NISSAN MOTOR CO LTD
Fitch Ratings expects to assign ratings and Rating Outlooks to the asset-backed notes issued by
Fitch's base case cumulative net loss (CNL) proxy is derived by considering through-the-cycle 2006-2009 recessionary performance of
RATING ACTIONS
Entity / Debt
Rating
A-1
ST
F1+(EXP)sf
Expected Rating
A-2-A
LT
Expected Rating
A-2-B
LT
Expected Rating
A-3
LT
Expected Rating
A-4
LT
Expected Rating
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VIEW ADDITIONAL RATING DETAILS
KEY RATING DRIVERS
Collateral Composition Quality - Stable: NALT 2023-A is a prime portfolio with a weighted average (WA)
Forward Looking Approach to Loss Proxy - Stable Credit and Residual Value Performance: NMAC's credit and residual loss performance has been strong in recent years. However, the economic environment and state of the auto industry, including the wholesale vehicle market (WVM), can have a material impact on ratings. Fitch considered these risks, as well as future expectations and their impact on the transaction, in deriving the net credit and RV loss expectations for NALT 2023-A. Fitch's forward-looking base case credit loss proxy is 0.90% of the SV, and the 'BBsf' RV proxy is 11.50% of turned-in residual.
Lease-End Residual Value Risk - Stable Concentration: NMAC's RV performance has been strong in recent years. The 2023-A RV maturity profile is more concentrated than in 2022-A, with 56.9% of the base RV of the leases scheduled to mature over the most concentrated 12-month period, compared with 55.9% in 2022-A. To account for potential future volatility in the WVM, Fitch used the worst 18 months of historically observed residual dispositions composition in the derivation of its 'BBsf' RV proxy.
Payment Structure - Adequate CE: NALT 2023-A is a sequential-pay structure. The series features a reserve account of 0.40% which will grow to 0.65% until the class A-2 notes are paid off, at which point it will decline to 0.50%. The size of the reserve account is generally in line with prior transactions. Initial hard CE is 20.90% for the class A notes. The CE profile is among one of the highest for the platform, except for the 2022-A transaction, which had initial CE of 22.90%. Based on a 0.90% credit loss proxy stressed for the 'AAAsf' rating category and stressed RV loss expectations of 26.5% for 'AAAsf', CE is sufficient to support expected ratings.
Consistent Origination/Underwriting/Servicing - NMAC has adequate capabilities as originator, underwriter and servicer, as evidenced by the historical delinquency and loss performance of its managed portfolio and securitizations. Fitch deems NMAC capable of adequately servicing 2023-A, as evidenced by the historical performance of its managed portfolio and prior securitizations.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative rating action/downgrade:
Unanticipated decreases in the value of returned vehicles and/or increases in the frequency of defaults and loss severity on defaulted receivables could produce loss levels that are higher than the base case and would likely result in declines of CE and loss coverage levels available to the notes.
Decreased CE may make certain note ratings susceptible to potential negative rating actions depending on the extent of the decline in coverage. Hence, Fitch conducts sensitivity analyses by increasing a transaction's initial base case RV and credit loss assumptions and examining the rating implications on all classes of issued notes. The increases to the base case losses are applied such that they represent moderate and severe stresses, respectively, and are intended to provide an indication of the rating sensitivity of notes to unexpected deterioration of a trust's performance.
During the sensitivity analysis, Fitch examines a transaction structure through cash flow modeling to test the ability to cover stressed credit and RV losses. Fitch calculates loss coverage levels for each rating category by first applying credit defaults to the pool and then increasing residual realization haircuts until the first dollar of note principal is lost. As base case credit or RV losses are increased, the modeled loss coverage supported under the CE structure may fall below the target level for each rating category and would therefore be subject to a negative rating action.
The first rating sensitivity scenario is to increase the base case credit loss assumptions by a moderate and a severe stress. Under a moderate stress scenario of 1.5x the base case credit loss, the decrease in targeted loss coverage would not likely decrease enough to result in a one-notch downgrade for the class A notes. Under the more severe credit loss stress of 2.5x the base case credit loss, changes in target coverage would likely result in a downgrade of up to one rating category for class A notes.
Additionally, the ratings are sensitive to fluctuations in RV losses in auto lease ABS transactions. A moderate stress to the RV loss estimate, an increase in the base case to 25%, would likely result in a negative rating action of approximately two rating categories for class A notes. Under the severe RV loss stress, an increase in the base case to 30%, class A notes would likely be subject to a downgrade of more than three rating categories with class A notes falling to non-investment grade.
Factors that could, individually or collectively, lead to positive rating action/upgrade:
Given that the class A notes are rated 'AAAsf', upside stresses were not considered. However, if RV losses are 20% less than the 'BB' RV loss proxy, the expected ratings would be maintained for class A notes but at stronger rating multiples.
Best/Worst Case Rating Scenario
International scale credit ratings of Structured Finance transactions have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of seven notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of seven notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAAsf' to 'Dsf'. Best- and worst-case scenario credit ratings are based on historical performance. For more information about the methodology used to determine sector-specific best- and worst-case scenario credit ratings, visit https://www.fitchratings.com/site/re/10111579.
USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10
Fitch was provided with Form ABS Due Diligence-15E (Form 15E) as prepared by
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
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 clicking the link to the Appendix. 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'.
ESG Considerations
Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg.
This transaction, along with all auto and fleet lease transactions, has an ESG Relevance Score (RS) for Labor Relations and Practices of '3' (low impact on credit), which is higher than the baseline RS of '2' (no impact) for the general North American auto sector. The difference in RS for this ESG factor was driven by the presence of a titling trust structure, which gives rise to superior liens on the vehicles from the
There are no electric vehicles (EVs), hybrid EVs (HEVs) or plug-in HEVs (PHEVs) in the collateral pool.
Additional information is available on www.fitchratings.com
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