Morningstar DBRS Finalizes Provisional Credit Ratings on Ford Auto Securitization Trust II 2024-B
AutoDBRS Limited (Morningstar DBRS) finalized the following provisional credit ratings on the Asset-Backed Notes, Series 2024-B issued by Ford Auto Securitization Trust II (FAST II):
-- AAA (sf) to the Asset-Backed Notes, Series 2024-B, Class A-1 (the Class A-1 Notes)
-- AAA (sf) to the Asset-Backed Notes, Series 2024-B, Class A-2 (the Class A-2 Notes)
-- AAA (sf) to the Asset-Backed Notes, Series 2024-B, 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 2024-B, Class B (the Class B Notes; collectively with the Class A Notes, the Offered Notes)
In addition, FAST II issued unrated Asset-Backed Notes, Series 2024-B, Class C Notes (the Class C Notes; together with the Offered Notes, the Notes). The Class C Notes were retained by Ford Credit Canada Company (Ford Credit Canada or the Seller; rated BBB (low) with a Stable trend by Morningstar DBRS).
CREDIT RATING RATIONALE/DESCRIPTION
The Notes are supported by a portfolio of prime retail auto loan contracts originated by Ford Credit Canada, and secured by new and used light trucks (including sport-utility vehicles) and some passenger cars (the Portfolio of Assets).
Repayment of the Offered Notes will be made from collections from the Portfolio of Assets, including scheduled monthly and biweekly loan payments, prepayments, and proceeds from vehicle sales in the case of defaults. Principal repayment of the Offered Notes will be sequential in the order of the Class A-1 Notes, the Class A-2 Notes, the Class A-3 Notes, and the Class B Notes. The credit ratings are based on the full repayment of the Offered Notes by their respective Final Scheduled Payment Dates.
The credit ratings incorporate the following considerations:
High Level of Credit Enhancement
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); OC (initially $3,072,51 on the Closing Date building to 2.00% of the Initial Adjusted Pool Balance); a Cash Reserve Account (at least 0.25% of the Initial Adjusted Pool Balance); and annual excess spread of 2.30%, 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.Credit Enhancement¿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 principal on the Notes is repaid. This deleveraging structure results in increased CE as the Portfolio of Receivables amortizes.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 YSOA on each payment date, and 2.00% 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 (1) the present value of all payments on each receivable discounted at the annual percentage rate (APR) of each contract over (2) the present value of all payments on each receivable discounted at the Discount Rate of 6.90%. 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 2.30%. As some prepayments are likely to occur, increasing the rate of amortization while the YSOA schedule remains fixed, Morningstar DBRS expects that the yield generated from the OC would increase against the Notes in such scenario.Obligor Profile
The obligors of the underlying loan contracts represent high-credit-quality customers as the WA FICO score is 772. Commercial obligors, which, on average, have outperformed the overall retail portfolio based on dynamic managed portfolio data over the last five years, constitute 24.7% of the pool balance, while obligors with a FICO score below 600 constitute 2.3% of the pool balance. Approximately 58.2% of the pool has a FICO score greater than or equal to 700, and 88.9% 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) and FAST II transactions and the Seller's owned and managed portfolio.Experienced, Investment-Grade Seller/Servicer
Ford Credit Canada has significant experience in administrating, servicing, and managing securitizations, as demonstrated by its long track record, 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.
Morningstar DBRS' credit rating on the Offered Notes addresses the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents. The associated financial obligations are the Accrued Note Interest for each class of the Offered Notes, First Priority Principal Payment for the Class A Notes, Second Priority Principal Payment for the Class B Notes, and Regular Principal Payment for each class of the Offered Notes.
Morningstar DBRS' credit rating does not address nonpayment risk associated with contractual payment obligations contemplated in the applicable transaction document(s) that are not financial obligations.
Morningstar DBRS' long-term credit ratings provide opinions on risk of default. Morningstar DBRS considers risk of default to be the risk
that an issuer will fail to satisfy the financial obligations in accordance with the terms under which a long-term obligation has been issued. The Morningstar DBRS short-term debt rating scale provides an opinion on the risk that an issuer will not meet its short-term financial obligations in a timely manner.
ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factor(s) that had a significant or relevant effect on the credit analysis.
A description of how Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings (August 13, 2024), https://dbrs.morningstar.com/research/437781/
Notes:
All figures are in Canadian dollars unless otherwise noted.
The principal methodology applicable to the credit rating is Rating Canadian Auto Retail Loan and Lease Securitizations (September 25, 2024), https://dbrs.morningstar.com/research/439988/
Other methodologies referenced in this transaction are listed at the end of this press release.
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@morningstar.com.
The credit rating was initiated at the request of the rated entity.
The rated entity or its related entities did participate in the credit rating process for this credit rating action.
Morningstar DBRS had access to the accounts, management, and other relevant internal documents of the rated entity or its related entities in connection with this credit rating action.
This is a solicited credit rating.
Please see the related appendix for additional information regarding the sensitivity of assumptions used in the credit rating process.
DBRS Limited
DBRS Tower, 181 University Avenue, Suite 700
Toronto, ON M5H 3M7 Canada
Tel. +1 416 593-5577
The credit rating methodologies used in the analysis of this transaction can be found at: https://dbrs.morningstar.com/about/methodologies.
-- Operational Risk Assessments for Canadian Structured Finance (August 6, 2024),
https://dbrs.morningstar.com/research/437547/
-- Legal and Derivatives Criteria for Canadian Structured Finance (August 12, 2024),
https://dbrs.morningstar.com/research/437761/
A description of how Morningstar DBRS analyzes structured finance transactions and how the methodologies are collectively applied can be found at: https://dbrs.morningstar.com/research/410863.
For more information on this credit or on this industry, visit https://dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.