DBRS Morningstar Assigns Provisional Ratings to Ford Auto Securitization Trust 2021-A

DBRS Limited (DBRS Morningstar) assigned the following provisional ratings to the Asset-Backed Notes, Series 2021-A to be issued by Ford Auto Securitization Trust (FAST) 2021-A:

-- AAA (sf) to the Asset-Backed Notes, Series 2021-A, Class A-1 (the Class A-1 Notes)
-- AAA (sf) to the Asset-Backed Notes, Series 2021-A, Class A-2 (the Class A-2 Notes)
-- AAA (sf) to the Asset-Backed Notes, Series 2021-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 2021-A, Class B (the Class B Notes)
-- A (sf) to the Asset-Backed Notes, Series 2021-A, Class C (the Class C Notes; collectively with the Class A Notes and Class B Notes, the Notes)

The transaction assumptions consider DBRS Morningstar’s baseline macroeconomic scenarios for rated sovereign economies, available in its commentary “Baseline Macroeconomic Scenarios For Rated Sovereigns,” published on September 8, 2021. These baseline macroeconomic scenarios replace DBRS Morningstar’s moderate and adverse Coronavirus Disease (COVID-19) pandemic scenarios, which were first published in April 2020. The baseline macroeconomic scenarios reflect the view that, although the coronavirus pandemic remains a risk to the outlook, uncertainty around the macroeconomic effects of the pandemic has gradually receded. Current median forecasts considered in the baseline macroeconomic scenarios incorporate some risks associated with further outbreaks but remain fairly positive on recovery prospects given expectations of continued fiscal and monetary policy support. The policy response to the coronavirus pandemic may nonetheless bring other risks to the forefront in coming months and years.

The Notes will be 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 Stable trends 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 provisional ratings are based on the full repayment of the Notes by their respective Final Scheduled Payment Dates.

The provisional 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 $3,326.75 on the Expected Closing Date; builds to 2.00% of the Initial Adjusted Pool Balance plus the amount that 1.50% of the current Pool Balance exceeds the original Cash Reserve Account balance by) as principal on the Notes is repaid; a Cash Reserve Account (0.25% of the Initial Adjusted Pool Balance); and annual excess spread of approximately 3.55%, net of indicative 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 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.

(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 5.90%. 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 approximately 3.55%. 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 770. Obligors with no FICO score and commercial obligors constitute 19.5% of the pool balance while obligors with a FICO score below 600 constitute 2.5% of the pool balance. Approximately 61.9% of the pool has a FICO score greater than or equal to 700, and 85.5% 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 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 Ford Motor Credit Company LLC (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.

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 at https://www.dbrsmorningstar.com/research/373262.

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

The principal methodology is Rating Canadian Auto Retail Loan and Lease Securitizations (October 26, 2020), 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 info@dbrsmorningstar.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.

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

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