DBRS Morningstar Confirms Rating on Navistar Financial Dealer Note Master Owner Trust II, Series 2012-VFN at AAA (sf)

DBRS, Inc. (DBRS Morningstar) confirmed its rating on Notes issued by Navistar Financial Dealer Note Master Owner Trust II, Series 2012-VFN at AAA (sf). The confirmation is based on performance trends and credit enhancement levels that are consistent with DBRS Morningstar’s assumptions at the current rating level. The confirmation addressed four items: an extension of the scheduled purchase expiration date, an increase of the minimum payment rate trigger, an addition of two payment rate enhancement triggers, and an increase in the margin for the notes.

The widespread shutdown of economic activity throughout the U.S. because of the Coronavirus Disease (COVID-19) pandemic has put significant stress on the wholesale sector and will likely continue for the next several months, negatively affecting performance for wholesale securitizations.

Nonetheless, DBRS Morningstar is able to confirm the ratings at this time because of the following analytical considerations:
-- DBRS Morningstar's assessment as to how collateral performance could deteriorate under macroeconomic stresses brought about by the coronavirus pandemic. As the pandemic spreads and its consequences unfold, it is difficult to anticipate the ultimate impact on the variables that drive credit quality. In the context of this highly uncertain environment and in the interest of transparency, DBRS Morningstar released a set of forward-looking macroeconomic scenarios for select economies related to the coronavirus in the commentary titled “Global Macroeconomic Scenarios: Implications for Credit Ratings” on April 16, 2020. The moderate and adverse scenarios are being used in the context of DBRS Morningstar’s rating analysis, with the moderate scenario serving as the primary anchor for the current ratings and the adverse scenario serving as a benchmark for the sensitivity analysis.
-- To account for this uncertainty, DBRS Morningstar increased its base case net loss rate. Mitigating factors include the State of Illinois classifying Navistar International Corp. as an essential business; a relatively short extension of the facility; and inventory, and hence sales, are considered sold or stock. Sold trucks accounted for approximately 55% of inventory as of March 31, 2020. These are trucks with an end user already in place, so the risk of a dramatic slowdown in payment rates is somewhat mitigated.
-- Transaction capital structure, proposed ratings, and form and sufficiency of available credit enhancement.
-- The transaction parties’ capabilities with regard to origination, underwriting, and servicing.
-- Credit quality of the collateral pool and historical performance.

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:
All figures are in U.S. dollars unless otherwise noted.

The principal methodology is DBRS Master U.S. ABS Surveillance Methodology (July 31, 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 rated entity or its related entities did not 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.

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

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