The pool is geographically diverse and has WA seasoning of 7.8 months, and 54.5% of the loans have terms of 61 months or more.
Adequate Credit Enhancement Structure: The cash flow distribution is a sequential-pay structure. Initial hard credit enhancement (CE) for the class A notes totals 5.54%, consisting of 5.00% subordination and a 0.54% non-declining reserve, all consistent with recent transactions.
Stable Portfolio/Securitization Performance: Delinquencies and losses on Ford Credit's portfolio and 2012-2015 securitizations are currently at low levels, supported by the stable U.S. economy and healthy used vehicle values, although they are expected to soften over the next year. Fitch's initial base case cumulative net loss (CNL) assumption is 1.50%.
Stable Corporate Performance: Fitch's current Long-Term (LT) Issuer Default Rating (IDR) for Ford Motor Company (Ford), parent of Ford Credit, and Ford Credit, is 'BBB'/Stable Outlook.
Consistent Origination/Underwriting/Servicing: Ford Credit demonstrates adequate abilities as an originator, underwriter and servicer, as evidenced by historical portfolio and securitization delinquency and loss performance. Fitch deems Ford Credit an adequate servicer for this series.
Integrity of Legal Structure: The legal structure of the transaction should provide that a bankruptcy of Ford Credit 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 potential rating actions on the notes. Fitch evaluated the sensitivity of the ratings assigned to all classes of 2016-C to increased losses over the life of the transaction. Fitch's analysis found that the notes display some sensitivity to increased defaults and losses. Under Fitch's moderate (1.5x base case loss) scenario the notes would be unlikely to experience any downgrade. However, the notes could experience downgrades 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 PricewaterhouseCoopers LLP. The third-party due diligence focused on comparing or re-computing certain information with respect to 125 loans from the statistical data file. Fitch considered this information in its analysis, and the findings did not have an impact on its analysis. A copy of the ABS Due Diligence Form-15E received by Fitch in connection with this transaction may be obtained through the link contained on the bottom of the related rating action commentary.
REPRESENTATIONS, WARRANTIES AND ENFORCEMENT MECHANISMS
A description of the transaction's representations, warranties and enforcement mechanisms (RW&Es) that are disclosed in the offering document and which relate to the underlying asset pool is available by accessing the appendix referenced under "Related Research" below. The appendix also contains a comparison of these RW&Es to those Fitch considers typical for the asset class as detailed in the Special Report titled "Representations, Warranties and Enforcement Mechanisms in Global Structured Finance Transactions," dated May 31, 2016.
Additional information is available at www.fitchratings.com.
Counterparty Criteria for Structured Finance and Covered Bonds: Derivative Addendum (pub. 18 Jul 2016)
Global Structured Finance Rating Criteria (pub. 27 Jun 2016)
Rating Criteria for U.S. Auto Loan ABS (pub. 21 Mar 2016)
Ford Credit Auto Owner Trust 2016-C (US ABS)
Ford Credit Auto Owner Trust 2016-C -- Appendix
Dodd-Frank Rating Information Disclosure Form
ABS Due Diligence Form 15E 1
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