DBRS Publishes Final Methodology for Rating Canadian Rental Car Fleet Securitizations

DBRS Limited (DBRS) published its methodology “Rating Canadian Rental Car Fleet Securitizations” (the Methodology).

This Methodology presents the criteria on which Canadian rental car fleet securitizations ratings are based.

This Methodology is effective as of November 3, 2017.

On September 25, 2017, DBRS requested comments on its updated version of its “Rating Canadian Rental Car Fleet Securitizations” methodology. The comment period closed on October 25, 2017. No comments were received; therefore, the version published on September 25, 2017, remains unchanged. No rating actions have or will be taken on existing transactions as a result of the finalization of this methodology.

In summary, the material changes and their rationale are as follows:

-- Fleet Characteristics: Vehicle categories in the rental fleet have been simplified into four groupings based on whether the vehicle is a Program or Non-Program vehicle and whether the underlying manufacturer is investment grade or non–investment grade. The change provides a more consistent and conservative approach to stress vehicles from non-investment-grade manufacturers in the rental fleet and allows consideration for lower expected recovery values in the event of fleet liquidation. The fleet composition assumptions will continue to be analyzed based on the historical composition of the transaction sponsor’s fleet together with reference to its fleet forecast and the eligibility criteria in the transaction documents.

-- Market Value Stress: Expected market values of the vehicles in the fleet are now stressed based on the historical volatility of the Canadian used vehicle market. The base stress assumption for BBB ratings applies a loss range equivalent to the worst-ever decline observed in the ADESA Canada Used Vehicle Price Index. For ratings above BBB, stress levels are increased up to three or four standard deviations from the historical average price decline. These revised stress levels are applied to evaluate whether available credit enhancement in a transaction is sufficient to protect against the historical volatility of used vehicle prices in Canada.

-- Non-Investment-Grade Vehicle Manufacturers: An additional stress is now being applied to recognize further declines in value expected on vehicles from non-investment-grade manufacturers, as there is a higher likelihood that they will no longer benefit from manufacturer parts, service and warranty support. The additional stress increases the conservatism on the evaluation of non-investment-grade vehicle manufacturers and enhances the protection against the potential timing delay of monthly mark-to-market and vehicle disposition tests.

-- Depreciation Expense: Monthly depreciation rates are now based on the minimum depreciation rates outlined in the transaction documents together with the historical effective depreciation rates of the rental car fleet. However, following the bankruptcy stay period, the monthly depreciation rate is reduced over the liquidation period, as expected usage of the vehicles will be limited during that time.

-- The methodology has been expanded to include analysis for rating classes other than AAA.

Notes:
DBRS criteria and methodologies are publicly available on its website www.dbrs.com under Methodologies.

For more information on this credit or on this industry, visit www.dbrs.com or contact us at info@dbrs.com.