NEW YORK--(BUSINESS WIRE)--Fitch Ratings expects to assign the following ratings and Outlooks to the Ascentium Equipment Receivables 2016-2 Trust (ACER 2016-2) notes:
--$62,000,000 class A-1 notes 'F1+sf';
--$101,000,000 class A-2 notes 'AAAsf'; Outlook Stable;
--$60,007,000 class A-3 notes 'AAAsf'; Outlook Stable;
--$18,240,000 class B notes 'AA-sf'; Outlook Stable;
--$15,110,000 class C notes 'A-sf'; Outlook Stable;
--$7,410,000 class D notes 'BBBsf'; Outlook Stable;
--$7,695,000 class E notes 'BBsf'; Outlook Stable.
KEY RATING DRIVERS
Diversified Equipment Types: Equipment types are highly diversified within 2016-2, with the highest concentration being medical equipment, at 25.2%. The next two largest concentrations are titled equipment and display and storage, both at 14.7%. This diversification is consistent with Ascentium's managed portfolio.
Weakening Asset Performance: The recent vintages (2012 - 2015) within Ascentium's managed portfolio are demonstrating a higher default pace relative to the majority of prior vintages. Additionally, on a non-substituted basis, more recent ABS transactions are also experiencing similar weakening trends. Fitch's base case CGD proxy of 4.40% accounts for the higher default pace.
Aggressive Managed Portfolio Growth: Ascentium's managed portfolio has experienced significant growth since inception in mid-2011, with annual originations increasing at a compound annual growth rate of 30%, as of year-end 2015. This has partially contributed to the aforementioned weaker performance and the volatile default performance related to certain new industries and/or equipment types.
Sufficient Credit Enhancement: All classes benefit from a cash reserve account and overcollateralization (OC). Total initial hard credit enhancement (CE) is 23.0%, 16.6%, 11.3%, 8.7% and 6.0% for the class A, B, C D, and E notes, respectively. The transaction includes a 100% turbo feature, which will allow for CE to build as the transaction amortizes.
Quality of Origination, Underwriting and Servicing: Ascentium has demonstrated adequate abilities as originator, underwriter and servicer as evidenced by historical delinquency and loss performance of securitized trusts and the managed portfolio.
Integrity of Legal Structure: The legal structure of the transaction should provide that a bankruptcy of Ascentium 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 CNL 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 ACER 2016-2 to increased CNL over the life of the transaction. Fitch's analysis found that the transaction displays some sensitivity to increased CNL, showing a potential downgrade of up two rating categories under Fitch's severe (2.5x base case loss scenario).
DUE DILIGENCE USAGE
Additionally, Fitch was provided with third-party due diligence information from Deloitte & Touche LLP. The third-party due diligence focused on comparing or recalculating certain information with respect to 100 receivables. Fitch considered this information in its analysis and the findings did not have an impact on our analysis/conclusions. 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.
Key Rating Drivers and Rating Sensitivities are further described in the presale report dated Sept 29, 2016. Fitch's analysis of the Representations and Warranties (R&W) of this transaction can be found in 'Ascentium Equipment Receivables 2016-2 Trust -Appendix'. These R&Ws 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'.
Counterparty Criteria for Structured Finance and Covered Bonds (pub. 01 Sep 2016)
Criteria for Rating U.S. Equipment Lease and Loan ABS (pub. 03 Dec 2015)
Global Structured Finance Rating Criteria (pub. 27 Jun 2016)
Ascentium Equipment Receivables 2016-2 Trust (US ABS)
Ascentium Equipment Receivables 2016-2 Trust -- Appendix
Dodd-Frank Rating Information Disclosure Form
ABS Due Diligence Form 15E 1
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