DBRS Morningstar Finalizes Provisional Ratings on Ford Auto Securitization Trust 2019-B

DBRS Limited (DBRS Morningstar) finalized the following provisional ratings on the Asset-Backed Notes, Series 2019-B issued by Ford Auto Securitization Trust 2019-B:

-- AAA (sf) on the Asset-Backed Notes, Series 2019-B, Class A-1 (the Class A-1 Notes)
-- AAA (sf) on the Asset-Backed Notes, Series 2019-B, Class A-2 (the Class A-2 Notes)
-- AAA (sf) on the Asset-Backed Notes, Series 2019-B, Class A-3 (the Class A-3 Notes; collectively with the Class A-1 Notes and Class A-2 Notes, the Class A Notes)
-- AA (sf) on the Asset-Backed Notes, Series 2019-B, Class B (the Class B Notes) and
-- A (sf) on the Asset-Backed Notes, Series 2019-B, 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 BBB and R-1 (middle) with a Negative 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 bi-weekly 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) Credit Enhancement – Amount
The high level of credit enhancement (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 $28,174.44 on the Closing Date; builds to a floor of 2.00% of the Initial Adjusted Pool Balance as principal on the Notes is repaid); a Cash Reserve Account (0.25% of the Initial Adjusted Pool Balance); and an annual excess spread of approximately 3.90%, 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) Credit Enhancement – Structure (Non-Amortizing)
The level of subordination, OC (after it has built to a 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.

(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 0.25% 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 7.40%. 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 approximately 3.90%. 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 756. Obligors with no FICO score and commercial obligors constitute 16.8% of the pool balance while obligors with a FICO score below 600 constitute 3.9% of the pool balance. Approximately 58.8% of the pool has a FICO score greater than or equal to 700. The strong credit profile is also supported by the low and consistent historical credit losses and delinquency levels of prior FAST transactions and the Seller’s owned and managed portfolio.

(5) Operational and Brand Strength of Seller/Servicer
On March 8, 2019, DBRS Morningstar confirmed its ratings on Ford Motor Company (Ford), Ford Motor Credit Company LLC (FMCC) and the Seller at BBB and changed the trends to Negative from Stable. The trend change reflects Ford’s materially weaker operating performance; however, DBRS Morningstar notes the strong franchise, healthy earnings power, sound risk profile and deep industry expertise of FMCC (a fully owned subsidiary of Ford). DBRS Morningstar also notes that FMCC experienced robust earnings performance in 2018 and anticipates that it will remain solidly profitable in 2019. As a subsidiary of FMCC, Ford Credit Canada benefits from its parent’s strong financial standing and global presence, allowing it to leverage FMCC’s experience and expertise to ensure sound and consistent underwriting standards and efficient servicing operations.

The DBRS 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.

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

The principal methodology is Rating Canadian Auto Retail Loan and Lease Securitizations, which can be found on dbrs.com under Methodologies & Criteria.

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.com.

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.

The full report providing additional analytical detail is available by clicking on the link under Related Documents below or by contacting us at info@dbrs.com.

For more information on this credit or on this industry, visit www.dbrs.com or contact us at info@dbrs.com.

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