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Fitch Upgrades Class B Notes of Fuyuan 2016-1, 2017-1 and 2017-2
October 27, 2017 / 9:23 AM / a month ago

Fitch Upgrades Class B Notes of Fuyuan 2016-1, 2017-1 and 2017-2

(The following statement was released by the rating agency) HONG KONG, October 27 (Fitch) Fitch Ratings has upgraded the class B asset-backed floating-rate notes from three Fuyuan retail auto mortgage loan transactions to 'AA+sf' from 'AA-sf'. The Rating Watch Positive on the ratings, which had been in place since 20 September 2017, has been resolved and the Outlooks are Stable. At the same time, the agency has affirmed the class A notes at 'AA+sf' and the Outlooks are Stable. The transactions are securitisations of Chinese automotive loan receivables originated by Ford Automotive Finance (China) Limited (FAFC), a wholly owned subsidiary of Ford Motor Credit Company LLC (BBB/Stable/F2). The rating actions are as follows: Fuyuan 2016-1 Retail Auto Mortgage Loan Securitization Trust CNY326.1 million Class A notes affirmed at 'AA+sf'; Outlook Stable CNY150.0 million Class B notes upgraded to 'AA+sf' from 'AA-sf'; Outlook Stable and Rating Watch Positive Resolved Fuyuan 2017-1 Retail Auto Mortgage Loan Securitization Trust CNY1,559.9 million Class A notes affirmed at 'AA+sf'; Outlook Stable CNY150.0 million Class B notes upgraded to 'AA+sf' from 'AA-sf'; Outlook Stable and Rating Watch Positive Resolved Fuyuan 2017-2 Retail Auto Mortgage Loan Securitization Trust CNY2,941.9 million Class A notes affirmed at 'AA+sf'; Outlook Stable CNY144.0 million Class B notes upgraded to 'AA+sf' from 'AA-sf'; Outlook Stable and Rating Watch Positive Resolved The outstanding note balances are as at the 26 September 2017 payment date. KEY RATING DRIVERS China's notching limit was changed after Fitch updated its Structured Finance and Covered Bonds Country Risk Rating Criteria on 18 September 2017 based on a stronger assessment of the country's structured finance market since 2014 and an improvement in Fitch's Macro Prudential Indicator to one from three in January 2017. Fitch sees the asset outlook of these portfolios as stable, albeit in a slower economic growth environment; Fitch forecasts China's GDP growth to slow to 6.3% in 2018 and 6.1% in 2019. We cap the rating on Chinese structured finance transactions at 'AA+sf' to reflect the development stage of China's securitisation markets and the country's Long-Term Local-Currency Issuer Default Rating of 'A+'. Credit enhancement (CE) has built up since closing. Class A CE for Fuyuan 2016-1 has increased to 61.9% and class B to 44.4%. Class A CE for Fuyuan 2017-1 has increased to 24.3% and class B to 17.1%. Class A CE for Fuyuan 2017-2 has increased to 18.7% and class B to 14.7%. The transactions have available buffers to absorb losses before CE is depleted beyond original levels. Cumulative gross defaults were 0.31%, 0.03% and 0.00% for Fuyuan 2016-1, Fuyuan 2017-1 and Fuyuan 2017-2, respectively, as of August 2017. These were below Fitch's base-case levels for this stage of the transactions' life, especially considering the portfolio's weighted-average seasoning. The class B notes for Fuyuan 2016-1, Fuyuan 2017-1 and Fuyuan 2017-2 are able to withstand a 'AA+sf' stress scenario at a CE of 44.4%, 17.1% and 14.7%, respectively. RATING SENSITIVITIES Unexpected increases in default rates 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 action on the notes. Fitch has evaluated the sensitivity of the ratings assigned to the three transactions to increased gross default levels and decreased recovery rates over the transactions' lives. The analysis found that the rating of the class B notes for Fuyuan 2017-1 and Fuyuan 2017-2 are susceptible to a downgrade when the base-case default rates are increased by 50%. In this scenario, the ratings would be lowered to 'AA-sf' and 'A+sf', respectively, while the rating on the class A notes would remain unchanged, assuming all other factors remain constant. Rating on class A and B notes for Fuyuan 2016-1 remained unchanged even when base-case default rates were increased by 200%. The ratings on the three transactions' class A and B notes are not sensitive to reduced recovery rates, even when reduced to zero, assuming all other factors remain constant. We cap the rating on Chinese structured finance transactions at 'AA+sf'. Hence, the likelihood of a rating upgrade for the class A and B notes is low. 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. DATA ADEQUACY Fitch has checked the consistency and plausibility of the information it has received about the performance of the asset pools and transactions. There were no findings that were material to this analysis. Fitch has not reviewed the results of any third-party assessment of the asset portfolio or conducted a review of origination files as part of its ongoing monitoring. Prior to the transactions closing, Fitch reviewed a small targeted sample of FAFC'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. SOURCES OF INFORMATION The information below was used in the analysis: Loan-by-loan data provided by FAFC as at 31 August 2017 Monthly servicer reports provided by FAFC as at September 2017 The issuer has informed Fitch that not all relevant underlying information used in the analysis of the rated notes is public. Contacts: Lead Surveillance Analyst Jensen Hui Analyst +852 2263 9956 Fitch (Hong Kong) Limited 19/F Man Yee Building 68 Des Voeux Road Central, Hong Kong Committee Chairperson Hilary Tan Senior Director +852 2263 9904 Media Relations: Wai-Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: wailun.wan@fitchratings.com. Additional information is available on www.fitchratings.com Applicable Criteria 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 Structured Finance Rating Criteria (pub. 03 May 2017) here Structured Finance and Covered Bonds Counterparty Rating Criteria (pub. 23 May 2017) here Structured Finance and Covered Bonds Country Risk Rating Criteria (pub. 18 Sep 2017) here Structured Finance and Covered Bonds Interest Rate Stresses Rating Criteria (pub. 17 Feb 2017) here Related Research Fuyuan 2016-1 Retail Auto Mortgage Loan Securitization Trust - Appendix here Fuyuan 2017-1 Retail Auto Mortgage Loan Securitization Trust - Appendix here Fuyuan 2017-2 Retail Auto Mortgage Loan Securitization Trust - Appendix here Representations, Warranties and Enforcement Mechanisms in Global Structured Finance Transactions 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. 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