OREANDA-NEWS. Fitch Ratings has affirmed the secured floating-rate notes of Bavarian Sky Korean Auto Receivables 1 Pte. Ltd. The transaction is a securitisation of auto instalment loans and auto finance lease receivables in South Korea originated by BMW Financial Services Korea Co. Ltd., which is also the servicer of the transaction.

The rating action is as follows:

USD184.3m floating-rate notes outstanding due September 2019 affirmed at 'AAAsf'; Outlook Stable

KEY RATING DRIVERS

The affirmation reflects the notes' stable asset performance, sufficient credit enhancement, satisfactory origination and underwriting, sound asset and macroeconomic outlook and the presence of currency and interest-rate swaps. The transaction ended its revolving period in October 2015 and has been controlled amortising as scheduled.

The transaction's credit enhancement increased to 32.3% at end-April 2016, from the 25.0% minimum at closing, due to the notes' being amortised since October 2015. The note balance declined to USD184.3m from the initial USD250m as a result.

Asset performance has been resilient. The three-month average delinquency rate and default rate have been almost zero, while excess spread has remained positive at not less than 0.6% since closing. Fitch expects South Korea's labour market conditions to remain stable, with a 3.5% and 3.4% unemployment rate in 2016-2017, supporting underlying asset performance.

Fitch assumed the entire portfolio would migrate to finance leases, which face higher stress than instalment loans, during the transaction's revolving period. The actual portfolio comprised of 26% finance leases and 74% instalment loans at end-April 2016, according to the monthly servicer report. This means the actual product mix has lower credit loss expectations than the worst-case product mix assumed at closing.

RATING SENSITIVITIES

Fitch may downgrade the notes if the weighted-average base-case default rate increases to 6.4% from 3.6% based on the actual product mix or 4.3% based on the most conservative product mix assumed at closing.

DUE DILIGENCE USAGE

No third party due diligence was provided or reviewed in relation to this rating action.

DATA ADEQUACY

Fitch conducted a review of 20 sample loan files in November 2014, focusing on the underwriting procedures conducted by BMW Financial Services Korea Co. Ltd. compared with its credit policy at the time of underwriting. Fitch has checked the consistency and plausibility of the information and no material discrepancies were noted that would affect Fitch's rating analysis.