DBRS Confirms Ratings on GMF Canada Leasing Trust’s Asset-Backed Notes, Series 2016-1

DBRS Limited (DBRS) confirmed its ratings on the following notes (the 2016-1 Notes) issued by GMF Canada Leasing Trust (the Trust) as part of DBRS’s continued effort to provide market participants with updates on an annual basis:

-- Class A-2 1.636% Asset-Backed Notes, Series 2016-1 rated AAA (sf) (the Class A-2 Notes)
-- Class A-3 1.828% Asset-Backed Notes, Series 2016-1 rated AAA (sf) (the Class A-3 Notes)
-- Class B 2.293% Asset-Backed Notes, Series 2016-1 rated AA (sf) (the Class B Notes)
-- Class C 2.491% Asset-Backed Notes, Series 2016-1 rated A (sf) (the Class C Notes)

The 2016-1 Notes are supported by a 2016-1 Borrower Note that is supported by a first-priority security interest in a portfolio of closed-end lease contracts of new automobiles, light-duty trucks and utility vehicles (the Designated Pool). The lease contracts were originated through authorized General Motors dealers in Canada.

The collections from the Designated Pool are used to repay the 2016-1 Borrower Note and the proceeds from the 2016-1 Borrower Note are used to repay the 2016-1 Notes. Collections from the Designated Pool generally include scheduled monthly lease payments (including residual value payments in the case of customer-retained vehicles) as well as proceeds from vehicle sales either at the end of the lease term or earlier, as in the case of prepayments and defaults. Proceeds from excess mileage and wear-and-tear charges, if any, also form part of the collections from the Designated Pool.

Monthly payments of interest and principal are made according to the amortization schedule of the 2016-1 Notes based on the amortization of the Designated Pool. The 2016-1 Notes are repaid in sequential order, with the Class A-1 Notes being repaid first, followed by the repayment of the Class A-2 Notes, Class A-3 Notes, Class B Notes and, finally, Class C Notes. The Class A-1 Notes were fully repaid on September 20, 2017.

The ratings are based on the following factors:

(1) High levels of credit enhancements are available to protect all the 2016-1 Notes. Credit protection is provided by a non-amortizing cash account that was funded at closing in an amount equivalent to 0.50% of the initial securitization value. The cash amount represents 1.01% of the balance of the 2016-1 Notes as of August 2017. In addition, the 2016-1 Notes benefit from an overcollateralization (OC) amount that built to 13.4% from 11.65% of the initial securitization value and it is required to be maintatined at that target level. The OC represents 26.99% of the balance of the 2016-1 Notes as of August 2017.

(2) As the initial pool balance was sold to the Trust at discounted values, there is excess spread above the cost of funds, potential monthly replacement servicer fees and before losses, of approximately 5.2% (annualized) as of August 2017, which is available to offset any collection shortfall on a monthly basis.

(3) To date, cumulative losses are below DBRS expectations set at the time of the initial rating.

(4) General Motors Financial of Canada, Ltd. (GMFC) has demonstrated its ability to manage successful private securitization transactions supported by auto leases in Canada. General Motors Company (GM) and its related entities are rated BBB with a Stable trend by DBRS. In 2016, the entities were upgraded as a result of a well-established presence in the auto finance market and an evolving and strengthening franchise. The ratings were confirmed by DBRS in March 2017.

DBRS monitors the performance of each transaction to identify any deviation from its 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.

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 principal methodologies are Master Canadian Structured Finance Surveillance Methodology (May 2017), Rating Canadian Auto Retail Loan and Lease Securitizations (October 2017) and Legal Criteria for Canadian Structured Finance (July 2017), which can be found on our website under Methodologies.

The rated entity or its related entities did participate in the rating process. DBRS had access to the accounts and other relevant internal documents of the rated entity or its related entities.