(The following statement was released by the rating agency)
HONG KONG/SHANGHAI, September 22 (Fitch) Fitch Ratings has
assigned final
ratings to Silver Arrow China 2017-2 Retail Auto Loan Asset
Backed Notes Trust's
fixed-rate notes. The issuance consists of notes backed by
Chinese
automotive-loan receivables originated by Mercedes-Benz Auto
Finance Limited
(MBAFC), a directly and indirectly wholly owned subsidiary of
Daimler AG (A-/
Stable/F2). This is MBAFC's second auto-loan ABS transaction
rated by Fitch, but
the company's fourth in China. The ratings are as follows:
CNY4,980 million Class A notes: 'AA+sf'; Outlook Stable
CNY262.1 million subordinated notes: 'NRsf'
The notes are issued by CITIC Trust Co. Ltd. in its capacity as
trustee of
Silver Arrow China 2017-2. At the cut-off date of 30 June 2017,
the total
collateral pool consisted of 35,615 auto loan receivables with a
total balance
of CNY5,927.1 million.
The expected rating on the class A note was upgraded by one
notch on 20
September 2017 from the rating first assigned on 12 September
2017 based on
Fitch's updated Structured Finance and Covered Bonds Country
Risk Rating
Criteria, which was published on 18 September 2017 (see Fitch Takes
Positive Rating
Actions on China ABS on Criteria Change). The analysis for
both expected and
final ratings are based on the updated criteria.
KEY RATING DRIVERS
Stresses Commensurate with Rating: Fitch expects a lifetime
default rate for the
MBAFC portfolio of 1.4%. We applied a stress multiple of 6.0x at
'AA+sf' on
defaults to take into account the limited history of car finance
in China,
particularly through an economic cycle, and Fitch's expectation
that
emerging-market securitised assets are prone to greater stress
than those in
developed markets for the same rating category. Fitch's recovery
expectation was
limited to 15%, subject to a further haircut by 50% at 'AA+sf'.
Strong Portfolio Characteristics: The original weighted-average
(WA)
loan-to-value (LTV) ratio is 59.81%. This portfolio has a WA
original term of
35.4 months, and has been seasoned for 9.6 months. The pool is
well-diversified
- the maximum single-obligor concentration was 0.03% of the
outstanding
principal balance at the cut-off date. The portfolio has no
loans subject to
refinancing risk for repaying balloon payments and all the
vehicles are new.
Adequate Credit Enhancement and Liquidity: Hard-credit
enhancement in the form
of subordination and overcollateralisation support the rating of
the class A
notes. In addition, this transaction features an amortising
yield supplement
overcollateralisation (YSOC), which is used to boost the
transaction yield.
Liquidity support will be provided by the general reserve
amount, which will be
fully funded at closing for CNY57.3 million - representing 1% of
the adjusted
pool balance. This amount is required to be maintained as long
as there are
notes outstanding.
Sector Outlook, Sovereign Cap: Our outlook on the assets of this
portfolio is
stable - based on its characteristics. We forecast China's
unemployment rate and
GDP growth at 4.0% and 6.7% in 2017, respectively, and 4.0% and
6.3% in 2018.
The 'AA+sf' rating is the cap on Chinese structured finance
transactions due to
the Chinese securitisation markets' early stages of development,
and China's
Long-Term Local-Currency Issuer Default Rating of 'A+'.
RATING SENSITIVITIES
Unexpected increases in default rates and unexpected decreases
in recovery rates
on defaulted loans could produce loss levels higher than Fitch's
base case,
which could lead to negative rating action on the notes. Fitch
has evaluated the
sensitivity of the ratings to increased gross default levels and
decreased
recovery rates over the life of the transaction.
The analysis found that the notes' ratings are susceptible to
downgrade in
moderate and severe default scenarios. The analysis found the
senior notes may
be downgraded to 'AAsf' if the base-case default rate were to
increase by 50%
and 'A+sf' if the base-case default rate were to increase by
100%, assuming all
other factors remain constant. The rating on the senior notes is
not sensitive
to a lower recovery rate, even when it is reduced to zero,
assuming all other
factors remain constant. The analysis of the combination stress
scenarios found
that the senior notes may be downgraded to 'AAsf' under the
moderate combination
stress (50% increase in default rate and 50% decrease in
recoveries) and 'Asf'
under the severe combination stress (100% increase in default
rate and 100%
decrease in recoveries).
USE OF THIRD-PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G-10
Form ABS Due Diligence-15E was not provided to, or reviewed by,
Fitch in
relation to this rating action.
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 31 May
2016.
DATA ADEQUACY
Fitch reviewed the results of a third-party assessment conducted
on the asset
portfolio information, which indicated no adverse findings
material to the
rating analysis.
Fitch conducted a review of a small targeted sample of MBAFC's
origination
files, and found the information contained in the reviewed files
to be
adequately consistent with the originator's policies and
practices and the other
information provided to the agency about the asset portfolio.
Overall, Fitch's assessment of the asset-pool information relied
upon for the
agency's rating analysis according to its applicable rating
methodologies
indicates that it is adequately reliable.
SOURCES OF INFORMATION
The information below was used in the analysis:
- Static historical delinquent data by bucket in monthly vintage
form for its
total retail auto loan book, covering May 2011 to June 2017;
- Dynamic monthly delinquency data by bucket from January 2012
to June 2017;
- Dynamic monthly prepayment data from January 2012 to June
2017; and
- Pool stratification and cash flow from MBAFC as of 30 June
2017.
- Capital structure and structural features information provided
by MBAFC as of
July 2017
- Transaction documentation provided by Hogan Lovells
International LLP, the
transaction counsel.
- Legal opinion and letter of undertaking provided by MBAFC as
at July 2017
The issuer has informed Fitch that not all relevant underlying
information used
in the analysis of the rated notes is public.
Contacts:
Primary Analyst
Hilary Tan
Senior Director
+852 2263 9904
Fitch (Hong Kong) Limited
19/F Man Yee Building
68 Des Voeux Road Central, Hong Kong
Secondary Analyst
Kan Zhou
Associate Director
+86 21 5097 3051
Committee Chairperson
Atsushi Kuroda
Senior Director
+813 3288 2692
Media Relations: Wai-Lun Wan, Hong Kong, Tel: +852 2263 9935,
Email:
[email protected].
Additional information is available on www.fitchratings.com
Applicable Criteria
Global Consumer ABS Rating Criteria (pub. 25 May 2017)
https://www.fitchratings.com/site/re/898490
Global Structured Finance Rating Criteria (pub. 03 May 2017)
https://www.fitchratings.com/site/re/897411
Structured Finance and Covered Bonds Counterparty Rating
Criteria (pub. 23 May
2017)
https://www.fitchratings.com/site/re/898537
Structured Finance and Covered Bonds Country Risk Rating
Criteria (pub. 18 Sep
2017)
https://www.fitchratings.com/site/re/903496
Related Research
Representations, Warranties and Enforcement Mechanisms in Global
Structured
Finance Transactions
https://www.fitchratings.com/site/re/882358
Silver Arrow China 2017-2 Retail Auto Loan Asset Backed Notes
Trust - Appendix
https://www.fitchratings.com/site/re/10001672
Additional Disclosures
Dodd-Frank Rating Information Disclosure Form
https://www.fitchratings.com/site/dodd-frank-disclosure/1029553
Solicitation Status
https://www.fitchratings.com/site/pr/1029553#solicitation
Endorsement Policy
https://www.fitchratings.com/regulatory
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