Fitch Ratings has assigned '
The notes are backed by Chinese automotive loan receivables originated by
RATING ACTIONS
Entity / Debt
Rating
Driver
A
LT
Expected Rating
Subordinated
LT
NR(EXP)sf
Expected Rating
Page
of 1
VIEW ADDITIONAL RATING DETAILS
Transaction Summary
The notes were issued by
KEY RATING DRIVERS
Stresses Commensurate with Rating (Neutral): Fitch assumes a base-case lifetime default rate for the VWFC portfolio of 1.5%, based on the historical performance data, the pool composition at cut-off, origination trends and our expectation of slowing economic growth in
Sequential Paydown Structure before Target OC (Neutral): The senior notes are paid down prior to subordinated notes until target overcollateralisation (OC) of 23% is reached, which allows for the build-up of credit enhancement (CE) for the class A notes. However, the subordinated notes will receive principal payments prior to the class A notes being paid in full after the target OC is met. The subordinated notes will be held by the originator and the payment structure is considered in Fitch's cash flow analysis.
Robust Legal Structure (Neutral): The legal opinion states that the trust property transferred to the trust will be isolated from the property of the originator, which, in Fitch's view, underpins our quantitative analysis.
Counterparty Risk Mitigated (Neutral): The transaction has mechanisms that ensure remedial action takes place if the account bank's rating falls below an eligible rating of 'A' or 'F1'. Fitch uses
Base Case Intact Against Economic Risks (Neutral): The base-case default rate assumption is intact despite the sector's deteriorating asset outlook. This is supported by the robust performance of VWFC's portfolio, with the performance of its transactions remaining well within Fitch's base case expectations of 1.5% during the pandemic. However,
Experienced Servicer (Positive): Fitch's review of the originator and servicer found the operation, underwriting, risk management and servicing procedures are adequate and comparable with those of other auto finance companies in
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative rating action/downgrade:
Unanticipated increases in the frequency of defaults or decreases in recovery rates could produce larger losses than the base case and could result in potential rating action on the notes.
Expected impact on the note rating of an increase in defaults (class A):
10% increase in defaults: AAAsf
25% increase in defaults: AAAsf
50% increase in defaults: AAAsf
Expected impact on the note rating of a decrease in recoveries (class A):
10% decrease in recoveries: AAAsf
25% decrease in recoveries: AAAsf
50% decrease in recoveries: AAAsf
Expected impact on the note rating of a simultaneous increase in defaults and decrease in recoveries (class A):
10% increase in defaults, 10% decrease in recoveries: AAAsf
25% increase in defaults, 25% decrease in recoveries: AAAsf
50% increase in defaults, 50% decrease in recoveries: AA+sf
Factors that could, individually or collectively, lead to positive rating action/upgrade:
The class A notes are rated at 'AAAsf', the highest level on Fitch's rating scale. The ratings cannot be upgraded.
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.
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