DBRS Confirms and Upgrades Ratings on Canadian Capital Auto Receivables Asset Trust II and Canadian Capital Auto Receivables Asset Trust III

As part of DBRS’s continued effort to provide market participants with updates on an annual basis, DBRS has today confirmed the following ratings of notes issued by Canadian Capital Auto Receivables Asset Trust II (CCARAT II):

-- Auto Loan Receivables-Backed Notes, Series 2012-1, Class A-2 at AAA (sf)
-- Auto Loan Receivables-Backed Notes, Series 2012-1, Class A-3 (collectively, with the Class A-2 Notes, the Class A Notes) at AAA (sf)
-- Auto Loan Receivables-Backed Notes, Series 2012-1, Class B at AA (sf)
-- Auto Loan Receivables-Backed Notes, Series 2012-1, Class C (collectively, with the Class A Notes and Class B Notes, the Notes) at A (sf)
-- Auto Loan Receivables-Backed Notes, Series 2011-2, Class A-2 at AAA (sf)
-- Auto Loan Receivables-Backed Notes, Series 2011-2, Class A-3 (collectively, with the Class A-2 Notes, the Class A Notes) at AAA (sf)
-- Auto Loan Receivables-Backed Notes, Series 2011-2, Class B at AA (sf)
-- Auto Loan Receivables-Backed Notes, Series 2011-2, Class C (collectively, with the Class A Notes and Class B Notes, the Notes) at A (sf)
-- Auto Loan Receivables-Backed Notes, Series 2011-1, Class A-2 at AAA (sf)
-- Auto Loan Receivables-Backed Notes, Series 2011-1, Class A-3 (collectively, with the Class A-2 Notes, the Class A Notes) at AAA (sf)
-- Auto Loan Receivables-Backed Notes, Series 2011-1, Class B at AA (sf)

DBRS has also upgraded the rating of the Auto Loan Receivables-Backed Notes, Series 2011-1, Class C (collectively, with the Class A Notes and Class B Notes, the Notes) to A (sf) from A (low) (sf).

DBRS has confirmed the rating of Auto Loan Receivables-Backed Notes, Series 2010-1 of Canadian Capital Auto Receivables Asset Trust III (CCARAT III) (the Notes) at AAA (sf).

The ratings are based on the following factors:

1. High levels of credit enhancement are available to protect all the Notes.

(a) For CCARAT II 2012-1, credit protection to the Notes is provided by a non-amortizing reserve account that was seeded at the onset of the transaction with an amount equal to $5,327,759, which is equivalent to 1.9% of the outstanding balance of the Notes as of May 2013. The Notes also benefit from overcollateralization, equivalent to 4.3% of the current outstanding note balance as of May 2013. In addition, the Class A Notes have preferential access to collections arising from the subordination of the Class B Notes and the Class C Notes, equivalent to 5.2% of the current outstanding balance of the Notes. The Class B Notes also have preferential access to collections arising from the subordination of the Class C Notes, equivalent to 1.4% of the current outstanding balance of the Notes. Total credit enhancement levels available to the Class A, Class B and Class C Notes have increased to 11.4%, 7.6% and 6.2%, respectively, measured as a percentage of the outstanding Notes balance as of May 2013.

b) For CCARAT II 2011-2, credit protection to the Notes is provided by a non-amortizing reserve account that was seeded at the onset of the transaction with an amount equal to $5,504,680, which is equivalent to 2.7% of the outstanding balance of the Notes as of May 2013. The Notes also benefit from overcollateralization, equivalent to 4.7% of the current outstanding note balance as of May 2013. In addition, the Class A Notes have preferential access to collections arising from the subordination of the Class B Notes and the Class C Notes, equivalent to 8.1% of the current outstanding balance of the Notes. The Class B Notes also have preferential access to collections arising from the subordination of the Class C Notes, equivalent to 2.7% of the current outstanding balance of the Notes. Total credit enhancement levels available to the Class A, Class B and Class C Notes have increased to 15.5%, 10.1% and 7.4%, respectively, measured as a percentage of the outstanding Notes balance as of May 2013.

(c) For CCARAT II 2011-1, credit protection to the Notes is provided by a non-amortizing reserve account that was seeded at the onset of the transaction with an amount equal to $7,617,350, which is equivalent to 2.9% of the outstanding balance of the Notes as of May 2013. The Notes also benefit from overcollateralization, equivalent to 6.6% of the current outstanding note balance as of May 2013. In addition, the Class A Notes have preferential access to collections arising from the subordination of the Class B Notes and the Class C Notes, equivalent to 8.1% of the current outstanding balance of the Notes. The Class B Notes also have preferential access to collections arising from the subordination of the Class C Notes, equivalent to 2.2% of the current outstanding balance of the Notes. Total credit enhancement levels available to the Class A, Class B and Class C Notes have increased to 17.6%, 11.7% and 9.5%, respectively, measured as a percentage of the outstanding Notes balance as of May 2013.

(d) For CCARAT III 2010-1, credit protection to the Notes is provided by a non-amortizing reserve account that was seeded at the onset of the transaction with an amount equal to $21,344,700, which is equivalent to 15.7% of the outstanding balance of the Notes as of May 2013. The Notes also benefit from overcollateralization, equivalent to 36.9% of the current outstanding note balance as of May 2013. Total credit enhancement available to the Notes has increased to 52.6% as of May 2013.

2. A cash reserve event will occur if the three-month average delinquency rate is greater than 1.25% or if the three-month average (annualized) loss rate is greater than 1.5%.

(a) For CCARAT II 2011-1, 2011-2 and 2012-1, in a cash reserve event, the required cash reserve amount will be increased by 0.5% of the Aggregate Net Discounted Book Value, then applicable, on the Distribution Date of occurrence.

(b) For CCARAT III 2010-1, in a cash reserve event, the required cash reserve amount will be increased to the max of the greater of (1) 1.5% of the outstanding Debt obligations or (2) 0.5% of the highest Net Investment (the Cash Reserve Increase Amount).

3. As the Initial Pool Balances were sold to the Trust at discounted values, the yield supplement overcollateralization amounts created contribute to the generation of excess spread that is available to support repayment of the Notes, assuming no losses or requirements to pay the 1.0% replacement servicer fee. The current three-month average excess spread available ranges from 3.1% to 7.0% across these deals.

4. Delinquency and loss rates have remained stable for all series of notes. Currently, the three-month average net loss rates and delinquency (+60 days due) range from -0.09% to 0.35%, from 0.04% to 0.05%, respectively, across these deals. Cumulative losses are also within expectation, ranging from 0.19% to 0.32% across these deals.

5. The CCARAT II and CCARAT III structures are pass-through with monthly principal payments, which avoids the risk of refinancing normally associated with term maturities. Matching of the fixed-rate receivables with fixed-rate notes eliminates the need for interest rate swaps in the structure.

6. A strong sponsor, Royal Bank of Canada (RBC), which has extensive experience in servicing the automotive market. On February 1, 2013, RBC closed the acquisition of the Canadian auto finance and deposit business of Ally Financial Inc., consisting of Ally Credit Canada Limited and ResMor Trust Company (Ally Canada). Pursuant to the closing of the acquisition, RBC will assume all obligations of Ally Canada, including Canadian Capital Auto Receivables Asset Trust II and Canadian Capital Auto Receivables Asset Trust III (CCARAT II and CCARAT III, respectively).

7. A well-diversified pool of obligors with respect to geographic representation in Canada.

DBRS monitors the performance of each transaction to identify any deviation from DBRS’s expectation at issuance and to ensure the ratings remain appropriate. The review is predicated upon the timely receipt of performance information from the related providers. The performance and characteristics of each publicly rated auto loan portfolio and the Notes are available and updated each month in the Monthly Canada ABS Report (see Related Research).

Notes:
All figures are in Canadian dollars unless otherwise noted.

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link to the right under Related Research or by contacting us at info@dbrs.com.

The applicable methodologies are Rating Canadian Auto Loan Securitizations, Legal Criteria for Canadian Structured Finance and Canadian Structured Finance Surveillance, which are available on our website under Methodologies.