September 15, 2017 / 12:42 AM / 10 months ago

Fitch Assigns Final Ratings to MTF Sierra Trust 2017

(The following statement was released by the rating agency) SYDNEY, September 14 (Fitch) Fitch Ratings has assigned final ratings to MTF Sierra Trust 2017's automotive-backed floating-rate notes. The issuance consists of notes backed by automotive loan receivables originated by Motor Trade Finance Ltd (MTF). The ratings are as follows: NZD194.04m Class A notes: 'AAAsf'; Outlook Stable NZD7.33m Class B notes: 'AAsf'; Outlook Stable NZD6.42m Class C notes: 'Asf'; Outlook Stable NZD2.93m Class D notes: 'BBBsf'; Outlook Stable NZD2.75m Class E notes: 'BBsf'; Outlook Stable NZD1.32m Class F notes: 'B+sf'; Outlook Stable NZD5.21m Seller notes: 'NRsf' The notes are issued by Trustees Executors Limited in its capacity as trustee of MTF Sierra Trust 2017. At the cut-off date 7 September 2017, the total collateral pool consisted of 17,925 receivables, totalling NZD217.8m, with an average obligor exposure of NZD13,024. The loan receivables, originated by MTF, are amortising principal and interest loans for both new and used vehicles (7.5% and 92.5% respectively), with a portfolio weighted-average seasoning and remaining term of 3.9 and 37.9 months respectively. KEY RATING DRIVERS Asset Performance: Historical net losses have been minimal due to the alignment of interests between MTF and the originating parties via a back-to-back loan agreement. Yield Support Mechanism: The weighted-average (WA) yield generated by the cash balance held in the designated account and the receivables pool must remain above 8% during the revolving period. This calculation is weighted by the remaining term of the contracts to ensure the yield is maintained as the pool amortises. Fitch's cash flow analysis tested that excess yield was available under all stressed scenarios tested. Granular Pool Quality: Wide-ranging parameters manage portfolio concentrations. These include, but are not limited to, controls on high-risk loans, contract size, geographic distribution, single-dealer and franchisee concentration, maximum obligor exposure and restrictions on non-standard motor vehicles. Stop-Origination Triggers: The revolving period can expose noteholders to additional risks with respect to a longer time horizon or degradation in portfolio asset quality. The revolving period is limited to two years after closing, unless stop-origination triggers are met. These include, but are not limited to, the aforementioned pool parameters and yield support levels, as well as performance-based arrears, loss and charge-off stop-origination triggers. Excess Spread: Once 30+ day arrears, averaged over the previous three-month period, exceed 3.5%, half of the available excess will be allocated to the excess spread account. If a stop-origination event subsists, all the available excess will be allocated to the excess spread account. RATING SENSITIVITIES Unanticipated increases in the frequency of defaults and loss severity on defaulted receivables could produce loss levels higher than Fitch's base case and is likely to result in a decline in credit enhancement (CE) and remaining loss-coverage levels available to the notes. Decreased CE may make certain note ratings susceptible to negative rating action, depending on the extent of the coverage decline. Hence, Fitch conducts sensitivity analysis by stressing a transaction's initial base-case assumptions. Fitch evaluated the sensitivity of the ratings on MTF Sierra Trust 2017 to increased defaults and decreased recovery rates. This analysis determined that collectively, the ratings of class A, B and C notes were susceptible to downgrades under 25% and the E and F notes under 50% increases in defaults. Only the Class D notes were susceptible to downgrade at the stress test of a 10% increase in defaults. Recovery scenarios, whereby the model assumed recovery rates are decreased, showed that only the class D notes were sensitive to a 10% decrease in recoveries, and class C notes sensitive to the severe stress of a 50% decrease in recoveries. All other rated notes were not sensitive to any change in recovery assumptions (10%, 25% and 50% decrease). The ratings of the class C and D notes were sensitive to the combined stress scenario of a 10% increase in defaults and a 10% decrease in recoveries. The Class A, B, E and F notes were sensitive to the moderate stress of a 25% increase in defaults and 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. 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 which 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 Fitch sought to receive a third party assessment conducted on the asset portfolio information, but none was made available. As part of its on-going monitoring, Fitch conducted a review of a small targeted sample of MTF'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. VARIATIONS FROM CRITERIA The class B, E and F notes pass the 'AA+sf', 'BB+sf' and 'BBsf' stresses respectively within the cash flow model, however, ratings of 'AAsf', and 'BBsf were assigned to the class B and E notes respectively due to the potential for the portfolio characteristics to change over the two-year revolving period. Portfolio parameters will ensure transaction yield is maintained which will provide significant support from excess income, particularly at lower rating levels. For this reason a rating of 'B+sf' was assigned to the class F notes. This is lower than the model-implied rating of 'BBsf' as there is potential for portfolio characteristics to deteriorate over the two-year revolving period. This is a variation from the Global Consumer ABS Rating Criteria for the class B, E and F notes, as the difference between the assigned and model implied ratings is greater than one notch and the breakeven default stress multiple is not within +/- 0.1 of Fitch's applied default stress.' SOURCES OF INFORMATION The information below was used in the analysis: Loan-by-loan data provided by MTF as at 7 September 2017 Loss and arrears data provided by MTF as of 30 June 2017 Prepayment data provided by MTF as of 30 June 2017 Transaction documentation provided by Bell Gully, 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 Atsushi Kuroda Senior Director +813 3288 2692 Media Relations: Leslie Tan, Singapore, Tel: +65 67 96 7234, Email: Additional information is available on 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 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 MTF Sierra Trust 2017 here MTF Sierra Trust 2017 - 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 Endorsement Policy here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. 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