DBRS Morningstar Finalizes Provisional Ratings on Ford Auto Securitization Trust II 2022-A

DBRS Limited (DBRS Morningstar) finalized the following provisional ratings on the Asset-Backed Notes, Series 2022-A issued by Ford Auto Securitization Trust II 2022-A:

-- AAA (sf) to the Asset-Backed Notes, Series 2022-A, Class A-1 (the Class A-1 Notes)
-- AAA (sf) to the Asset-Backed Notes, Series 2022-A, Class A-2 (the Class A-2 Notes)
-- AAA (sf) to the Asset-Backed Notes, Series 2022-A, Class A-3 (the Class A-3 Notes; collectively with the Class A-1 Notes and the Class A-2 Notes, the Class A Notes)
-- AA (sf) to the Asset-Backed Notes, Series 2022-A, Class B (the Class B Notes) and
-- A (sf) to the Asset-Backed Notes, Series 2022-A, Class C (the Class C Notes; collectively with the Class A Notes and Class B Notes, the Notes)

The Notes are supported by a portfolio of prime retail auto loan contracts originated by Ford Credit Canada Company (Ford Credit Canada or the Seller; rated BB (high) and R-4 with a positive trend by DBRS Morningstar) 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 biweekly 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 ratings are based on the full repayment of the Notes by their respective Final Scheduled Payment Dates.

The ratings incorporate the following considerations:

(1) High Level of Credit Enhancement (CE)
The high level of CE provided by subordination (5.00% to the Class A Notes and 2.00% to the Class B Notes of the Initial Adjusted Pool Balance); overcollateralization (OC; initially $7,176.12 on the Closing Date, will build to 2.00% of the Initial Adjusted Pool Balance plus the amount by which 1.50% of the current Pool Balance exceeds the original Cash Reserve Account balance) as principal on the Notes is repaid); a Cash Reserve Account (at least 0.35% of the Initial Adjusted Pool Balance); and annual excess spread of 3.54%, net of cost of funds and the Replacement Servicer Fee of 1.00% (plus applicable taxes), which will be available to offset collection shortfalls on a monthly basis.

(2) CE—Structure (Non-Amortizing)
The level of subordination, OC (after it reaches the floor of 2.00%), and the Cash Reserve Account remain at their initial levels even as the principal on the Notes is repaid. This deleveraging structure results in increased CE 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 0.35% 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 10.0%. 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 excess spread of 3.54%. As some prepayments are likely to occur, increasing the rate of amortization while the YSOA schedule remains fixed, DBRS Morningstar 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 775. Obligors with no FICO score and commercial obligors constitute 22.0% of the pool balance while obligors with a FICO score below 600 constitute 1.6% of the pool balance. Approximately 62.7% of the pool has a FICO score greater than or equal to 700, and 88.6% of the pool is in the top two credit tiers. The strong credit profile is also supported by the low and consistent historical credit losses and delinquency levels of prior Ford Auto Securitization Trust (FAST) transactions and the Seller’s owned and managed portfolio.

(5) Experienced Seller/Servicer
Ford Credit Canada has significant experience in administrating, servicing, and managing securitizations, as demonstrated by its long track record of FAST transactions since 2009, all of which performed or are performing within expectations. As a subsidiary of FMCC, Ford Credit Canada benefits from its parent’s strong franchise and global presence, allowing it to leverage FMCC’s experience and expertise to ensure sound and consistent underwriting standards and efficient servicing operations.

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

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance (ESG) factors that had a significant or relevant effect on the credit analysis.

A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (May 17, 2022) at https://www.dbrsmorningstar.com/research/396929.

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

The principal methodology is Rating Canadian Auto Retail Loan and Lease Securitizations (October 27, 2021), which can be found on dbrsmorningstar.com under Methodologies & Criteria.

The DBRS Morningstar Sovereign group releases baseline macroeconomic scenarios for rated sovereigns. DBRS Morningstar analysis considered impacts consistent with the baseline scenarios as set forth in the following report: https://www.dbrsmorningstar.com/research/384482 /baseline-macroeconomic-scenarios-application-to-credit-ratings.

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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