Various Rating Actions Taken On 11 California Republic Auto Receivables Trust Transactions

Stocks and Financial Services Press Releases Thursday June 14, 2018 08:59
NEW YORK--14 Jun--S&P Global Ratings

NEW YORK (S&P Global Ratings) June 13, 2018--S&P Global Ratings today raised its ratings on five classes and affirmed its ratings on 27 classes from 11 California Republic Auto Receivables Trust (CRART) series. At the same time, we placed our 'BBB (sf)' ratings on four subordinate classes on CreditWatch with negative implications from four CRART series (see list).

Today's rating actions reflect collateral performance to date and our expectations regarding future collateral performance, as well as each transaction's structure and credit enhancement. Additionally, we incorporated secondary credit factors, including credit stability, payment priorities under various scenarios, and sector- and issuer-specific analyses.

All outstanding series, except series 2014-1, are performing worse than our initial and prior revised expectations. As a result, we have raised our expected cumulative net loss for each outstanding series, except series 2014-1 (see table 1 and 2). Series 2014-1 is performing in line with our revised loss expectation. As a result, we maintained our expected loss for series 2014-1.

For each series, credit enhancement has grown as a percentage of the current pool balance (see table 3). In connection with the classes on which we have raised or affirmed ratings, we believe that the credit enhancement is adequate to support the ratings after factoring in our higher loss expectation.

While the credit support for series 2015-4, 2016-1, 2016-2, and 2017-1 has grown as a percentage of the amortizing pool balance, we do not believe that the class C notes from these series currently has the adequate coverage of our higher loss expectations at the current 'BBB (sf)' rating. As a result, we are placing these classes on CreditWatch with negative implications. If the transactions perform in line with our revised expectations, and the credit enhancement grows as a percentage of the current pool balance as it continues to delever, then the credit enhancement coverage may be commensurate with the current ratings. However, if performance were to continue to worsen, credit enhancements levels may not be sufficient to support the current ratings.

Table 1
Collateral Performance As Of The June 2018 Distribution Date
Pool Current 60+ day
Series Mo. factor (%) CNL (%) delinq. (%)
2014-1 51 9.37 2.79 1.24
2014-2 48 12.09 3.04 1.28
2014-3 45 15.13 3.04 1.09
2014-4 42 18.12 2.96 0.99
2015-1 39 21.29 2.97 1.64
2015-2 36 25.50 2.91 0.94
2015-3 33 30.18 3.12 1.33
2015-4 30 34.39 2.80 1.23
2016-1 27 39.77 2.38 0.92
2016-2 24 44.92 2.48 1.25
2017-1 16 60.73 1.52 1.03
CNL--Cumulative net loss.
Table 2
CNL Expectations (%)
revised Revised
Original lifetime lifetime
lifetime CNL exp. CNL exp.
Series CNL exp. (Aug. 2017) (June 2018)
2014-1 3.00-3.25 2.75-2.95 Up to 2.85
2014-2 2.80-3.10 2.90-3.10 3.40-3.60
2014-3 2.80-3.10 3.15-3.35 3.50-3.70
2014-4 2.70-2.90 3.15-3.35 3.50-3.70
2015-1 2.70-2.90 3.40-3.60 3.70-3.90
2015-2 2.60-2.70 3.55-3.75 3.90-4.10
2015-3 2.40-2.60 3.75-3.95 4.60-4.80
2015-4 2.40-2.60 3.75-3.95 4.60-4.80
2016-1 2.40-2.60 3.75-3.95(i) 4.40-4.60
2016-2 2.70-2.90 4.15-4.35(i) 5.00-5.20
2017-1 3.00-3.20 N/A 5.00-5.40
(i)Expected CNL for 2016-1 and 2016-2 were revised in Jan. 2018. CNL exp.--Cumulative net loss expectation.

Each transaction contains a sequential principal payment structure in which the notes are paid principal by seniority. Each transaction has credit enhancement in the form of a nonamortizing reserve account, overcollateralization (O/C), subordination for the higher-rated tranches, and excess spread.

The reserve account for each series is at its specified level of 0.25% of the initial pool balance.

As of the June 2018 distribution date, the O/C amount is at its target for most series, except for series 2014-1, 2014-2, and 2014-4. For these series, the O/C amount shortfall ranges between two and four basis points as a percentage of the initial pool balance.

The target O/C level for each series was structured as a percentage of the initial pool balance. All of the CRART transactions, except series 2016-1 and 2017-1, have seen their O/C amounts fall below the respective target levels, but the shortfalls have ranged between one and six basis points as a percentage of the initial pool balance. Even though the O/C levels may not be at its requisite targets, they have increased as a percentage of the current pool balance.

Table 3
Hard credit support as of the June 2018 distribution date
Total hard
credit support Current total hard
class at credit support
Series Class issuance(%)(i) (% of current)(i)
2014-1 B 5.75 79.82
2014-1 C 0.25 21.13
2014-2 A-4 9.60 91.82
2014-2 B 4.45 49.24
2014-2 C 0.25 14.51
2014-3 A-4 9.95 76.68
2014-3 B 3.70 35.36
2014-3 C 0.25 12.56
2014-4 A-4 9.40 60.57
2014-4 B 3.60 28.57
2014-4 C 0.25 10.08
2015-1 A-4 9.15 50.50
2015-1 B 3.15 22.31
2015-1 C 0.25 8.69
2015-2 A-4 8.55 38.82
2015-2 B 2.85 16.47
2015-2 C 0.25 6.27
2015-3 A-4 8.10 30.99
2015-3 B 2.80 13.42
2015-3 C 0.25 4.97
2015-4 A-4 9.40 32.27
2015-4 B 3.55 15.26
2015-4 C 0.25 5.67
2016-1 A-3 9.05 26.53
2016-1 A-4 9.05 26.53
2016-1 B 3.05 11.44
2016-1 C 0.25 4.40
2016-2 A-3 10.20 26.49
2016-2 A-4 10.20 26.49
2016-2 B 3.45 11.46
2016-2 C 0.25 4.34
2017-1 A-2 11.60 22.23
2017-1 A-3 11.60 22.23
2017-1 A-4 11.60 22.23
2017-1 B 4.55 10.62
2017-1 C 0.55 4.03
(i)Calculated as a percentage of the total pool balance, consisting of a reserve account, overcollateralization, and, if applicable, subordination.

We incorporated a cash flow analysis to assess the loss coverage level, giving credit to excess spread. Our various cash-flow scenarios included forward-looking assumptions on recoveries, timing of losses, and voluntary absolute prepayment speeds that we believe are appropriate given each transaction's performance to date. Aside from our break-even cash flow analysis, we also conducted sensitivity analyses for these series to determine the impact that a moderate ('BBB') stress scenario would have on our ratings if losses began trending higher than our revised base-case loss expectation.

In our view, for each class where we raised or affirmed our ratings, the results demonstrated that all of the classes have adequate credit enhancement at the raised or affirmed rating levels.

We will continue to monitor the performance of all of the outstanding transactions to ensure that the credit enhancement remains sufficient, in our view, to cover our cumulative net loss expectations under our stress scenarios for each of the rated classes. We aim to resolve today's CreditWatch placements within the next 90 days.

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