DBRS Morningstar Finalizes Provisional Ratings on Securitized Term Auto Receivables Trust 2019-CRT

DBRS Limited (DBRS Morningstar) finalized the provisional ratings on the following notes issued by Securitized Term Auto Receivables Trust 2019-CRT (START 2019-CRT or the Trust):

-- AA (low) (sf) on the Auto Loan Receivables Backed Notes, Class B (the Class B Notes)
-- A (low) (sf) on the Auto Loan Receivables Backed Notes, Class C (the Class C Notes)
-- BB (sf) on the Auto Loan Receivables Backed Notes, Class D (the Class D Notes; collectively with the Class B Notes and the Class C Notes, the Subordinated Notes)

The Trust also issued Auto Loan Receivables Backed Notes, Class A (the Class A Notes; collectively with the Subordinated Notes, the Notes), which are not rated. The Notes are supported by a portfolio of prime retail auto loan contracts originated by The Bank of Nova Scotia (rated AA with a Stable trend by DBRS Morningstar) and secured by new and used light trucks (including sport-utility vehicles, crossover-utility vehicles and minivans) and passenger cars (the Portfolio of Assets).

Repayment of the Notes will be made from collections from the Portfolio of Assets, which generally include scheduled monthly loan payments, prepayments and proceeds from vehicle sales in the case of defaults. Principal repayment on the Notes will be made pro rata until the occurrence of a Sequential Principal Payment Trigger Event, after which the Notes will be paid sequentially in the order of the Class A Notes, Class B Notes, Class C Notes and Class D Notes. The ratings on the Subordinated Notes are based on their full repayment by the Final Scheduled Payment Date.

The ratings incorporate the following considerations:

(1) Available Credit Enhancement (CE)

There is initially subordination of 6.50% and 2.75% (as a percentage of the Class A–D Note Balance) to the Class B Notes and Class C Notes, respectively, and a non-amortizing cash reserve account of 0.25% (as a percentage of the Initial Pool Balance). Prior to the occurrence of a Sequential Principal Payment Trigger Event, the levels of subordination will amortize as the Notes are repaid pro rata; however, following such an event, the subordination amounts will floor as repayment of the Notes becomes sequential. In addition, approximately 4.51% excess spread (annualized), net of cost of funds and replacement servicer fees, will be available to offset collection shortfalls on a monthly basis.

(2) Manufacturer Diversity

The Portfolio of Assets consists of vehicle models from over 20 different vehicle manufacturers marketed through over 40 brands in the Canadian mainstream and luxury markets. The top five manufacturers are Fiat Chrysler Automobiles N.V. (20.7%; rated BBB (low) and Under Review with Positive Implications by DBRS Morningstar), General Motors Company (17.5%; rated BBB (high) with a Stable trend by DBRS Morningstar), Ford Motor Company (14.3%; rated BBB with a Negative trend by DBRS Morningstar), Toyota Motor Corporation (10.3%; rated AA (low) with a Stable trend by DBRS Morningstar) and Honda Motor Co., Ltd. (8.4%; rated A (high) with a Stable trend by DBRS Morningstar), which together represent 71.3% of the pool. A diverse pool provides stability and can mitigate potential periods of weak demand for certain brands or vehicle recalls.

(3) Obligor Profile

The obligors of the underlying loan contracts represent high-credit quality customers as the weighted-average FICO score is 749 and no obligors have a FICO score below 620. Approximately 73.1% of the pool has a FICO score above or equal to 700.

(4) Operational Strength and Experience of Seller

DBRS Morningstar confirmed its rating on The Bank of Nova Scotia (the Seller or Scotiabank) at AA/R-1 (high) with Stable trends on April 26, 2019. The corporate rating confirmation recognizes Scotiabank’s highly diversified banking franchise, supported by a conservative risk profile with sound asset quality, a well-managed funding and liquidity profile and solid capital levels. The Seller has a long history in banking and consumer lending across multiple product lines in addition to auto loans, including mortgages, personal loans and lines of credit, credit cards and financial services.

DBRS Morningstar’s cash flow analysis includes a conservative base-case cumulative net loss estimate, consideration for the seasoning in the Portfolio of Assets, prepayments, available CE and structural features. DBRS Morningstar’s stress testing indicates that the Trust’s ability to repay the Subordinated Notes is consistent with their respective ratings.

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

The principal methodology is Rating Canadian Auto Retail Loan and Lease Securitizations, 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 [email protected].

The rated entity or its related entities did participate in the rating process for this rating action. DBRS Morningstar had access to the accounts and other 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.

The full report providing additional analytical detail is available by clicking on the link under Related Documents below or by contacting us at [email protected].

For more information on this credit or on this industry, visit www.dbrs.com or contact us at [email protected].

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