Fitch Expects to Rate John Deere Owner Trust 2015; Presale Issued
--\$298,600,000 class A-1 notes 'F1+sf';
--\$365,000,000 class A-2a and A-2b notes 'AAAsf'; Outlook Stable;
--\$250,000,000 class A-3 notes 'AAAsf'; Outlook Stable;
--\$82,225,000 class A-4 notes 'AAAsf'; Outlook Stable;
--\$25,534,183 certificates not rated.
Fitch's stress and rating sensitivity analysis are discussed in the presale report titled 'John Deere Owner Trust 2015', dated Feb. 26, 2015, which is available at 'www.fitchratings.com' or by clicking on the link below.
KEY RATING DRIVERS
High Concentration of AG Equipment: JDOT 2015 is comprised of approximately 75% AG equipment, consistent with the prior transactions dating back to 2011. While AG equipment historical losses have been low, the high concentration in the pool limits diversification. However, geographic diversity, diversification within the AG sector, and equipment versatility help mitigate the high concentration.
Consistent Collateral Concentrations: The pool contains 74.93% AG and 25.07% CO equipment. These concentrations are consistent with those of JDOT 2014-B. Furthermore, the pool consists of 64.71% annual-pay contracts, which historically have experienced a lower level of losses versus other payment types.
Sufficient Credit Enhancement: Initial hard credit enhancement (CE) for JDOT 2015 is 3.50%, unchanged from JDOT 2014-B. The initial reserve in JDOT 2015 is 1.00%, while the subordinated certificates provide 2.50% enhancement. Initial excess spread in JDOT 2015 is expected to be approximately 1.75%, down from the JDOT 2014-B transaction's 2.34%. Under Fitch's 'AAAsf' scenario, CE for the class A notes was able to withstand more than 5.0x the expected net loss rate.
Stable Origination, Underwriting and Servicing: JDCC has demonstrated strong capabilities as originator, underwriter and servicer, as evidenced by historical delinquency and loss performance of securitized trusts and its managed portfolio. All securitizations issued and rated by Fitch have performed within initial base case expectations.
Integrity of Legal Structure: The legal structure of the transaction should provide that a bankruptcy of the trust would not impair the timeliness of payments on the securities.
RATING SENSITIVITIES
Unanticipated 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 notes. Fitch evaluated the sensitivity of the ratings assigned to JDOT 2015 to increased cumulative net losses (CNL) over the life of the transaction. Fitch's analysis found that the transaction displays some sensitivity to increased defaults and CNL, showing a potential downgrade of one category under Fitch's moderate (1.5x base case loss) scenario. The notes could experience downgrades of up to three rating categories, although still remaining investment grade, under Fitch's severe (2.5x base case loss) scenario.
Key Rating Drivers and Rating Sensitivities are further described in the accompanying pre-sale report.
Fitch's analysis of the Representations and Warranties (R&W) of this transaction can be found in 'John Deere Owner Trust 2015- Appendix'. These R&W 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 Oct. 31, 2014.
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