Aug 26 (Reuters) - (The following statement was released by the rating agency)
Fitch Ratings expects to rate John Deere Owner Trust 2013-B as follows:
--$257,000,000 class A-1 notes ‘F1+sf’;
--$227,000,000 class A-2 notes ‘AAAsf’; Outlook Stable;
--$277,000,000 class A-3 notes ‘AAAsf’; Outlook Stable;
--$87,613,000 class A-4 notes ‘AAAsf’; Outlook Stable;
--$21,759,823 certificates not rated.
Fitch’s stress and rating sensitivity analysis are discussed in the presale report titled ‘John Deere Owner Trust 2013-B’, dated Aug. 26, 2013, which is available at ‘www.fitchratings.com’ or by clicking on the link below.
High Concentration of AG Equipment: JDOT 2013-B is the fifth transaction to contain 75% AG equipment. Although AG equipment historical losses have been low, a high concentration in the pool limits diversification and exposes the trust to other factors, such as natural disasters (e.g. droughts and floods). However, geographic diversity helps to mitigate the high concentration.
Consistent Collateral Concentrations: The pool contains 75.6% AG and 24.4% CO equipment. These concentrations are consistent with those of JDOT 2013. Furthermore, the pool consists of 66.7% annual-pay contracts, which historically have experienced a lower level of losses versus other payment types.
Sufficient Credit Enhancement: Initial hard credit enhancement (CE) for JDOT 2013-B is 3.50%, unchanged from JDOT 2013. The initial reserve in JDOT 2013-B is 1.00%, while the subordinated certificates provide 2.50% enhancement, both unchanged from JDOT 2013. Initial excess spread in JDOT 2013-B is expected to be approximately 1.97%, down from the JDOT 2013 transaction (2.43%).
Stable Origination, Underwriting and Servicing: JDCC has demonstrated strong capabilities as originator, underwriter and servicer, as evidenced by historical delinquency and loss performance of securitized trusts and its managed portfolio. All securitizations issued and rated by Fitch have performed within initial base case expectations.
Unstable Economic Outlook: A slower recovery and potential for volatility could affect delinquencies and losses. Fitch’s analysis accounts for this risk by including poorer performing vintages from the recent recession in the base case loss analysis.
Integrity of Legal Structure: The legal structure of the transaction should provide that a bankruptcy of the trust 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 loss 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 JDOT 2013-B to increased cumulative net losses (CNL) over the life of the transaction. Fitch’s analysis found that the transaction displays some sensitivity to increased defaults and CNL, showing a potential downgrade of one category under Fitch’s moderate (1.5x base case loss) scenario. The notes could experience downgrades of up to three rating categories, although still remaining investment grade, under Fitch’s severe (2.5x base case loss) scenario.
Key Rating Drivers and Rating Sensitivities are further described in the accompanying pre-sale report.
Fitch’s analysis of the Representations and Warranties (R&W) of this transaction can be found in ‘John Deere Owner Trust 2013-B - Appendix’. These R&W are compared to those of typical R&W for the asset class as detailed in the special report ‘Representations, Warranties, and Enforcement Mechanisms in Global Structured Finance Transactions’ dated April 17, 2012.