NEW YORK--(BUSINESS WIRE)--Fitch Ratings expects to assign the following ratings to the John Deere Owner Trust 2016-B (JDOT 2016-B) notes:
--$243,600,000 class A-1 'F1+sf';
--$221,000,000 class A-2 'AAAsf'; Outlook Stable;
--$220,000,000 class A-3 'AAAsf'; Outlook Stable;
--$70,610,000 class A-4 'AAAsf'; Outlook Stable;
--$19,362,916 certificates not rated.
KEY RATING DRIVERS
High Concentration of AG Equipment: JDOT 2016-B is comprised of approximately 75% AG equipment, consistent with the prior transactions dating back to 2011. While AG equipment historical losses have been low, the high concentration in the pool limits diversification. However, geographic diversity, diversification within the AG sector, and equipment versatility help mitigate the high concentration.
Consistent Collateral Concentrations: The pool contains 75.2% AG and 24.8% CO equipment. These concentrations are consistent with those of JDOT 2016. Furthermore, the pool consists of 61.7% annual-pay contracts, which historically have experienced a lower level of losses versus other payment types.
Sufficient Credit Enhancement: Initial hard credit enhancement (CE) for JDOT 2016-B is 3.50%, consistent with 3.51% in JDOT 2016. The initial reserve in JDOT 2016-B is 1.00%, while the subordinated certificates provide 2.50% enhancement. Initial excess spread in JDOT 2016-B is expected to be approximately 1.79%, down from 1.94% in JDOT 2016. Under Fitch's 'AAAsf' scenario, CE for the class A notes was able to withstand more than 5.0x the expected net loss rate of 1.00%.
Stable Origination, Underwriting and Servicing: JDCC has demonstrated strong capabilities as originator, underwriter and servicer, as evidenced by historical delinquency and loss performance of securitized trusts and its managed portfolio. All securitizations issued and rated by Fitch have performed within initial base case expectations.
Integrity of Legal Structure: The legal structure of the transaction should provide that a bankruptcy of the trust 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 and could result in potential rating actions on the notes. Fitch evaluated the sensitivity of the ratings 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 limited impact on the rating of the notes under Fitch's moderate (1.5x base case loss) scenario. The notes could experience downgrades of up to 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 120 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.
Additional information is available at www.fitchratings.com.
John Deere Owner Trust 2016-B (US ABS)
Criteria for Rating U.S. Equipment Lease and Loan ABS (pub. 03 Dec 2015)
Criteria for Servicing Continuity Risk in Structured Finance (pub. 17 Dec 2015)
Exposure Draft: Counterparty Criteria for Structured Finance and Covered Bonds (pub. 14 Apr 2016)
Global Structured Finance Rating Criteria (pub. 27 Jun 2016)
John Deere Owner Trust 2016-B -- Appendix
Dodd-Frank Rating Information Disclosure Form
ABS Due Diligence Form 15E 1