KEY RATING DRIVERS
Stable Collateral Characteristics: The 2014-3 pool is representative of non-prime collateral. The weighted average (WA) Fair Isaac Corp. (FICO) score is 632, WA APR of 7.87%, WA LTV is 100% and new vehicles total 63%, while 60+ month loan contracts (extended-term contracts) total 73%, all relatively consistent with recent pools.
One-Year Revolving Period Risk: The revolving structure introduces risk of collateral migrating to a weaker pool before the start of the amortization period, although additional receivables' eligibility criteria mitigate this risk. Fitch accounts for this risk in its derivation of the 5.50% base case loss proxy for 2014-3.
Adequate Credit Enhancement: Initial hard credit enhancement (CE) is consistent with all prior transactions. The reserve is 0.50% non-declining and initial overcollateralization (OC) is 3.25% (both of the initial pool balance) growing to a target of 4.75% post the revolving period. Excess spread totals 4.46% per annum, down from 2014-2 (Not Rated).
Stable Portfolio Performance: AFIN's non-prime U.S. auto loan portfolio exhibited improved performance in 2009-2013 relative to the weak 2006-2008 period, supported by the gradual improvement in the U.S. economy and healthy used vehicle values.
Legal Structure Integrity: The legal structure of the transaction should provide that a bankruptcy of AFIN 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 each class of CARAT 2014-3 to increased losses over the life of the transaction. Fitch's analysis found that each class of notes displays some sensitivity to increased defaults and losses, with some classes showing potential downgrades of up to two rating categories under Fitch's moderate (1.5x base case loss) scenario. Some classes of notes could experience downgrades of more than three rating categories under Fitch's severe (2x base case loss) scenario.
Key rating drivers and rating sensitivities are further detailed in the accompanying presale report at 'www.fitchratings.com' or by clicking on the above link.
Fitch's analysis of the Representation and Warranties (R&W) of this transaction can be found in 'Capital Auto Receivables Asset Trust 2014-3--Appendix'. These R&W are compared to those of typical R&W for the asset class as detailed in Fitch's
Additional information is available at 'www.fitchratings.com'.
--'Rating Criteria for U.S. Auto Loan ABS' (
--'Global Structured Finance Rating Criteria'(
--'Capital Auto Receivables Asset Trust 2014-3--Appendix' (
Global Structured Finance Rating Criteria
Rating Criteria for U.S. Auto Loan ABS
Source: Fitch Ratings
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