Fitch Affirms Eclipx Turbo 2017-1 Trust

(The following statement was released by the rating agency) Fitch Ratings-Sydney-17 August 2020: Fitch Ratings has affirmed two classes of notes from Eclipx Turbo Series 2017-1 Trust's automotive lease-backed floating-rate notes. The transactions are securitisations of first-ranking Australian operating, financing and novated lease receivables originated by FleetPartners Pty Limited, which forms part of the Eclipx Group Limited. The notes were issued by Perpetual Trustee Company Limited as trustee for the trust. The social and market disruption caused by the coronavirus and the related containment measures did not negatively affect the ratings because there is sufficient credit enhancement to offset the effects under Fitch's base-case scenario and adequate liquidity to support the current ratings. The Stable Outlook is based on the notes' liquidity support and ability to withstand the sensitivity to higher defaults and lower recoveries stemming from the pandemic. Eclipx Turbo Series 2017-1 Trust ----A2 AU3FN0039343; Long Term Rating; Affirmed; AAAsf; RO:Sta ----B AU3FN0039350; Long Term Rating; Affirmed; AAAsf; RO:Sta KEY RATING DRIVERS Coronavirus-Related Economic Shock: Fitch has made assumptions about the spread of the coronavirus and the economic impact of the related containment measures. Under our base-case (most likely) scenario, Fitch assumes a global recession in 1H20 driven by sharp economic contractions in major economies with a rapid spike in unemployment, followed by a solid recovery that begins in 3Q20 as the health crisis subsides. Fitch's baseline scenario for Australia includes GDP shrinking by 2.7% in 2020 with unemployment rising to an annual average of 7.1%, which would result in material deterioration of asset performance. This deterioration in macroeconomic conditions will be partly offset by a low official cash rate of 0.25% and stimulus measures from the central bank and government. Fitch's downside (sensitivity) scenario in the rating sensitivities section below considers a more severe and prolonged period of stress, with recovery to pre-crisis GDP levels delayed until around the middle of the decade. Coronavirus-Related Impact: The measures put in place to limit the virus spread are affecting Australia's economy, with many businesses continuing to experience a decline in income. We expect these measures to affect loan performance and this has been factored into our revised base-case assumptions. Commentary describing our credit views and analytical approach as a consequence of the coronavirus is available in the following reports: - "Global Economic Outlook: June 2020 - Coronavirus Disruption Easing", available at www.fitchratings.com/site/re/10127783 - "Fitch Ratings Coronavirus Scenarios: Baseline and Downside Cases -- Update", available at www.fitchratings.com/site/re/10120570 - "Global SF Rating Assumptions Updated to Reflect Coronavirus Risk", available at www.fitchratings.com/site/pr/10117224 Liquidity Risk: We have reviewed the ability of the transaction to survive a significant proportion of borrowers being offered, and taking up, a payment holiday. The transaction can withstand more than 95% of the portfolio in delinquency or receiving payment holidays before needing to draw upon liquidity support. This is well above the current balance of loans under payment deferral as a portion of the total transaction (0.6% at end-June 2020). In addition, the transaction benefits from a reserve sized at 2.0% of invested note balance. The reserve would be able to cover the entire portfolio with a payment holiday for 10 months. Portfolio Analysis: The portfolio consisted of 3,197 contracts equating to approximately AUD79.8 million at end-June 2020. The average contract balance was AUD24,967. The portfolio consists of operating and finance lease contracts to obligors across a range of industries. The underlying obligors are predominantly large corporates (93.1%) and the collateral consists of mostly passenger vehicles (39.8%) with smaller portions of light commercial vehicles (26.1%), heavy commercial vehicles (21.5%) and auto and other equipment (12.6%). The portfolio is further diversified across geographical locations with no particular concentration in any one state, territory or industry. The portfolio has exhibited no signs of performance deterioration; as at end-June 2020, 30+ and 60+ days' arrears were 0.6% and 0.3%, respectively, lower than Fitch's 1Q20 ABS Dinkum Index of 2.3% and 1.1%, respectively. The portfolio has experienced defaults resulting in life to date net loss of AUD169,234, or 0.05% of the original portfolio balance, which have been covered by excess spread. This is below Fitch's initial base-case assumptions. The strong performance observed is partially attributable to the predominantly corporate obligor pool (93.1%), and the small exposure to industries significantly affected by the pandemic, with retail trade forming 3.3% of the total outstanding balance of the portfolio and accommodation and food services forming 0.5% the total outstanding balance. Fitch took into consideration the historical performance of the portfolio in reviewing the base-case assumptions, as well as expectations of the performance of the receivables as a result of the deterioration of macroeconomic conditions in Australia due to the coronavirus pandemic. The base-case default rates were increased by 3.9x as a result. The revised assumptions resulted in no impact on the existing rating as the credit enhancement available to the 'AAAsf' rated class A2 and B notes is sufficient to withstand the expected worsened performance. Obligor Concentration: The pool's largest 10 obligors account for 4.2% of the current portfolio. The relative concentration of the portfolio has been taken into consideration in Fitch's derivation of default assumptions while considering lessee concentrations and correlation risks, in line with the SME Balance Sheet Securitisation Rating Criteria. Residual Value Risk: The weighted-average current residual value on the operating lease portfolio is 50.34%. The proceeds realised on disposal of the underlying assets have been stable in the last 12 months and have exceeded the base-case assumptions set at the inception of the transaction. The performance of the residual value has been underpinned by stronger demand than we expected for second-hand cars. Servicer, Operational Risks: All assets were originated by FleetPartners, which demonstrates adequate capability as originator, underwriter and servicer, evident from the historical delinquency and performance of existing securitised trusts. Fitch undertook an onsite operational review and found that the operations of the originator and servicer were comparable with other auto and equipment lenders. RATING SENSITIVITIES Factors that could, individually or collectively, lead to positive rating action/upgrade: - The class A2 and B notes are rated at 'AAAsf', which is the highest level on Fitch's scale. The ratings cannot be upgraded. Factors that could, individually or collectively, lead to negative rating action/downgrade: - A longer pandemic than Fitch expects that leads to deterioration in macroeconomic fundamentals and consumers' financial position in Australia beyond Fitch's baseline scenario. Credit enhancement cannot compensate for the higher credit losses and cash flow stresses, all else being equal. Fitch conducted a sensitivity analysis by increasing gross default levels and decreasing recovery rates over the life of the transaction. Best/Worst Case Rating Scenario International scale credit ratings of Structured Finance transactions have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of seven notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of seven notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAAsf' to 'Dsf'. Best- and worst-case scenario credit ratings are based on historical performance. For more information about the methodology used to determine sector-specific best- and worst-case scenario credit ratings, visit https://www.fitchratings.com/site/re/10111579. USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10 Form ABS Due Diligence-15E was not provided to, or reviewed by, Fitch in relation to this rating action. DATA ADEQUACY Fitch has checked the consistency and plausibility of the information it has received about the performance of the asset pools and the transactions. There were no findings that were material to this analysis. Fitch has not reviewed the results of any third-party assessment of the asset portfolio information as part of its ongoing monitoring. As part of its ongoing monitoring, Fitch conducted a review of a small targeted sample of FleetPartners' 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. REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING The principal sources of information used in the analysis are described in the Applicable Criteria. The issuer has informed Fitch that not all relevant underlying information used in the analysis of the rated notes is public. ESG Considerations The highest level of ESG credit relevance, if present, is a score of 3. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity(ies), either due to their nature or to the way in which they are being managed by the entity(ies). For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg. Contacts: Surveillance Rating Analyst Marija Buzevska, Senior Analyst +61 2 8256 0340 Fitch Australia Pty Ltd Suite 15.01, Level 15 135 King Street Sydney 2000 Committee Chairperson Claire Heaton, Senior Director +61 2 8256 0361 Media Relations: Peter Hoflich, Singapore, Tel: +65 6796 7229, Email: peter.hoflich@thefitchgroup.com Leslie Tan, Singapore, Tel: +65 6796 7234, Email: leslie.tan@thefitchgroup.com Additional information is available on www.fitchratings.com Applicable Criteria Consumer ABS Rating Criteria (pub. 09 Jun 2020) (including rating assumption sensitivity) (https://www.fitchratings.com/site/re/10124893) Consumer ABS Rating Criteria – Residual Value Addendum (pub. 11 Dec 2019) (including rating assumption sensitivity) (https://www.fitchratings.com/site/re/10101556) Global Structured Finance Rating Criteria (pub. 17 Jun 2020) (including rating assumption sensitivity) (https://www.fitchratings.com/site/re/10126475) SME Balance Sheet Securitisation Rating Criteria (pub. 07 Feb 2020) (including rating assumption sensitivity) (https://www.fitchratings.com/site/re/10107078) Structured Finance and Covered Bonds Counterparty Rating Criteria (pub. 29 Jan 2020) (https://www.fitchratings.com/site/re/10108544) Structured Finance and Covered Bonds Counterparty Rating Criteria: Derivative Addendum (pub. 29 Jan 2020) (https://www.fitchratings.com/site/re/10108546) Structured Finance and Covered Bonds Interest Rate Stresses Rating Criteria (pub. 06 Dec 2019) (https://www.fitchratings.com/site/re/10103887) Additional Disclosures Dodd-Frank Rating Information Disclosure Form (https://www.fitchratings.com/site/dodd-frank-disclosure/10133121) Solicitation Status (https://www.fitchratings.com/site/pr/10133121#solicitation) Endorsement Status (https://www.fitchratings.com/site/pr/10133121#endorsement_status) Endorsement Policy (https://www.fitchratings.com/site/pr/10133121#endorsement-policy) ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTPS://WWW.FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS (HTTPS://WWW.FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS). IN ADDITION, THE FOLLOWING HTTPS://WWW.FITCHRATINGS.COM/RATING-DEFINITIONS-DOCUMENT (https://www.fitchratings.com/rating-definitions-document) DETAILS FITCH'S RATING DEFINITIONS FOR EACH RATING SCALE AND RATING CATEGORIES, INCLUDING DEFINITIONS RELATING TO DEFAULT. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE. DIRECTORS AND SHAREHOLDERS RELEVANT INTERESTS ARE AVAILABLE AT HTTPS://WWW.FITCHRATINGS.COM/SITE/REGULATORY (https://www.fitchratings.com/site/regulatory). FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH RATINGS WEBSITE. Copyright © 2020 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. The manner of Fitch's factual investigation and the scope of the third-party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third- party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. Users of Fitch's ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. As a result, despite any verification of current facts, ratings and forecasts can be affected by future events or conditions that were not anticipated at the time a rating or forecast was issued or affirmed. The information in this report is provided "as is" without any representation or warranty of any kind, and Fitch does not represent or warrant that the report or any of its contents will meet any of the requirements of a recipient of the report. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion and reports made by Fitch are based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings and reports are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating or a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. Fitch is not engaged in the offer or sale of any security. All Fitch reports have shared authorship. Individuals identified in a Fitch report were involved in, but are not solely responsible for, the opinions stated therein. The individuals are named for contact purposes only. A report providing a Fitch rating is neither a prospectus nor a substitute for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the securities. Ratings may be changed or withdrawn at any time for any reason in the sole discretion of Fitch. Fitch does not provide investment advice of any sort. Ratings are not a recommendation to buy, sell, or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature or taxability of payments made in respect to any security. Fitch receives fees from issuers, insurers, guarantors, other obligors, and underwriters for rating securities. Such fees generally vary from US$1,000 to US$750,000 (or the applicable currency equivalent) per issue. In certain cases, Fitch will rate all or a number of issues issued by a particular issuer, or insured or guaranteed by a particular insurer or guarantor, for a single annual fee. Such fees are expected to vary from US$10,000 to US$1,500,000 (or the applicable currency equivalent). The assignment, publication, or dissemination of a rating by Fitch shall not constitute a consent by Fitch to use its name as an expert in connection with any registration statement filed under the United States securities laws, the Financial Services and Markets Act of 2000 of the United Kingdom, or the securities laws of any particular jurisdiction. Due to the relative efficiency of electronic publishing and distribution, Fitch research may be available to electronic subscribers up to three days earlier than to print subscribers. For Australia, New Zealand, Taiwan and South Korea only: Fitch Australia Pty Ltd holds an Australian financial services license (AFS license no. 337123) which authorizes it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001 Fitch Ratings, Inc. is registered with the U.S. Securities and Exchange Commission as a Nationally Recognized Statistical Rating Organization (the "NRSRO"). While certain of the NRSRO's credit rating subsidiaries are listed on Item 3 of Form NRSRO and as such are authorized to issue credit ratings on behalf of the NRSRO (see https://www.fitchratings.com/site/regulatory), other credit rating subsidiaries are not listed on Form NRSRO (the "non-NRSROs") and therefore credit ratings issued by those subsidiaries are not issued on behalf of the NRSRO. However, non-NRSRO personnel may participate in determining credit ratings issued by or on behalf of the NRSRO.