DBRS Finalizes Provisional Ratings on Ford Auto Securitization Trust 2014-R2 Asset-Backed Notes

DBRS has today finalized the provisional ratings on Ford Auto Securitization Trust 2014-R2 (the Trust or FAST):

-- AAA (sf) to the Asset-Backed Notes, Series 2014-R2, Class A-1 (the Class A-1 Notes)
-- AAA (sf) to the Asset-Backed Notes, Series 2014-R2, Class A-2 (the Class A-2 Notes)
-- AAA (sf) to the Asset-Backed Notes, Series 2014-R2, Class A-3 (the Class A-3 Notes)
-- AA (high) (sf) to the Asset-Backed Notes, Series 2014-R2, Class B (the Class B Notes)
-- AA (sf) to the Asset-Backed Notes, Series 2014-R2, Class C (the Class C Notes)
-- A (sf) to the Asset-Backed Notes, Series 2014-R2, Class D (the Class D Notes)

On closing, the Trust acquired a portfolio of retail conditional sale contracts secured by new and used cars, light trucks and utility vehicles (the Portfolio of Receivables) from Ford Credit Canada Limited (FCCL). The Class A-1 Notes, Class A-2 Notes and Class A-3 Notes (collectively, the Class A Notes) and the Class B Notes, Class C Notes and Class D Notes (collectively, with the Class A Notes, the Notes) are pass-through securities, with monthly payment of interest and principal based on actual cash flows from the Portfolio of Receivables.

Principal payments on the Notes will be repaid sequentially, with the Class A-1 Notes, Class A-2 Notes and Class A-3 Notes being repaid first (sequentially), followed by the Class B Notes, the Class C Notes and finally the Class D Notes. Each series of the Class A Notes is rated AAA (sf), the Class B Notes are rated AA (high) (sf), the Class C Notes are rated AA (sf) and the Class D Notes are rated A (sf), based on full repayment of the Notes by their respective legal final maturity dates.

The ratings incorporate the following considerations:

(1) Credit Enhancement
The high level of credit enhancement provided by the non-amortizing nature of subordination (7.0% of the Initial Adjusted Pool Balance; 5.0% on the Closing Date) building as principal on the Senior Notes is repaid; a Reserve Account (1.0% of the Initial Pool Balance); and an annual excess spread of approximately 5.15%, assuming no requirements to pay 1.0% in replacement servicer fees.

(2) Transaction Structure
Additional protection is provided by the transaction structure, which ensures that excess collections are not released to the Seller until the Targeted Overcollateralization Amount is met. The Targeted Overcollateralization Amount is calculated as the sum of the Yield Supplement Overcollateralization Amount on each payment date and the excess of 1.50% of the current pool balance over 1.0% of the Initial Pool Balance.

(3) Collateral
Low and consistent historical credit loss levels of prior FAST transactions and the Seller’s owned and managed portfolio. Recovery values continue to be high in the used vehicle market. However, the expected maturity of extended term loan contracts and the gradual return of the leasing market may lead to an increased supply of used vehicles in the coming years. This could lead to lower recovery values should loans in the portfolio default.

(4) Seller/Servicer
Demonstrated experience of FCCL in the origination and servicing of retail auto receivables securitization transactions backed by those assets. In addition, a performance guarantee provided by FCCL’s parent, Ford Motor Credit Company LLC, rated BBB (low)/R-3 by DBRS with Stable trends, as of September 23, 2013.

Stress tests using assumptions, including replacement servicer fees and large increases in delinquency and credit losses, indicate that credit enhancement provides sufficient protection to the Notes to warrant the ratings assigned.

Notes:
The applicable methodologies are Rating Canadian Auto Retail Loan and Lease Securitizations (October 2013) and Legal Criteria for Canadian Structured Finance (September 2013), which can be found on our website under Methodologies.

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 Rule 17g-7 Report of Representations and Warranties is 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.