November 15, 2017 / 5:20 AM / a year ago

Fitch Assigns Final Ratings to Eclipx Turbo Series 2017-1 Trust

(The following statement was released by the rating agency) SYDNEY, November 15 (Fitch) Fitch Ratings has assigned final ratings to Eclipx Turbo Series 2017-1 Trust's automotive lease-backed floating-rate notes. The issuance consists of notes ultimately backed by Australian automotive, equipment finance and operating lease receivables originated by FleetPartners Pty Limited (FPs) and Eclipx Commercial Pty Limited (together referred to as Eclipx), which form part of the Eclipx Group Limited, an ASX-listed entity. The ratings are as follows: AUD60.0 million Class A1 notes: 'F1+sf' AUD207.13 million Class A2 notes: 'AAAsf'; Outlook Stable AUD14.42 million Class B notes: 'AAsf'; Outlook Stable AUD18.62 million Class C notes: 'NRsf' AUD5.63 million Class D notes: 'NRsf' AUD14.42 million Class E notes: 'NRsf' AUD9.14 million Class F notes: 'NRsf' AUD4.57 million Class G notes: 'NRsf' AUD17.57 million Seller notes: 'NRsf' The notes were issued by Perpetual Trustee Company Limited in its capacity as trustee of Eclipx Turbo Series 2017-1 Trust. The total underlying collateral pool consisted of 10,101 leases totalling AUD344.5 million at the 30 September 2017 cut-off date. The portfolio consists of operating and finances leases to obligors across a wide range of industries, with the largest industry exposures being manufacturing (11%) and financial services (9.8%). By vehicle manufacturers, Toyota Motor Corporation had the largest share of 15.5% of the portfolio, followed by Ford Motor Company (10.4%) and General Motors Holden (6.1%), with the remainder including several established Japanese and European car manufacturers. The portfolio contains receivables originated by FPs (79.9%), FleetPlus (13.4%) and FleetChoice (2.4%) who both act as originating agents for FPs, and Eclipx Commercial (4.3%), all of which are bound by Eclipx's risk management framework. KEY RATING DRIVERS Residual Value Risk Present: This is the third Australian term securitisation by Eclipx to include operating leases within the lease portfolio. The lessees are a broad mix of small and medium-sized enterprises (SMEs), large corporations and government entities. Residual value (RV) and vehicle-servicing risk are present within the transaction due to the inclusion of operating leases, along with credit risk. Fitch assumes 'AAAsf' RV losses of 7.9%. Sufficient Enhancement: The transaction incorporates a sequential pay/pro-rata pay structure, consistent with other ABS transactions. Initial hard credit enhancement (CE) to the 'AAAsf' notes totals 24.0%. Pro rata paydown will commence when hard CE reaches 40.0%, subject to transaction performance. Overall CE is sufficient to cover the Fitch 'AAAsf' stressed cumulative net loss assumption in all Fitch scenarios. The transaction also comprises a vehicle-servicing account to enable the issuer to fund operating lease vehicle-servicing obligations. Large Lessee Concentration: The pool's 20 largest obligors account for about 43.7% of the asset balance. This concentration is higher than what Fitch usually observes in consumer ABS transactions. Fitch has therefore derived default assumptions while considering lessee concentration and correlation risks, in line with its SME criteria. Mixed Collateral Included: The collateral backing the transaction comprises lease receivables backed by a mix of cars, light and heavy commercial vehicles and equipment, with a weighted-average seasoning of 18.9 months and an average receivable size of AUD34,102. Operating leases comprise 60.2% and finance leases 39.8% of the portfolio. Historically, FleetPartners' 30+ day delinquencies have generally tracked below Fitch's Dinkum ABS Index RATING SENSITIVITIES This section provides insight into the model-implied sensitivities the transaction faces when one risk factor is stressed while holding others equal. The modelling process uses the estimation and stress of base-case assumptions to reflect asset performance in a stressed environment. The results below should only be considered as one potential outcome as the transaction is exposed to multiple dynamic risk factors. The following sensitivity analysis illustrates the potential impact on the rating of a change in the vehicle sale proceeds assumption. The rating for the class A1 note is 'F1+sf', however, we have shown the sensitivities with a long-term rating as the analysis is only based on the asset performance and excludes structural features and cash-flow modelling. Impact upon the note rating of a change in the vehicle sales proceeds assumption (RV losses): Final rating: AAAsf/AAAsf/AAsf Base case sales proceeds, less 5%: AA+sf/AA+sf/AA-sf Base case sales proceeds, less 10%: AAsf/AAsf/A+sf Base case sales proceeds, less 15%: AAsf/AAsf/A+sf In addition to residual values stress analysis, Fitch modelled various loss distributions and recovery profiles, as well as increasing levels of correlation stress. Correlation stress is considered a measure of default rate volatility and relates to the commonality between obligors specifically within identical or similar sectors and industries. The greater the correlation from concentrated sector and industry portfolios, the higher the volatility, which leads to default rates that exceed the expected default rate. The sensitivity analysis is based only on the asset performance excluding structural features and cash-flow modelling. Impact upon the note rating of increased defaults: Final rating: AAAsf/AAAsf/AAsf Increase probability of default by 25%: AAsf/AAsf/A+sf Increase probability of default by 50%: AAsf/AAsf/A+sf Impact upon the note rating of decrease in recoveries: Final rating: AAAsf/AAAsf/AAsf Decrease in the initial recovery assumption by 0.75x: AAsf/AAsf/A+sf Decrease in the initial recovery assumption by 0.50x: AA-sf/AA-sf/A+sf Impact upon the note rating of increasing correlation risk and other multiple factors: Final rating: AAAsf/AAAsf/AAsf Increase the base correlation stress by 2x: AAsf/AAsf/A+sf Combined stress of (i) an increase in the base correlation by 2x, together with (ii) an increase probability of default by 25%; and (iii) a decrease in the initial recovery assumption by 0.75x: AA-sf/AA-sf/Asf. 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 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 As part of its ongoing monitoring, Fitch conducted a review of a small targeted sample of FP'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. Fitch sought to receive a third party assessment conducted on the asset portfolio information, but none was available for this transaction. 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. SOURCES OF INFORMATION The information below was used in the analysis: Loan-by-loan data provided by Eclipx as at 30 September 2017 Transaction documentation provided by King & Wood Mallesons, the issuer's counsel. The issuer has informed Fitch that not all relevant underlying information used in the analysis of the rated notes is public. Contacts: Primary Analyst Spencer Wilson Associate Director +612 8256 0320 Fitch Australia Pty Ltd Level 15, 77 King St, Sydney NSW 2000 Secondary Analyst David Carroll Director +612 8256 0333 Committee Chairperson Natasha Vojvodic Senior Director +612 8256 0350 Media Relations: Leslie Tan, Singapore, Tel: +65 67 96 7234, Email: Additional information is available on Applicable Criteria CLOs and Corporate CDOs Rating Criteria (pub. 09 Oct 2017) here Fitch's Interest Rate Stress Assumptions for Structured Finance and Covered Bonds - Excel File (pub. 17 Feb 2017) here Global Consumer ABS Rating Criteria (pub. 25 May 2017) here Global Consumer ABS Rating Criteria – EMEA and APAC Auto Residual Value Addendum (pub. 15 May 2017) here Global Structured Finance Rating Criteria (pub. 03 May 2017) here SME Balance Sheet Securitisation Rating Criteria (pub. 03 Mar 2017) here Structured Finance and Covered Bonds Counterparty Rating Criteria (pub. 23 May 2017) here Structured Finance and Covered Bonds Counterparty Rating Criteria: Derivative Addendum (pub. 23 May 2017) here Structured Finance and Covered Bonds Interest Rate Stresses Rating Criteria (pub. 17 Feb 2017) here Related Research Eclipx Turbo Series 2017-1 - Appendix here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here Solicitation Status here Endorsement Policy here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. 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