DBRS Assigns Provisional Ratings to Ford Auto Securitization Trust 2019-A

DBRS Limited (DBRS) assigned provisional ratings to the following notes to be issued by Ford Auto Securitization Trust 2019-A (the Trust):

-- Asset-Backed Notes, Series 2019-A, Class A-1 (the Class A-1 Notes) provisionally rated AAA (sf)
-- Asset-Backed Notes, Series 2019-A, Class A-2 (the Class A-2 Notes) provisionally rated AAA (sf)
-- Asset-Backed Notes, Series 2019-A, Class A-3 (the Class A-3 Notes; together with the Class A-1 Notes and Class A-2 Notes, the Class A Notes) provisionally rated AAA (sf).

The Trust will also issue Asset-Backed Notes, Series 2019-A, Class B (the Class B Notes) and Asset-Backed Notes, Series 2019-A, Class C (the Class C Notes; together with the Class A Notes and Class B Notes, the Notes), which are not rated. The Notes will be supported by a portfolio of prime retail auto loan contracts originated by Ford Credit Canada Company (Ford Credit Canada or the Seller; rated BBB with a Negative trend by DBRS) and secured by new and used light trucks (including sport-utility vehicles) and passenger cars (the Portfolio of Assets).

Repayment of the Notes will be made from collections from the Portfolio of Assets, which include scheduled monthly and bi-weekly loan payments, prepayments and proceeds from vehicle sales in the case of defaults. Principal repayment on the Notes will be sequential in the order of the Class A-1 Notes, the Class A-2 Notes, the Class A-3 Notes, the Class B Notes and the Class C Notes. The provisional ratings are based on the full repayment of the Class A Notes by their respective Final Scheduled Payment Dates.

The provisional ratings incorporate the following considerations:

1. Credit Enhancement – Amount
   The high level of credit enhancement provided by subordination (5.00% of the Initial Adjusted Pool Balance to the Class A Notes); overcollateralization (OC; initially approximately $5,780.50 on the Expected Closing Date; builds to 2.00% of the Initial Adjusted Pool Balance as principal on the Notes is repaid); a Cash Reserve Account (0.25% of the Initial Adjusted Pool Balance); and an estimated annual excess spread of 3.98%, net of cost of funds and the 1.05% Replacement Servicer Fee, which will be available to offset collection shortfalls on a monthly basis.

2. Credit Enhancement – Structure (Non-Amortizing)
   The level of subordination, OC (after it has built to 2.00%) and the Cash Reserve Account remain at their initial levels even as principal on the Notes is repaid. This deleveraging structure results in increased credit enhancement as the Portfolio of Receivables amortizes.

3. Transaction Structure
   The transaction structure ensures that excess collections are not released to the Seller until the Targeted OC Amount is met. The Targeted OC Amount is calculated as the sum of the Yield Supplement OC Amount (YSOA) on each payment date, 2.00% of the Initial Adjusted Pool Balance and the excess of 1.50% of the current pool balance over 0.25% of the Initial Adjusted Pool Balance. The YSOA schedule is fixed as of the Cut-Off Date and is equal to the aggregate excess of (a) the present value of all payments on each receivable discounted at the annual percentage rate of each contract over (b) the present value of all payments on each receivable discounted at the Discount Rate of 7. 70%. It was set based on an amortization of the portfolio under a zero-prepayment and no-loss scenario and under which additional yield from discounting the Receivables at the Discount Rate would result in initial estimated excess spread of 3.98%. As some level of prepayments are likely to occur, increasing the rate of amortization while the YSOA schedule remains fixed, DBRS expects that the yield generated from the OC would increase against the Notes in such scenario.

4. Obligor Profile
   The obligors of the underlying loan contracts represent high-credit-quality customers, as the weighted-average FICO score is 755. Obligors with no FICO scores (including commercial obligors) and obligors with FICO scores below 600 constitute 16.5% and 4. 3% of the pool balance, respectively. Approximately 59.4% of the pool has a FICO score greater than or equal to 700. The strong credit profile is also supported by low and consistent historical credit losses and delinquency levels of prior FAST transactions and the Seller’s owned and managed portfolio.

5. Operational and Brand Strength of the Seller/Servicer
   Ford Motor Company (Ford), Ford Motor Credit Company LLC (FMCC) and the Seller were confirmed at BBB with a change in trend to Negative from Stable by DBRS on March 8, 2019. The trend change to Negative reflects Ford’s materially weaker operating performance; however, DBRS notes the strong franchise, healthy earnings power, sound risk profile and deep industry expertise of FMCC (a fully-owned subsidiary of Ford). DBRS also notes that FMCC experienced robust earnings performance in 2018 and anticipates it to remain solidly profitable in 2019. As a subsidiary of FMCC, Ford Credit Canada benefits from its parent’s strong financial standing and global presence, allowing it to leverage FMCC’s experience and expertise to ensure sound and consistent underwriting standards and efficient servicing operations.

The DBRS cash flow analysis includes a conservative base-case cumulative net loss estimate. Available credit enhancement is able to withstand the stresses at levels commensurate with the assigned ratings.

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

The principal methodology is Rating Canadian Auto Retail Loan and Lease Securitizations (October 2018), which can be found on dbrs.com under Methodologies & Criteria.

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 under Related Documents or by contacting us at info@dbrs.com.

The rated entity or its related entities did participate in the rating process for this rating action. DBRS had access to relevant internal documents of the rated entity or its related entities in connection with this rating action.

Please see the related appendix for additional information regarding the sensitivity of assumptions used in the rating process.

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

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