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Press Release: Fitch Upgrades Two Driver Australia ABS Classes; Affirms Two

8 Sep 2017 8:08 am
 
 
The following is a press release from Fitch Ratings: 
 

Fitch Ratings-Sydney-08 September 2017: Fitch Ratings has upgraded two classes of asset-backed floating-rate notes and affirmed two classes of such notes from two transactions of the Driver Australia Trust. The transactions are securitisations of Australian automotive finance receivables originated by Volkswagen Financial Services Australia Pty Ltd (VWFSA), a wholly owned subsidiary of Volkswagen Financial Services AG. The rating actions are as follows:

Driver Australia Two Trust

- AUD110.2 million Class A notes affirmed at 'AAAsf'; Outlook Stable

- AUD11.9 million Class B notes upgraded to 'AA+sf' from 'AAsf'; Outlook Stable

Driver Australia Three Trust

- AUD264.2 million Class A notes affirmed at 'AAAsf' ; Outlook Stable

- AUD31.0 million Class B notes upgraded to 'AA+sf' from 'AA-sf' ; Outlook Stable

KEY RATING DRIVERS

Credit Support: The upgrades of the rated notes reflect Fitch's view that the available credit enhancement (CE) is sufficient to support the notes at their current ratings levels, and that performance has been above expectations set at closing, and will continue to be supported by Australia's benign economic conditions.

The affirmations of the rated notes reflect Fitch's view that the available CE is sufficient to support the notes' current ratings, along with the agency's expectations of the Australian economy. The credit quality and performance of the loans in the collateral pools have performed above expectations set at closing.

Performance: As at end-July 2017, net losses were 0.30% for Driver Two and 0.13% for Driver Three, while 30+ day arrears were 2.05% and 1.04% respectively. The 30+ day arrears level for Driver Two, the more seasoned of the two transactions, was above Fitch's 1Q17 Dinkum ABS Index of 1.6%, but realised net losses were low and this transaction is performing in line with other Australian Driver ABS transactions. The rise in the arrears ratio for Driver Two above the Dinkum Index was a function of the portfolio decreasing in size, as arrears balances are stable.

Discount Method: Unlike other Australian and New Zealand ABS transactions, the transaction has no soft credit support in the form of excess spread due to the method by which assets are purchased by the trust. The aggregate nominal amount of the notes, plus subordinated and collateral loans, is equal to the present value of the purchased receivables at issuance using a discount rate, meaning the trust purchases the receivables at a premium.

Refinance Risk: There is refinance risk in the transactions, as over 60% of the remaining outstanding balances of both trusts have balloon contracts. There is no barbell effect or skewed distribution of balloon timing observable; therefore, Fitch is comfortable it will not cause concentration risk in the tail end of the transactions.

In its analysis, Fitch has tailored specific default timing in line with historical observations and product characteristics. In cash flow modelling for the Driver Two Trust, the default distribution was compressed to 18 months, as the weighted-average remaining term of assets was 20 months. This compression reflects the decrease in remaining term of the underlying assets, particularly as the longer dated assets have decreased proportional to shorter dated assets. Fast and medium prepayment stresses for both transactions were increased to reflect the actual prepayment rates experienced by the transactions.

Fitch adjusted the expected gross losses over the remaining life of the two transactions to take into account the better-than-expected performance to date.

Excess income from the cash collateral account being paid into the principal water fall was not given credit as no excess income is anticipated to be available to the cash collateral account when assets reach zero, and this excess income will be paid to VWFSA.

Driver Two is amortising on a pro-rata basis as triggers have been met. Driver Three has been amortising sequentially from close, and is expected to switch to pro-rata once the target overcollaterlisation levels have been met (26% and 18% for the class A and B notes respectively).

RATING SENSITIVITIES

- The assets are purchased by the trust on a net present value basis, and therefore yield no excess spread and have no ability to absorb or reimburse losses (through excess spread). For this reason, Fitch would expect the transactions to be sensitive to increases in defaults or decreases in recovery rates.

Additionally, given the discount purchase method, prepayments by assets that have higher yields than the discount rate applied to the pool (and thus prepayment at a higher nominal balance than the discount rate implies) will lead to losses for the transactions. Therefore the transactions are sensitive to prepayments by high yielding assets.

Fitch evaluates the sensitivity of the ratings assigned to the transactions to increased gross losses, and decreased recovery rates over the life of the transactions.

Fitch's analysis found that collectively, for Driver Two and Three, the ratings on both class A and B notes were susceptible to downgrade under a moderate (25% increase) or severe (50% increase) stress to default rates. A decrease in the recovery rate assumptions showed that for both trusts, only the class B note ratings were affected under severe stress (50% decrease in recovery rates).

Under a combined stress scenario, the class B notes of both transactions were sensitive to downgrade under low stress (10% increase in defaults, 10% decrease in recoveries), whereas the class A notes were sensitive to moderate stress (25% increase in defaults, 25% decrease in recoveries).

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 the 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 as part of its ongoing monitoring.

As part of its on-going monitoring, Fitch conducted a file review of a small targeted sample of VWFSA'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

- Issuer and servicer reports dated 31 July 2017 and provided by VWFSA.

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

- David Carroll

- Director

- +61 2 8256 0333

- Fitch Australia Pty Ltd.

- Level 15, 77 King Street Sydney NSW 2000

Committee Chairperson

- Natasha Vojvodic

- Senior Director

- +61 2 8256 0350

Media Relations: Leslie Tan, Singapore, Tel: +65 67 96 7234, Email: leslie.tan@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)

- https://www.fitchratings.com/site/re/894478

- Global Consumer ABS Rating Criteria (pub. 25 May 2017)

- https://www.fitchratings.com/site/re/898490

- Global Structured Finance Rating Criteria (pub. 03 May 2017)

- https://www.fitchratings.com/site/re/897411

- Structured Finance and Covered Bonds Counterparty Rating Criteria (pub. 23 May 2017)

- https://www.fitchratings.com/site/re/898537

- Structured Finance and Covered Bonds Counterparty Rating Criteria: Derivative Addendum (pub. 23 May 2017)

- https://www.fitchratings.com/site/re/898538

- Structured Finance and Covered Bonds Interest Rate Stresses Rating Criteria (pub. 17 Feb 2017)

- https://www.fitchratings.com/site/re/893890

Additional Disclosures

- Dodd-Frank Rating Information Disclosure Form

- https://www.fitchratings.com/site/dodd-frank-disclosure/1028877

- Solicitation Status

- https://www.fitchratings.com/site/pr/1028877#solicitation

- Endorsement Policy

- https://www.fitchratings.com/regulatory

- ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTPS://WWW.FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. 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. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE. DIRECTORS AND SHAREHOLDERS RELEVANT INTERESTS ARE AVAILABLE AT HTTPS://WWW.FITCHRATINGS.COM/SITE/REGULATORY. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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September 08, 2017 04:08 ET (08:08 GMT)
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