OREANDA-NEWS. February 16, 2015. Fitch Ratings has assigned a final rating to Fuyuan 2015-1 Retail Auto Mortgage Loan Securitization Trust (Fuyuan 2015-1). The transaction is backed by Chinese automotive loan receivables originated by Ford Automotive Finance (China) Limited (FAFC), a wholly owned subsidiary of Ford Motor Credit Company LLC (BBB-/Positive/F3). The final rating is as follows:

CNY2,554m senior notes due October 2020: 'AAsf'; Outlook Stable

The rating addresses the timely payment of interest and the ultimate principal payment by the legal final maturity in October 2020.

This is the first auto loan ABS transaction originated by FAFC that is rated by Fitch, but it is FAFC's second ABS transaction in China. This transaction in China uses a structure similar to that used by Ford-related entities globally. The transaction uses China's Credit Asset Securitisation scheme under which China Banking Regulatory Commission (CBRC) and People's Bank of China (PBOC) approval for the issuance have been obtained.

Fitch rating triggers, specifically those relating to Fitch's rating thresholds for eligible fund custodian (or account bank) and permitted investments in accordance with Fitch's Counterparty Criteria for Structured Finance and Covered Bonds, have not been incorporated in the transaction documents. However, Fitch has reviewed additional documentation that FAFC intends to take action consistent with Fitch's counterparty criteria for the purposes of Fuyuan 2015-1. The agency has also received confirmation that FAFC is legally obligated to take such action. In addition, eligible permitted investments are limited to deposits with the fund custodian, which is a party that carries a Fitch rating of at least 'A-' and 'F2'.

KEY RATING DRIVERS
Fitch assumes lifetime default rates for the FAFC portfolio of 1.75%. The agency applied a stress multiple of 6.0x at 'AAsf' on defaults, to take into account performance data that was gathered under a benign economic environment without a stressed period and the limited history of car finance in China . Fitch's recovery expectation was limited to 15%, which had a further haircut of 50% for 'AAsf'.

The weighted average (WA) original loan/value (LTV) ratio was 63.8% as of the cut-off date (1 January 2015). The pool is well-diversified - the single largest obligor accounts for 0.01% of the outstanding principal balance as of the cut-off date. The portfolio has no loans subject to refinancing risk.

FAFC, being the subsidiary of an active global originator of auto finance securitisation transactions, uses very similar structures utilised by its parent in the US. Fitch believes FAFC to be a capable originator and servicer based on historical portfolio delinquency and loss.

Fitch views the asset outlook of this portfolio as stable. The agency forecasts China's unemployment rate at 4.2% in 2015 and 4.3% in 2016, and GDP growth rate at 6.8% and 6.5% for the same two years. The 'AAsf' rating is the cap on Chinese structured finance transactions due to the early stages of development of securitisation markets in China and the Country Ceiling of 'A+'.

RATING SENSITIVITIES
Unexpected increases in the frequency of foreclosures and unexpected decreases in the recovery rate on defaulted loans could produce loss levels higher than Fitch's base case, which could result in negative rating actions on the notes. Fitch has evaluated the sensitivity of the ratings assigned to Fuyuan 2015-1 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 downgrades in a severe default scenario. The analysis found the senior notes may be downgraded to 'Asf' if base case default rate increases by 100%, assuming all other factors remain constant. The rating on the senior notes is not sensitive to a reduction of recovery rates even when it has been reduced to zero, assuming all other factors remain constant.

A new issue report, including further information on the transaction and sensitivity analysis, titled "Fuyuan 2015-1 Retail Auto Mortgage Loan Securitization Trust ", is available on www.fitchratings.com or by clicking on the link above. Included in the corresponding new issue appendix is a description of the representations, warranties and enforcement mechanisms.