RPT-Fitch to Rate Mercedes-Benz Auto Receivables Trust 2014-1; Issues Presale

Mon Jun 30, 2014 8:43am EDT

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June 30 (Reuters) - (The following statement was released by the rating agency)

Fitch Ratings expects to assign the following ratings and Rating Outlooks to the notes issued by Mercedes-Benz Auto Receivables Trust (MBART) 2014-1:

--$295,000,000 class A-1 'F1+sf';

--$343,100,000 class A-2 'AAAsf'; Outlook Stable;

--$375,870,000 class A-3 'AAAsf'; Outlook Stable;

--$110,500,000 class A-4 'AAAsf'; Outlook Stable.

KEY RATING DRIVERS

Strong Collateral Quality: The weighted average (WA) Fair Isaac Corp. (FICO) score of 767 is consistent with recently issued MBART transactions and, combined with the strong internal credit-tier distribution, indicates a strong borrower. Increased Used Vehicle Concentration: Concentrations of used vehicles increased to 72.43% in 2014-1 from 61.38% in 2013-1, representing the highest level in any MBART transaction to date. The increase in used vehicles has resulted in a higher WA loan-to-value (LTV) ratio for the 2014-1 pool, which could result in higher loss severities on defaulted loans.

Sufficient Credit Enhancement: Total initial hard credit enhancement (CE) for class A notes is 2.75%. Yield supplement OC will be used to boost the transaction's annual percentage rate (APR), providing expected excess spread of 2.60%. CE is sufficient to cover in excess of a 5.0x multiple of Fitch's base case expected lifetime cumulative net losses (CNLs) of 1%.

Strong Portfolio/Securitization Performance: Mercedes Benz Financial Services' (MBFS) portfolio and securitization performance has been improving with low delinquencies and losses over the past three years. Performance has been supported by the improving U.S. economic recovery and stable used vehicle values.

Legal Structure Integrity: The legal structure of the transaction should provide that a bankruptcy of Daimler or MBFS would not impair the timeliness of payments on the securities.

RATING SENSITIVITIES

Unanticipated increases in the frequency of defaults and loss severity on defaulted receivables could produce loss levels higher than the base case. This in turn could result in potential negative rating actions on the notes. Fitch evaluated the sensitivity of the ratings assigned to Mercedes-Benz Auto Receivables Trust 2014-1 to increased losses over the life of the transaction.

Fitch's analysis found that the class A notes display minimal sensitivity to a moderate increase in defaults and losses, showing potential downgrades of up to one notch, if at all, under Fitch's moderate (1.5x base case loss) scenario. However, class A notes could experience downgrades of up to two rating categories under Fitch's severe (2.5x base case loss) scenario.

Key Rating Drivers and Rating Sensitivities are further detailed in the accompanying presale report, available at 'www.fitchratings.com or by clicking on the below link.

Link to Fitch Ratings' Report: Mercedes-Benz Auto Receivables Trust 2014-1 (U.S. ABS)

here

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