Fitch Rates Navitas Equipment Receivables, Series 2016-1
SEP 22, 2016 - 6:37 am
Fitch Ratings assigned the following ratings and rating outlooks to the Navitas Equipment Receivables, Series 2016-1 notes:
$60,100,000 class A-1 asset-backed notes ‘NRsf’
$109,968,000 class A-2 asset-backed notes ‘Asf’; Outlook Stable
$25,489,000 class B asset-backed notes ‘BBBsf’; Outlook Stable
$6,319,000 class C asset-backed notes ‘BB+sf’; Outlook Stable
$3,213,000 class D asset-backed notes ‘B+sf’; Outlook Stable
The ratings for 2016-1 are capped at ‘Asf’ given that this is the first Navitas ABS transaction rated by Fitch, a relatively limited operating history of managed portfolio performance through a full economic cycle and no paid in full ABS transactions.
Equipment types are highly diversified within 2016-1, with the highest concentration being titled equipment (primarily trucks) at 14.61%. The next two largest concentrations are industrial and medical laser at 8.17% and 6.91%, respectively. This diversification is consistent with Navitas’ managed portfolio.
The 2016-1 transaction includes a prefunding account sized to 20% of the total collateral balance. As this introduces uncertainty regarding the final makeup of the collateral pool, a prefunding stress was incorporated into Fitch’s CGD proxy derivation.
Despite limited performance data, Navitas’ managed static performance has improved in recent years. As such, Fitch reflected the use of proxy data from comparable small-ticket equipment originators in the derivation of its CGD proxy, which is 3.60% after incorporating the prefunding stress mentioned above.
All classes benefit from a cash reserve account and overcollateralization. Total initial hard credit enhancement (CE) is 21.85%, 9.95%, 7.00% and 5.50% for the class A, B, C and D notes, respectively.
Navitas has demonstrated adequate abilities as originator, underwriter and servicer as evidenced by historical delinquency and loss performance of securitized trusts and the managed portfolio.
The legal structure of the transaction should provide that a bankruptcy of Navitas would not impair the timeliness of payments on the securities.
Unanticipated increases in the frequency of defaults and loss severity on defaulted receivables could produce CNL levels higher than the base case and could result in potential rating actions on the notes. Fitch evaluated the sensitivity of the ratings assigned to Navitas Equipment Receivables LLC, Series 2016-1 to increased CNL over the life of the transaction. Fitch’s analysis found that the transaction displays varying sensitivity to increased CNL for different classes.
The class A notes display little to no sensitivity under Fitch’s severe (2.5x base case) loss scenario and would likely retain their initial rating. The class B notes display increased sensitivity under Fitch’s severe loss scenario and would likely be downgraded into the ‘Bsf’ category. The class C and D notes display the most sensitivity to Fitch’s severe loss scenario, which would likely result in them being downgraded into a distressed rating category.
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