November 13, 2017 / 11:15 AM / a year ago

Fitch Assigns Expected Ratings to GAC-Sofinco Auto Finance's Huitong 2017-1

(The following statement was released by the rating agency) Link to Fitch Ratings' Report: Huitong 2017-1 Retail Auto Mortgage Loan Securitization Trust here HONG KONG/SHANGHAI, November 13 (Fitch) Fitch Ratings has assigned expected ratings to Huitong 2017-1 Retail Auto Mortgage Loan Securitization Trust's (Huitong 2017-1)'s fixed-rate notes. The issuance consists of notes backed by Chinese automotive loan receivables originated by GAC-Sofinco Automobile Finance Co., Ltd. (GAC-Sofinco), a joint venture by Guangzhou Automobile Group Co. and CA Consumer Finance (A+/Stable/F1). The ratings are as follows: CNY3,320 million Class A notes: 'AA+(EXP)sf'; Outlook Stable; CNY330 million Class B notes: 'AA+(EXP)sf'; Outlook Stable; and CNY350 million subordinated notes: 'NR(EXP)sf'. The notes will be issued by CITIC Trust Co., Ltd. in its capacity as trustee of Huitong 2017-1. The total collateral pool consisted of 83,666 auto loans with a balance of CNY4 billion at the 1 July 2017 cut-off date. KEY RATING DRIVERS Stresses Commensurate with Rating: Fitch assumes lifetime default rates for the GAC-Sofinco portfolio of 1.60%. The agency applied a stress multiple of 6.0x at 'AA+sf' on defaults to take into account China's limited car-finance history and Fitch's expectation that emerging-market securitised assets are prone to higher stress levels than those in developed markets for the same rating category. Strong Portfolio Characteristics: The original weighted-average loan-to-value ratio was 57.41% as of the cut-off date. The pool is well-diversified; the maximum single-obligor concentration had exposure of 0.01% of the outstanding principal balance as of the cut-off date. The portfolio has only 0.04% of loans subjected to refinancing risk. Adequate Credit Enhancement and Liquidity: Initial hard credit enhancement to the class A and B notes, at 17.00% and 8.75%, respectively, is sufficient to withstand Fitch's rating stresses. Liquidity support is provided by a reserve funded through waterfall. The transaction documents stipulate that the required liquidity reserve cannot be less than CNY20 million - 0.5% of the initial outstanding balance- during the trust's life. Sector Outlook, Rating Cap: The asset outlook for this portfolio is stable. Fitch forecasts China's GDP growth at 6.7% in 2017 and 6.3% in 2018 (2016: 6.7%). The 'AA+sf' rating reflects the cap on China's structured finance transactions, based on the country's developing securitisation market and Long-Term Local-Currency Issuer Default Rating of 'A+'. EXPECTED RATING SENSITIVITIES Unexpected increases in defaults and unexpected decreases in recovery rates on defaulted loans could produce loss levels higher than Fitch's base case, which could result in negative rating action on the notes. Fitch has evaluated the sensitivity of the ratings to increased gross default levels and decreased recovery rates over the life of the transaction. The analysis found that the notes' ratings are susceptible to downgrade in a severe default scenario. The class A and B notes may be downgraded to 'AA-sf' and 'BBB+sf', respectively, if the base-case default rate increases by 100%, assuming all other factors remain constant. The ratings on the class B notes may be downgraded to 'AAsf' if the base-case recovery rate reduced to zero, while the ratings on class A was not affected, assuming all other factors remain constant. Key Rating Drivers and Expected Rating Sensitivities are further discussed in the corresponding presale report entitled "Huitong 2017-1 Retail Auto Mortgage Loan Securitization Trust", published today. USE OF THIRD-PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G-10 Form ABS Due Diligence-15E was not provided to, or reviewed by, Fitch in relation to this rating action. REPRESENTATIONS, WARRANTIES AND ENFORCEMENT MECHANISMS A description of the transaction's representations, warranties and enforcement mechanisms ("RW&Es") that are disclosed in the offering document and which relate to the underlying asset pool is available by accessing the appendix referenced under "Related Research" below. The appendix also contains a comparison of these RW&Es to those Fitch considers typical for the asset class as detailed in the Special Report titled "Representations, Warranties and Enforcement Mechanisms in Global Structured Finance Transactions," dated 31 May 2016. DATA ADEQUACY Fitch reviewed the results of a third party assessment conducted on the asset portfolio information, and concluded that there were no findings that affected the rating analysis. Fitch conducted a review of a small targeted sample of GAC-Sofinco's origination files and found the information contained in the reviewed files to be adequately consistent with the originator's policies and practices and the other information provided to the agency about the asset portfolio. Overall, Fitch's assessment of the asset pool information relied upon for the agency's rating analysis according to its applicable rating methodologies indicates that it is adequately reliable. SOURCES OF INFORMATION The information below was used in the analysis: Loan-by-loan data provided by GAC-Sofinco as at 1 July 2017 Loan performance data provided by GAC-Sofinco as at March 2017 Capital structure information provided by GAC-Sofinco in November 2017 Transaction documentation provided by GAC-Sofinco in November 2017 Legal opinion and letter of undertaking provided by GAC-Sofinco in November 2017 The issuer has informed Fitch that not all relevant underlying information used in the analysis of the rated notes is public. Contacts: Primary Analyst Jensen Hui Analyst +852 2263 9956 Fitch (Hong Kong) Limited 19/F Man Yee Building 68 Des Voeux Road Central, Hong Kong Secondary Analyst Kan Zhou Associate Director +86 21 5097 3051 Committee Chairperson Atsushi Kuroda Senior Director +813 3288 2692 Media Relations: Wai-Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: Additional information is available on Applicable Criteria Global Consumer ABS Rating Criteria (pub. 25 May 2017) here Global Structured Finance Rating Criteria (pub. 03 May 2017) here Structured Finance and Covered Bonds Counterparty Rating Criteria (pub. 23 May 2017) here Structured Finance and Covered Bonds Country Risk Rating Criteria (pub. 18 Sep 2017) here Related Research Huitong 2017-1 Retail Auto Mortgage Loan Securitization Trust - Appendix here Representations, Warranties and Enforcement Mechanisms in Global Structured Finance Transactions here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here Solicitation Status here Endorsement Policy here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. 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