OREANDA-NEWS. Fitch Ratings assigns the following rating to the PILOT 2016-A LLC Term Loan (2016-A):

--PILOT 2016-A LLC Term Loan - $575,000,000 'AAsf'; Outlook Stable.

2016-A is backed by a fixed pool of U. S. prime auto leases originated and serviced by a U. S. based European luxury-brand captive finance lender (originator/servicer). The transaction is pursuant to a Term Loan and Security Agreement (LSA) between 2016-A (borrower), the servicer, a special purpose entity lender (SPE lender), DZ BANK AG and Nord LB (group agents), and the Bank of New York Mellon Trust Company, N. A. (collateral agent).

The pool of leases is a fixed amortizing lease pool, similar to lease pools securitized in U. S. auto lease asset-backed securities (ABS) transactions.

Fitch utilized its 'U. S. Auto Lease ABS Rating Criteria' to rate 2016-A, including to analyse the pool and derive the base case cumulative net loss (CNL) and residual value (RV) loss proxies, as well as other criteria listed below.

Key Rating Drivers

Strong Collateral Quality: The weighted average (WA) FICO score of 790 indicates a strong pool of borrowers, consistent with similar prime auto lease ABS pools. The pool is primarily comprised of leases with terms of up to 36-months (73.6%), WA seasoning of 9.3 months and a well-diversified residual value (RV) maturity schedule.

Proxy Residual Value (RV) Utilized: 15% of the 2016-A pool are British and Italian luxury brand vehicles, while 14.1% comprises a single luxury German sedan model. Limited residual realization data are available for this portion of the pool, and Fitch utilized proxy data in deriving RV assumptions for these vehicles.

Higher Average Vehicle Cost: Industry-level data suggests a notable correlation between vehicle price and residual loss levels in previous economic downturns. 2016-A has a notable percentage of highly-priced luxury vehicles, which can be exposed to greater residual volatility in an economic downturn. Fitch utilized conservative RV loss assumptions for these vehicles.

Sufficient CE Structure: Initial hard credit enhancement (CE) totals 16.25% of the initial securitization value (SV), comprised of 16.0% non-declining overcollateralization (OC) and a non-declining 0.25% reserve. Initial excess spread is approximately 4.62%. Loss coverage under the structure is sufficient to support Fitch's 'AAsf' stressed loss assumption of 25.77%.

Interest Rate Hedging: The transaction includes an interest rate swap, where 2016-A will swap liabilities to a fixed rate by an individual amortizing interest rate swap. An interest rate cap will also be in effect as of the closing date, with an interest rate cap rate of 5.0% to hedge notional amounts not covered by the swap. The swap and cap provider is DZ BANK (current Long-Term Issuer Default Rating of 'AA-', Stable Outlook by Fitch), and both instruments conform with Fitch's 'Exposure Draft: Global Structured Finance Counterparty Criteria' (dated April 2016).

Low Historical Loss Levels: Credit losses on the originator's portfolio have been low for the past several years and consistent with peer luxury lease originators. Portfolio residual losses throughout the 2008-2009 industry downturn were lower than those of peer originators, and recent performance is recording residual gains in 2015 and first quarter 2016.

Evolving Wholesale Market: The U. S. wholesale vehicle market has been normalizing following strong performance in recent years. Fitch expects that increasing off-lease vehicle supply and pressure from increased production levels will lead to decreased residual realizations during the life of the transaction.

Stable Origination/Underwriting/Servicing: Fitch believes the originator/servicer demonstrates adequate abilities as an originator, underwriter and servicer, to service the 2016-A pool.

Legal Structure Integrity: The legal structure of the transaction should provide that a bankruptcy of originator/servicer would not impair the timeliness of payments on the securities.

RATING SENSITIVITIES

Unanticipated decreases in the value of returned vehicles and/or 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 note. Fitch evaluated the sensitivity of the ratings assigned to 2016-A to increased credit and residual losses over the life of the transaction.

Fitch's analysis found that the transaction displays relatively little sensitivity to increased defaults and credit losses, showing minimal downgrade potential - less than one rating category even under Fitch's severe (2.5x base case loss). The transaction shows more sensitivity to residual loss volatility, although even under Fitch's severe scenario, the class A note would be expected to retain an investment-grade rating.

DUE DILIGENCE USAGE

Fitch was not provided with due diligence information regarding the transaction.