April 10, 2017 / 4:54 AM / 4 months ago

Fitch Assigns Expected First-Time Ratings to Mercedes-Benz Auto Finance's Silver Arrow China 2017-1

(The following statement was released by the rating agency) Link to Fitch Ratings' Report: Silver Arrow China 2017-1 Retail Auto Loan Asset Backed Notes Trust here HONG KONG/BEIJING, April 10 (Fitch) Fitch Ratings has assigned expected ratings to Silver Arrow China 2017-1 Retail Auto Loan Asset Backed Notes Trust's auto loan-backed fixed-rate notes. The issuance consists of notes backed by Chinese automotive loan receivables originated by Mercedes-Benz Auto Finance Limited (MBAFC); a directly and indirectly wholly owned subsidiary of Daimler AG (A-/F2/Stable). This is MBAFC's first auto loan ABS transaction rated by Fitch, but the company's third in China. The ratings are as follows: CNY5,230 million class A notes: 'AA(EXP)sf'; Outlook Stable CNY275.3 million subordinated notes: 'NR(EXP)sf' The notes will be issued by CITIC Trust Co. Ltd. in its capacity as trustee of Silver Arrow China 2017-1. At the cut-off date of 31 January 2017, the total collateral pool consisted of 38,183 auto loan receivables with a total balance of CNY6,182.5 million. KEY RATING DRIVERS Stresses Commensurate with Rating: Fitch expects a lifetime default rate for the MBAFC portfolio of 1.4%. We had applied a stress multiple of 6.0x at 'AAsf' on defaults to take into account the limited history of car finance in China particularly through an economic cycle, and Fitch's expectation that emerging-market securitised assets are prone to greater stress than those in developed markets for the same rating category. Fitch's recovery expectation was limited to 15%, subject to a further haircut by 50% at 'AAsf'. Strong Portfolio Characteristics: The original weighted average (WA) loan to value (LTV) ratio is 61.05%. This portfolio has a WA original term of 35.3 months, and has been seasoned for 10.5 months. The pool is well-diversified - the maximum single-obligor concentration has exposure of 0.03% of the outstanding principal balance at the cut-off date. The portfolio has only one loan subject to the refinancing risk for repaying balloon payments; all are new vehicles. Adequate Credit Enhancement and Liquidity: Hard-credit enhancement in the form of subordination and overcollateralisation support the rating of the class A notes. In addition, this transaction features an amortising yield supplement overcollateralisation (YSOC), which is used to boost the transaction yield. Liquidity support will be provided by the general reserve amount which will be fully funded at closing in the amount of CNY60.5 million - representing 1% of the adjusted pool balance. This amount is required to be maintained as long as there are notes outstanding. Sector Outlook, Sovereign Cap: Our outlook on the assets of this portfolio is stable - based on its characteristics. We forecast unemployment and GDP growth at 4.1% and 6.3% in 2017, respectively, and 4.1% and 5.7% in 2018. The 'AAsf' rating is the cap on Chinese structured transactions due to the early stages of securitisation markets, and 'A+' Country Ceiling. EXPECTED RATING SENSITIVITIES Unexpected increases in default rates and unexpected decreases in recovery rates on defaulted loans could produce loss levels higher than Fitch's base-case, which could lead to negative rating action on the notes. Fitch has evaluated the sensitivity of the ratings 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 downgrade in a severe default scenario. The analysis found the senior notes may be downgraded to 'A+sf' if the base-case default rate were to increase by 100%, assuming all other factors remain constant. The rating on the senior notes is not sensitive to lower recovery rates, even when it is reduced to zero, assuming all other factors remain constant. USE OF THIRD-PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G-10 Form ABS Due Diligence-15E was not provided to, or reviewed by, Fitch in relation to this rating action. REPRESENTATIONS, WARRANTIES AND ENFORCEMENT MECHANISMS A description of the transaction's representations, warranties and enforcement mechanisms ("RW&Es") that are disclosed in the offering document and which relate to the underlying asset pool is available by accessing the Appendix referenced under "Related Research" below. The Appendix also contains a comparison of these RW&Es to those Fitch considers typical for the asset class as detailed in the Special Report titled "Representations, Warranties and Enforcement Mechanisms in Global Structured Finance Transactions," dated 31 May 2016. DATA ADEQUACY Fitch reviewed the results of a third-party assessment conducted on the asset portfolio information, which indicated no adverse findings material to the rating analysis. Prior to transaction closing, Fitch conducted a review of a small targeted sample of MBAFC's origination files, and found the information contained in the reviewed files to be adequately consistent with the originator's policies and practices and the other information provided to the agency about the asset portfolio. Overall, Fitch's assessment of the asset-pool information relied upon for the agency's rating analysis according to its applicable rating methodologies indicates that it is adequately reliable. Key Rating Drivers and Expected Rating Sensitivities are further discussed in the corresponding presale report entitled "Silver Arrow China 2017-1 Retail Auto Loan Asset Backed Notes Trust". SOURCES OF INFORMATION The information below was used in the analysis: -Pool stratification data provided by MBAFC as of 31 January 2017 -Loan performance data provided by MBAFC as at December 2016 -Capital structure and structural features information provided by MBAFC as of March 2017 -Transaction documentation provided by Hogan Lovells International LLP, the transaction counsel. - Legal opinion and letter of undertaking provided by MBAFC as at March 2017 The issuer has informed Fitch that not all relevant underlying information used in the analysis of the rated notes is public. Contacts: Primary Analyst Hilary Tan Senior Director Phone +852 2263 9904 Fitch (Hong Kong) Limited 19/F Man Yee Building 68 Des Voeux Road Central, Hong Kong Secondary Analyst Kan Zhou Associate Director Phone +8610 8517 2112 Committee Chairperson Ben McCarthy Managing Director Phone +612 8256 0388 Media Relations: Leslie Tan, Singapore, Tel: +65 67 96 7234, Email: leslie.tan@fitchratings.com; Wai-Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: wailun.wan@fitchratings.com. Additional information is available on www.fitchratings.com Applicable Criteria Criteria for Country Risk in Global Structured Finance and Covered Bonds (pub. 26 Sep 2016) here Criteria for Rating Caps and Limitations in Global Structured Finance Transactions (pub. 16 Jun 2016) here Global Consumer ABS Rating Criteria (pub. 01 Dec 2016) here Global Structured Finance Rating Criteria (pub. 27 Jun 2016) here Structured Finance and Covered Bonds Counterparty Rating Criteria (pub. 20 Mar 2017) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here Solicitation Status here#solicitation Endorsement Policy here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. 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