NEW YORK--(BUSINESS WIRE)--Fitch Ratings assigns the following ratings and Rating Outlooks to the Mercedes-Benz Auto Lease Trust (MBALT) 2016-A notes:
--$280,000,000 class A-1 'F1+sf';
--$429,000,000 class A-2A 'AAAsf'; Outlook Stable;
--$184,000,000 class A-2B 'AAAsf'; Outlook Stable;
--$325,000,000 class A-3 'AAAsf'; Outlook Stable;
--$79,930,000 class A-4 'AAAsf'; Outlook Stable.
KEY RATING DRIVERS
Strong Collateral Quality: The 2016-A pool has a weighted-average (WA) FICO score of 782; strong WA seasoning of approximately 12 months; and increased vehicle model diversity in the pool. In addition, the pool has a smaller concentration of leases with terms greater than 36 months, typically a higher driver of residual value (RV) losses.
Adequate Credit Enhancement Structure: Initial credit enhancement (CE) totals 17.05%, an increase from 16.65% in 2015-B, growing to a target of 18.15% and then decreasing to 17.15% of the initial securitization value once the A-2 notes are paid in full. Initial excess spread is expected to be 4.90%. Loss coverage is adequate to support Fitch's 'AAAsf' stressed assumptions.
Weakening RV Losses: Despite continued low credit losses, MBFS's residual losses have trended higher recently, with higher losses for the C and E classes. Mercedes-Benz (MB) vehicle values have been affected by the large amount of off-lease vehicle supply and introduction of refreshed classes over the past year or so.
Stable Corporate Health: Fitch rates Daimler AG, the parent of MBFS, 'A-/F2' with a Stable Rating Outlook. Fitch believes MBFS to be an adequate originator, underwriter, and servicer as evidenced by historical performance of its managed portfolio and prior securitizations.
Evolving Wholesale Vehicle Market: The U.S. wholesale vehicle market (WVM) has been normalizing following strong performance in recent years. Fitch expects that pressure from increased off-lease vehicle supply and high production levels will lead to decreased residual realizations during the life of the transaction.
Legal Structure Integrity: The legal structure of the transaction should provide that a bankruptcy of MBFS would not impair the timeliness of payments on the securities.
RATING SENSITIVITIES
Unanticipated decreases in the value of returned vehicles and/or increases in the frequency of defaults and loss severity on defaulted leases could produce loss levels higher than the base case and would likely result in declines of CE and loss coverage levels available to the notes. Hence, Fitch conducts sensitivity analyses by increasing the transaction's initial base case RV and credit loss assumptions and examining the rating implications on all classes of issued notes. The increases to the base case losses are applied such that they represent moderate (1.5x) and severe (2.5x) stresses and are intended to provide an indication of the rating sensitivity of notes to unexpected deterioration of a trust's performance.
DUE DILIGENCE USAGE
Fitch was provided with third-party due diligence information from KPMG, LLP. The third-party due diligence focused on comparing or recalculating certain information with respect to 100 leases. Fitch considered this information in its analysis, and the findings did not have an impact on our analysis/conclusions. A copy of the ABS Due Diligence Form-15E received by Fitch in connection with this transaction may be obtained through the link at the bottom of the rating action commentary.
Fitch's analysis of the Representations and Warranties (R&W) of this transaction can be found in 'Mercedes-Benz Auto Lease Trust 2016-A - Appendix'. These R&Ws are compared to those of typical R&W for the asset class as detailed in the special report 'Representations, Warranties, and Enforcement Mechanisms in Global Structured Finance Transactions,' published in March 2016.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria
Counterparty Criteria for Structured Finance and Covered Bonds (pub. 14 May 2014)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=744158
Criteria for Interest Rate Stresses in Structured Finance Transactions and Covered Bonds (pub. 19 Dec 2014)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=838868
Criteria for Rating U.S. Auto Lease ABS (pub. 19 Oct 2015)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=872539
Global Structured Finance Rating Criteria (pub. 06 Jul 2015)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=867952
Related Research
Mercedes-Benz Auto Lease Trust 2016-A -- Appendix
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=878599
Additional Disclosures
Dodd-Frank Rating Information Disclosure Form
https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=1001009
ABS Due Diligence Form 15E 1
Solicitation Status
https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1001009
Endorsement Policy
https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31
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