Fitch Expects to Rate Wheels SPV 2, LLC Series 2016-1 Notes; Presale Issued
--$131,000,000 class A-1 notes 'F1+sf';
--$275,000,000 class A-2 notes 'AAAsf'; Outlook Stable;
--$70,100,000 class A-3 notes 'AAAsf'; Outlook Stable;
--$70,100,000 class A-4 notes 'AAAsf'; Outlook Stable;
--$7,700,000 class B notes NR;
--$7,600,000 class C notes NR.
KEY RATING DRIVERS
Strong Credit Quality Obligors: Approximately 72% of the portfolio is rated by Fitch or another nationally recognized statistical rating organization (NRSRO). In its analysis, Fitch assumed a 'B' rating for unrated obligors. Additionally, about 64% of the pool is rated investment grade. Fitch's net loss expectation for this pool is 6.80%.
Consistent Concentrations: Both obligor and industry concentrations remain stable. The top 20 obligors by balance represent 50%, consistent with prior transactions. Top five industries comprise 44% of the pool, similar to prior levels. Light-duty trucks comprise 73% of the pool
Low Delinquency and Loss History: Wheels' historical managed portfolio and prior transaction delinquency and loss experience is low, even during periods marked by elevated levels in other consumer and commercial asset classes.
Minimal Residual Risk: The 2016-1 leases are all open-ended, meaning lessees bear residual risk. Therefore, the trust is only exposed to wholesale market risk in the event of an obligor default. Even then, vehicle dispositions have largely resulted in gains relative to book value due to depreciation policies and substantial vehicle discounts obtained by Wheels.
Sufficient Credit Enhancement: Credit enhancement (CE) has decreased to 7.15% compared to about 8% for the last three transactions. While total CE has decreased it is sufficient to support loss levels consistent with expected ratings of 'AAAsf'.
Quality Origination, Underwriting and Servicing Platform: Wheels has an investment-grade rating of 'A/F1' and has demonstrated strong abilities as originator, underwriter, and servicer, as evidenced by historical delinquency and loss performance of securitized trusts and the managed portfolio.
RATING SENSITIVITIES
Unanticipated increases in the frequency of defaults could produce default levels higher than the projected base case default proxy and impact available default coverage and multiples levels. Lower default coverage could impact ratings and Rating Outlooks, depending on the extent of the decline in coverage. In Fitch's initial review of the transaction, the notes were found to have limited sensitivity to changes in obligor credit profiles and recovery rates associated with the concentration of oil and gas collateral in the pool. Further details can be found in the presale report.
Key Rating Drivers and Rating Sensitivities are further detailed in the accompanying presale report, available at 'www. fitchratings. com' or by clicking on the above link.
DUE DILIGENCE USAGE
Fitch was provided with third-party due diligence information from Ernst & Young LLP. The third-party due diligence focused on comparing or recalculating certain information with respect to 150 leases. 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 at the bottom of the rating action commentary.
Key Rating Drivers and Rating Sensitivities are further described in the presale report dated July 27, 2016. Fitch's analysis of the Representations and Warranties (R&W) of this transaction can be found in 'Wheels SPV2, LLC Series 2016-1 - Appendix'. These R&Ws are compared to those of typical R&W for the asset class as detailed in the special report 'Representations, Warranties, and Enforcement Mechanisms in Global Structured Finance Transactions' dated May 2016.
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