Fitch's stress and rating sensitivity analysis are discussed in the presale report titled 'John Deere Owner Trust 2014-B', dated
KEY RATING DRIVERS
High Concentration of Agricultural (AG) Equipment: JDOT 2014-B is the seventh transaction to contain 75% AG equipment. Although AG equipment historical losses have been low, a high concentration in the pool limits diversification and exposes the trust to other factors, such as natural disasters (e.g. droughts and floods). However, geographic diversity and equipment versatility help mitigate the high concentration.
Consistent Collateral Concentrations: The pool contains 75.37% AG and 24.63% Construction (CO) equipment. These concentrations are consistent with those of JDOT 2014. Furthermore, the pool consists of 65.66% annual-pay contracts, which historically have experienced a lower level of losses versus other payment types.
Sufficient Credit Enhancement: Initial hard credit enhancement (CE) for JDOT 2014-B is 3.50%, unchanged from JDOT 2014. The initial reserve in JDOT 2014-B is 1.00%, while the subordinated certificates provide 2.50% enhancement. Initial excess spread in JDOT 2014-B is expected to be approximately 1.90%, down from the JDOT 2014 transaction's 2.12%. Under Fitch's 'AAAsf' scenario, CE for the class A notes was able to withstand more than 5.0x the expected net loss rate.
Stable Origination, Underwriting and Servicing:
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 on defaulted receivables could produce loss levels higher than the base case and could result in potential rating actions on the notes. Fitch evaluated the sensitivity of the ratings assigned to JDOT 2014-B to increased cumulative net losses (CNL) over the life of the transaction. Fitch's analysis found that the transaction displays some sensitivity to increased defaults and CNL, showing a potential downgrade of one category under Fitch's moderate (1.5x base case loss) scenario. The notes could experience downgrades of up to three rating categories, although still remaining investment grade, under Fitch's severe (2.5x base case loss) scenario.
Key Rating Drivers and Rating Sensitivities are further described in the accompanying pre-sale report.
Fitch's analysis of the Representations and Warranties (R&W) of this transaction can be found in 'John Deere Owner Trust 2014-B - Appendix'. These R&W are compared to those of typical R&W for the asset class as detailed in the special report 'Representations, Warranties, and Enforcement Mechanisms in Global Structured Finance Transactions' dated
Additional information is available at 'www.fitchratings.com'.
--'Criteria for Rating U.S. Equipment Lease and Loan ABS' (
--'Global Structured Finance Rating Criteria' (
--'Counterparty Criteria for Structured Finance and Covered Bonds' (
--'Criteria for Interest Rate Stresses in Structured Finance Transactions and Covered Bonds' (
--'Representations, Warranties, and Enforcement Mechanisms in Global Structured Finance Transactions' (
--'John Deere Owner Trust 2014-B' (
--'John Deere Owner Trust 2014-B- Appendix' (
Criteria for Rating U.S. Equipment Lease and Loan ABS
Global Structured Finance Rating Criteria
Counterparty Criteria for Structured Finance and Covered Bonds
Criteria for Interest Rate Stresses in Structured Finance Transactions and Covered Bonds
Representations, Warranties, and Enforcement Mechanisms in Global Structured Finance Transactions
Source: Fitch Ratings
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