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June 9 (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 GE Equipment Transportation LLC, Series 2014-1 (GEET2014-1) upon closing of the transaction:
--$178,400,000 class A-1 notes ‘F1+sf’;
--$217,000,000 class A-2 notes ‘AAAsf;’ Outlook Stable;
--$217,000,000 class A-3 notes ‘AAAsf’; Outlook Stable;
--$88,500,000 class A-4 notes ‘AAAsf;’ Outlook Stable;
--$15,000,000 class B notes ‘AAsf’; Outlook Stable;
--$11,000,000 class C notes ‘Asf’; Outlook Stable.
Fitch has published its presale report available to all investors at ‘www.fitchratings.com’ or by clicking on the above link.
Non-diversified Portfolio: The 2014-1 is the sixth transportation-only equipment transaction. The significantly high concentration of transportation collateral in the pool reduces equipment and industry diversification.
Stronger Collateral: The concentration of small fleet collateral has decreased to 59.37% from 77.91% in 2013-2. This collateral has historically experienced higher losses than the large/medium fleet collateral.
Increased Obligor Concentrations: Obligor concentration has increased in 2014-1, with the top 20 obligors representing 18.3%, up from 10.2% in 2013-2. As a result, the obligor concentration analysis was the primary rating methodology for the 2014-1 transaction.
Improved Managed Portfolio Performance: GECC’s managed transportation portfolio and securitizations exhibited volatility and asset deterioration from 2007?2009 but has demonstrated marked improvement since 2010.
Sufficient Credit Enhancement: Hard credit enhancement (CE) on the notes is 8.24%, 6.34% and 4.95%, for classes A, B, and C, respectively. Additionally, the notes benefit from excess spread, expected to be 3.46% per annum.
Stable Origination, Underwriting and Servicing Platform: GECC has demonstrated sufficient abilities as originator, underwriter and servicer, as evidenced by historical delinquency and loss performance of securitized trusts and the managed portfolio.
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 could produce loss levels higher than the current projected base case loss proxy and impact available loss coverage and multiples levels. Lower loss coverage could impact ratings and Rating Outlooks, depending on the extent of the decline in coverage. In Fitch’s initial review of the transaction, the notes were found to have some sensitivity to a 1.5x and 2.5x increase of Fitch’s base case loss expectation. Under 1.5x base case loss scenario, the notes show limited sensitivity to this stress and may result in limited downgrades. However, under the 2.5x base case loss scenario, the notes could potentially be downgraded by two or more rating categories.
Fitch’s analysis of the Representations and Warranties (R&W) of this transaction can be found in ‘GE Equipment Transportation 2014-1 - Appendix’. This R&W is compared to those of typical R&W for the asset class as detailed in Fitch’s April 17, 2012 special report, ‘Representations, Warranties, and Enforcement Mechanisms in Global Structured Finance Transactions’ .
Link to Fitch Ratings’ Report: GE Equipment Transportation LLC, Series 2014-1 (US ABS)