OREANDA-NEWS. Fitch Ratings has assigned Orbita Funding 2016-1's asset-backed notes the following final rating:

Class A notes, due July 2023: 'AAAsf'; Outlook Stable

Subordinated notes, due July 2023: not rated

The final rating is based on Fitch's assessment of CBL's origination and servicing procedures, the agency's expectations of future asset performance, the available credit enhancement and the transaction's legal structure.

The transaction is the first securitisation of UK auto loan receivables originated by Close Brothers Limited (CBL, A/Stable/F1) under the trading name Close Brothers Motor Finance (CBMF). CBL is a wholly-owned banking subsidiary of Close Brothers Group (CBG, A/Stable/F1). The transaction features a revolving period of 12 months. The preliminary pool totals GBP435.7m and comprises 69,512 loans to both individual and corporate customers.

KEY RATING DRIVERS

Used Car Value Exposure

The majority of the contracts are regulated by the Consumer Credit Act; this allows for voluntary termination (VT) of contracts by borrowers without further repayment obligations, once 50% of the total amount due is paid. Additionally, under a personal contract purchase loan, borrowers can return the vehicle in lieu of paying the final balloon instalment, exposing the issuer to residual value (RV) risk. Fitch used line-by-line data to assess the RV and VT risk, and has assumed a combined loss of 9.7% at the 'AAAsf' level.

Low Credit Losses

Historical vintage default and recovery data illustrate that performance is closely aligned with domestic economic conditions. The base case default expectations for used vehicles (2.75%) and new vehicles (1.75%) were aligned to a relatively benign economic outlook. Fitch has applied a high stress multiple of 6.0x to reflect the base case relative to the economic cycle, the absolute low level of the base case, and the nature of the underwriting.

Predominantly Manual Underwriting

The manual underwriting conducted for a majority of loans emphasises the subjective nature of the underwriting, while many other UK auto loan lenders employ more automation. We believe fewer documented objective guidelines may lead to some inconsistency in the applied standards. Fitch has been informed that this process is closely monitored and we believe this is largely reflected in past asset performance. The choice of a higher default multiple is intended to address the residual uncertainty of this practice.

Short Revolving Period

The transaction features a short revolving period of 12 months, in which the asset pool can be replenished. This exposes the transaction to deterioration in origination standards and to the economic cycle, compared with non-revolving transactions. Fitch has also assumed the portfolio migrates towards its concentration limits to capture any additional VT and RV loss.

Stable Asset Outlook

Fitch expects the performance of UK auto loans to remain stable. Fitch forecasts UK GDP growth to be stable at just above 2% over the next two years, primarily driven by domestic household consumption. Labour market developments are also favourable, with unemployment having declined from 6.2% in 2014 to 5.4% in 2015.

RATING SENSITIVITIES

Expected impact upon the note rating of increased defaults (Class A):

Original Rating: 'AAAsf'

Increase base case defaults by 10%: 'AAAsf'

Increase base case defaults by 25%: 'AA+sf'

Increase base case defaults by 50%: 'AAsf'

Expected impact upon the note rating of decreased recoveries (Class A):

Original Rating: 'AAAsf'

Reduce base case recovery by 10%: 'AAAsf'

Reduce base case recovery by 25%: 'AAAsf'

Reduce base case recovery by 50%: 'AA+sf'

Expected impact on the note ratings of increased market value stress (Class A):

Current ratings: 'AAAsf'

Increase market value stress by 10%: 'AA+sf'

Increase market value stress by 25%: 'AAsf'

Increase market value stress by 50%: 'A+sf'

Expected impact on the note rating of increased defaults and market value stress and reduced recoveries (Class A)

Current ratings: 'AAAsf'

Increase default base case and market value stress by 10%; reduce recovery base case by 10%: 'AA+sf'

Increase default base case and market value stress by 25%; reduce recovery base case by 25%: 'AA-sf'

Increase default base case and market value stress by 50%; reduce recovery base case by 50%: 'A-sf'

DUE DILIGENCE USAGE

Fitch received a third party assessment conducted on the asset portfolio information prior to transaction announcement.

DATA ADEQUACY

Fitch conducted a review of a small targeted sample of CBMF's origination files and found the information contained in the reviewed files to be adequately consistent with the originator's policies and practices and the other information provided to the agency about the asset portfolio. Overall, Fitch's assessment of the asset pool information relied upon for the agency's rating analysis according to its applicable rating methodologies indicates that it is adequately reliable.

SOURCES OF INFORMATION

The information below was used in the analysis.

- Loan-by-loan data provided by CBMF on the transaction portfolio, including the pool stratifications.

- Origination volumes since 1Q08 for all sub-portfolio combinations of vehicle types.

- Static, quarterly default and recovery vintages since 1Q08 for all sub-portfolio combinations of vehicle types and customer types.

- Dynamic, monthly delinquency data from January 2008 for all sub-portfolio combinations of vehicle types and customer types.

- Static, monthly prepayment data from January 2008 for all sub-portfolio combinations of vehicle types.

- Dynamic, monthly prepayment data from January 2008 for CBMF's loan book.

- Dynamic, monthly voluntary termination recoveries from January 2008 for CBMF's loan book.