Fitch to Rate Volvo Financial Equipment Master Owner Trust, Series 2017-A; Issues Presale.
--$300,000,000 Series 2017-A asset-backed notes 'AAAsf'; Outlook Stable.
KEY RATING DRIVERS
Consistent Receivables Quality: VMOT's eligible receivables are secured largely by new Volvo and Mack trucks as well as Volvo construction equipment (CEF) with a stable asset mix over time. Only 6.8% of receivables were secured by used equipment as of the third quarter of 2017 (3Q17). Dealer risk ratings have been consistent, with the top two internal A and B tiers totaling over 80% of VFS's receivables, on average, since 2008.
Strong Dealer Network: Dealer default experience has been minimal since 2008, with only a few sold-out-of-trust (SOT) events. Truck dealer absorption rates are among the highest for all DFP platforms, as trucking companies rely heavily on dealers for parts and service operations more frequently versus consumer vehicle DFP platforms.
Stable Performance Metrics: Monthly payment rates (MPRs) have been stable since 2010 and well above trigger levels, which dictate incremental increases in credit enhancement (CE) and early amortization upon breach. Higher used truck inventory negatively impacted aging in 2015-2016, but improved in 2017 due to lower production. Yield spreads have been largely stable despite competitive pressure from other lenders.
Adequate Credit Enhancement: Initial credit enhancement (CE) for the notes is 21.75% comprising overcollateralization (OC) and a reserve. Early amortization triggers and concentration limits mitigate risks associated with negative asset migration, dealer defaults and/or OEM bankruptcy. Loss coverage is in excess of Fitch's derived 'AAAsf' loss rate commensurate with the notes' rating.
Experienced Sponsor and Servicer: Fitch deems VFS adequate to service this series, as demonstrated by its abilities and historical performance of the managed portfolio since 1996. VFS's portfolio metrics have been stable with virtually no dealer defaults or losses.
Legal Analysis: The legal structure of the transaction provides that a bankruptcy of Volvo or VFS would not impair the timeliness of payments on the securities.
To conduct rating sensitivity for the issued notes, under a category B Dealer Floorplan platform, Fitch assumes portfolio default levels at 10%, 25%, and 40%, and under two recovery-level scenarios of 50% and 30%. Fitch modeled these series with the assumption that the above defaults have occurred and recoveries stressed accordingly, reflecting asset performance in a stressed environment. Remaining expected loss levels were compared with the stressed loss assumption grid commensurate with various rating levels.
USE OF THIRD-PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G-10
No third-party due diligence was provided or reviewed as this series is a private 144A offering.
Fitch's analysis of the Representation and Warranties (R&W) of these transactions can be found in 'Volvo Financial Equipment Master Owner Trust, Series 2017-A -- Appendix'. These R&W are compared to those of typical R&W for the asset class as detailed in Fitch's May 2016 special report, 'Representations, Warranties, and Enforcement Mechanisms in Global Structured Finance Transactions'.
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|Publication:||Daily the Pak Banker (Lahore, Pakistan)|
|Date:||Jan 12, 2018|
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