NEW YORK--(BUSINESS WIRE)--Fitch Ratings has assigned the following ratings to the Kubota Credit Owner Trust 2016-1 (KCOT 2016-1) notes:
--$137,000,000 class A-1 'F1+sf';
--$201,500,000 class A-2 'AAAsf'; Outlook Stable;
--$201,500,000 class A-3 'AAAsf'; Outlook Stable;
--$60,000,000 class A-4 'AAAsf'; Outlook Stable.
KEY RATING DRIVERS
Quality of Receivables: For the 77.8% of the pool with FICO scores, the obligors have strong credit quality, as evidenced by the weighted average (WA) FICO score of 741 for the 2016-1 pool. The majority of the pool (approximately 83.2%) consists of new agricultural equipment (AG) equipment, which is the strongest performing collateral type. The pool is geographically diversified and has limited exposure to obligor concentrations.
Strong Managed Portfolio: KCC's managed portfolio has experienced consistent and low delinquencies and net losses dating back to 2008. Since recent recessionary static pool data were not available, Fitch supplemented the KCC data with proxy data from prime auto loan issuers with a similar FICO composition on the consumer portion (78%) of the pool, and John Deere and CNH Capital proxy data for the commercial portion (22%), to derive an expected base-case cumulative net loss (CNL), consistent with 2015-1.
Credit Enhancement: Initial hard credit enhancement (CE) for 2016-1 is 4.00% (unchanged from 2015-1) for the class A notes. The transaction also benefits from expected excess spread of 2.02% per annum (p.a.). Based on Fitch's stressed cash flow scenarios, the structure can support 6.34% in net loss coverage under the 1.20% base case proxy, resulting in loss multiples in excess of 5.0x, consistent with an 'AAAsf' rating for class A notes.
Quality Origination, Underwriting and Servicing: KCC has demonstrated adequate abilities as originator, underwriter and servicer, as evidenced by the historical delinquency and net loss performance of the managed portfolio.
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 assigned to KCOT 2016-1 to increased CNL over the life of the transaction. Fitch's analysis found that the transaction displays some sensitivity to increased defaults and CNL, showing a potential downgrade of one category under Fitch's moderate 1.5x base-case loss) scenario. The notes could experience downgrades of up to three rating categories, although still remain investment grade, 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. The third-party due diligence focused on comparing 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 Fitch's analysis. A copy of the ASB 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 (RAC).
Additional information is available at www.fitchratings.com.
Counterparty Criteria for Structured Finance and Covered Bonds (pub. 18
Criteria for Rating U.S. Equipment Lease and Loan ABS (pub. 03 Dec 2015)
Criteria for Servicing Continuity Risk in Structured Finance (pub. 17
Global Structured Finance Rating Criteria (pub. 27 Jun 2016)
Rating Criteria for U.S. Auto Loan ABS (pub. 21 Mar 2016)
Kubota Credit Owner Trust 2016-1 -- Appendix
Dodd-Frank Rating Information Disclosure Form