NISSAN MOTOR CO LTD
Fitch Ratings expects to assign ratings and Rating Outlooks to the asset-backed notes issued by
Fitch's base case cumulative net loss (CNL) proxy is derived by considering through-the-cycle 2006-2009 recessionary performance of
RATING ACTIONS
Entity / Debt
Rating
A-1
ST
F1+(EXP)sf
Expected Rating
A-2a
LT
Expected Rating
A-2b
LT
Expected Rating
A-3
LT
Expected Rating
A-4
LT
Expected Rating
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VIEW ADDITIONAL RATING DETAILS
KEY RATING DRIVERS
Collateral and Concentration Risks - Concentrated Residual Maturities: 2024-A is a prime portfolio with a weighted average (WA)
Lease-End Residual Value Risk - Concentration Risk: The 2024-A RV concentration risk has increased notably compared to prior series, including 2023-B. Leases scheduled to mature after 24 months from the cutoff date account for 87% of the total base RV, compared to 53% and 49% for 2023-B and 2023-A. The peak 6-month RV maturity is 57% of the base RV, compared with 40% in 2023-B and 37% in 2023-A. To account for potential future volatility in the wholesale market and higher maturity concentration, Fitch used the worst 12-month average of historically observed residual dispositions composition in the derivation of its 'BBsf' RV proxy.
Forward Looking Approach to Loss Proxy - Stable Credit and Residual Value Performance: NMAC's credit and residual loss performance has been strong in recent years. However, the economic environment and state of the auto industry, including the wholesale vehicle market (WVM), can have a material impact on ratings. Fitch considered these risks, as well as future expectations and their impact on the transaction, in deriving the net credit and RV loss expectations for NALT 2024-A. Fitch's forward-looking base case credit loss proxy is 0.90% of the SV, and the 'BBsf' RV proxy is 12.00% of returned residual.
Payment Structure - Sufficient Hard CE: NALT features a reserve account of 0.40% that will grow to 0.65% until the class A-2 notes are paid off, at which point it will decline to 0.50%. The size of the reserve account is generally in line with prior transactions. Initial hard CE is 22.90% for the class A notes. The CE profile is among one of the highest for the platform, matched only by the 2023-B and 2022-A transactions. Based on a 0.90% credit loss proxy stressed for the 'AAAsf' rating category and stressed RV loss expectations of 26.96% for 'AAAsf', CE is sufficient to support the expected ratings.
Operational and Servicing Risks - Consistent Origination, Underwriting and Servicing: NMAC has adequate capabilities as originator, underwriter and servicer, as evidenced by the historical delinquency and loss performance of its managed portfolio and securitizations. Fitch deems NMAC capable of adequately servicing 2024-A, as evidenced by the historical performance of its managed portfolio and prior securitizations.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade
Unanticipated decreases in the value of returned vehicles and/or increases in the frequency of defaults and loss severity on defaulted receivables could produce loss levels that are higher than the base case and would likely result in declines of CE and loss coverage levels available to the notes. Decreased CE may make certain note ratings susceptible to potential negative rating actions depending on the extent of the decline in coverage. Hence, Fitch conducts sensitivity analyses by increasing a transaction's initial base case RV and credit loss assumptions and examining the rating implications on all classes of issued notes.
The increases to the base case losses are applied such that they represent moderate and severe stresses, respectively, and are intended to provide an indication of the rating sensitivity of notes to unexpected deterioration of a trust's performance.
During the sensitivity analysis, Fitch examines a transaction structure through cash flow modeling to test the ability to cover stressed credit and RV losses. Fitch calculates loss coverage levels for each rating category by first applying credit defaults to the pool and then increasing residual realization haircuts until the first dollar of note principal is lost. As base case credit or RV losses are increased, the modeled loss coverage supported under the CE structure may fall below the target level for each rating category and would therefore be subject to a negative rating action.
The first rating sensitivity scenario is to increase the base case credit loss assumptions by a moderate and a severe stress. As illustrated in the table above, under a moderate stress scenario of 1.5x the base case credit loss and the more severe credit loss stress of 2.5x the base case credit loss, the decrease in targeted loss coverage would likely not result in a rating change for the class A notes. As credit defaults are increased, less of the collateral is subject to residual stresses upon lease end. The resiliency is partially due to the strength of the non-declining structure of the CE, as well as the tradeoff that occurs when credit defaults are increased.
Additionally, the ratings are sensitive to fluctuations in RV losses in auto lease ABS transactions. A moderate stress to the RV loss estimate, an increase in the base case to 25%, would likely result in a negative rating action of approximately up to one rating category for class A notes. Under the severe RV loss stress, an increase in the base case to 30%, class A notes would likely be subject to a downgrade of two rating categories.
Fitch also conducted a rating sensitivity to increased residual lag (time to sell vehicles at auction) to examine the impact of an increased lag between lease return and the receipt of residual proceeds. This stress consisted of increasing the residual lag time to four months from two months in the primary stress scenario. In this sensitivity scenario, the notes saw a decrease in loss coverage. However, it is unlikely that loss coverage would decrease enough to warrant a downgrade to the class A notes.
Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade
Given that the class A notes are rated 'AAAsf', upside stresses were not considered. However, if RV losses are 20% less than the 'BB' RV loss proxy, the expected ratings would be maintained for class A notes but at stronger rating multiples.
USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10
Fitch was provided with Form ABS Due Diligence-15E (Form 15E) as prepared by
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.
REPRESENTATIONS, WARRANTIES AND ENFORCEMENT MECHANISMS
A description of the transaction's representations, warranties and enforcement mechanisms (RW&Es) that are disclosed in the offering document and which relate to the underlying asset pool is available by clicking the link to the Appendix. The appendix also contains a comparison of these RW&Es to those Fitch considers typical for the asset class as detailed in the Special Report titled 'Representations, Warranties and Enforcement Mechanisms in Global Structured Finance Transactions'.
ESG Considerations
The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. For more information on Fitch's ESG Relevance Scores, visit https://www.fitchratings.com/topics/esg/products#esg-relevance-scores.
This transaction, along with all auto and fleet lease transactions, has an ESG Relevance Score (RS) for Labor Relations and Practices of '3' (low impact on credit), which is higher than the baseline RS of '2' (no impact) for the general North American auto sector. The difference in RS for this ESG factor was driven by the presence of a titling trust structure, which gives rise to superior liens on the vehicles from the
There are no electric vehicles (EVs), hybrid EVs (HEVs) or plug-in HEVs (PHEVs) in the collateral pool.
Additional information is available on www.fitchratings.com.
Additional information is available on www.fitchratings.com
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