NEW YORK--Fitch Ratings assigns the following ratings and Rating Outlooks to the Honda Auto Receivables 2016-1 Owner Trust notes:
--$265,700,000 class A-1 'F1+sf';
--$312,000,000 class A-2 'AAAsf'; Outlook Stable;
--$332,000,000 class A-3 'AAAsf'; Outlook Stable;
--$90,300,000 class A-4 'AAAsf'; Outlook Stable;
--$25,648,881 certificates 'NR'.
KEY RATING DRIVERS
Strong Credit Quality: The credit quality of 2016-1, as measured by the weighted average (WA) Fair Isaac Corp. (FICO) score of 761 and internal credit score tiering, is consistent with recent pools. New vehicles total 93.7%, and the WA seasoning is 13.6 months.
Consistent Credit Enhancement Structure: The cash flow distribution is a sequential-pay structure. Initial hard credit enhancement (CE) is 2.75% (subordination of 2.50% and a 0.25% reserve). A yield supplement account (YSA) increases the effective WA annual percentage rate (APR) and, thus, excess spread (XS), which totals 2.67%, higher than 2015-4 (NR) and 2015-3.
Strong Portfolio/Securitization Performance: Losses on American Honda Finance Corporation's (AHFC) portfolio and 2010-2015 securitizations have been low historically and remained well below peak levels from 2008 due to stronger quality originations and healthy used vehicle values. Fitch's base case loss proxy remains at 0.90%; however, pool-factor projections of recent HAROT securitizations suggest 2016-1 could be expected to perform within a 0.35%-0.45% range, assuming stable macroeconomic conditions.
Stable Corporate Health: Fitch rates AHFC 'F1' and its parent, Honda, 'A/F1'/Outlook Stable. AHFC has recorded positive corporate financial results in recent years, while the overall health of Honda has remained strong.
Consistent Origination/Underwriting/Servicing: AHFC demonstrates adequate capabilities as originator, underwriter and servicer, as evidenced by historical portfolio delinquency and loss experience and securitization performance. Fitch deems AHFC capable of servicing 2016-1.
Legal Structure Integrity: The legal structure of the transaction should provide that a bankruptcy of AHFC would not impair the timeliness of payments on the securities.
Unanticipated increases in the frequency of defaults and loss severity on defaulted receivables could produce loss levels higher than the base case. This in turn could result in potential rating actions on the notes. Fitch evaluated the sensitivity of the ratings assigned to all classes of 2016-1 to increased losses over the life of the transaction. Fitch's analysis found that the notes display limited sensitivity to increased defaults and losses, showing no expected impact on the rating of the notes under Fitch's moderate (1.5x base case loss) scenario. The notes could experience a downgrade of two rating categories under Fitch's severe (2.5x base case loss) scenario.
DUE DILIGENCE USAGE
Fitch was provided with third-party due diligence information from KPMG LLP. The third-party due diligence focused on a random sample of 287 receivables selected from the 97,109 receivables (as of Dec. 31, 2015). A comparison was made of the various attributes of each of the selected receivables (first payment date, original amount financed, among others) in the data file to contractual documents provided by the company. Based on the results of the procedures, KPMG concluded with a 99% confidence level that the maximum estimated error occurrence rate for each of the attributes does not exceed 5%.
Additional information is available at www.fitchratings.com.
Counterparty Criteria for Structured Finance and Covered Bonds (pub. 14 May 2014)
Criteria for Servicing Continuity Risk in Structured Finance (pub. 17 Dec 2015)
Global Structured Finance Rating Criteria (pub. 06 Jul 2015)
Rating Criteria for U.S. Auto Loan ABS (pub. 15 Oct 2015)
Honda Auto Receivables 2016-1 Owner Trust -- Appendix
Dodd-Frank Rating Information Disclosure Form
ABS Due Diligence Form 15E 1