DBRS Morningstar Confirms Ratings on Ford Auto Securitization Trust 2017-R5

DBRS Limited (DBRS Morningstar) confirmed the ratings on the following notes (the Notes) issued by Ford Auto Securitization Trust 2017-R5 as part of DBRS Morningstar’s continued effort to provide market participants with updates on an annual basis:

-- Asset-Backed Notes, Series 2017-R5, Class A-2 (the Class A-2 Notes) at AAA (sf)
-- Asset-Backed Notes, Series 2017-R5, Class A-3 (the Class A-3 Notes; together with the Class A-2 Notes, the Class A Notes) at AAA (sf)
-- Asset-Backed Notes, Series 2017-R5, Class B (the Class B Notes, together with the Class A Notes, the Rated Notes) at AA (high) (sf)

The Asset-Backed Notes, Series 2017-R5, Class C are unrated (the Class C Notes, together with the Rated Notes, the Notes).

The confirmation of the ratings is based on the following factors, each of which include additional analysis and, where appropriate, additional stresses to expected performance as a result of the global efforts to contain the spread of the Coronavirus Disease (COVID-19). On April 16, 2020, the DBRS Morningstar Sovereigns group published its outlook on the impact on key economic indicators for the 2020–22 time frame. For details, see “Global Macroeconomic Scenarios: Implications for Credit Ratings” at https://www.dbrsmorningstar.com/research/359679. For the confirmed ratings, DBRS Morningstar considered impacts consistent with the moderate scenario in the referenced commentary in its analysis.

1. High levels of credit enhancement are available to protect all the Notes. Credit protection to the Notes is provided by a nonamortizing cash reserve account, subordination, and overcollateralization. The cash reserve account was seeded at inception with 1.0% of the Initial Pool Balance and represents 3.5% of the Notes outstanding as at March 2020. In addition, the Class A Notes have preferential access to collections arising from the subordination of the Class B and Class C Notes, equivalent to approximately 15.1% of the outstanding amount of the Notes as at March 2020. The Class B Notes have preferential access to collections equivalent to approximately 6.0% of the outstanding amount of the Notes. The overcollateralization amount excluding the Yield Supplement Overcollateralization Amount reached its targeted level in Month 6 and currently represents 6.0% of the outstanding amount of the Notes. Total credit enhancement levels available to the Class A, Class B, and Class C Notes have increased to 24.7%, 15.6%, and 9.6%, respectively, measured as a percentage of the outstanding Notes balance as at March 2020.

2. Front-end risk to the repayment of the Notes was addressed with the inclusion of a requirement to maintain an overcollateralization amount calculated as the excess, if any, of 1.5% of the current pool balance over 1.0% of the Initial Pool Balance. This amount has amortized down to zero.

3. As the Initial Pool Balances were sold to the Trust at discounted values, the Yield Supplement Overcollateralization Amounts created contribute to the generation of excess spread that is available to support repayment of the Notes. Current excess spread available, net of losses, is approximately 8.9%.

4. To date, cumulative losses are below DBRS Morningstar’s expectations set at the time of the initial rating, amounting to 47 basis points.

5. Ford Credit Canada Limited (FCCL) has extensive experience in the origination and servicing of retail auto loan securitization transactions backed by those assets.

6. A performance guarantee is provided by FCCL’s parent, Ford Motor Credit Company LLC, (remains rated above investment grade at BBB — albeit Under Review with Negative Implications — by DBRS Morningstar).

DBRS Morningstar 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. The performance and characteristics of each publicly rated auto loan portfolio, including the Notes, are available and updated each month in the “Monthly Canadian ABS Report.”

ESG CONSIDERATIONS
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework and its methodologies can be found at https://www.dbrsmorningstar.com/research/357792.

Notes:
The principal methodology is Master Canadian Structured Finance Surveillance Methodology (June 28, 2019), which can be found on dbrsmorningstar.com under Methodologies & Criteria.

For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.

For more information regarding structured finance rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/358308.

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.

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

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