Presale:

Sierra Auto Receivables Securitization Trust 2016-1 Primary Credit Analyst: Steve D Martinez, New York (1) 212-438-2881; [email protected]

Table Of Contents $135.00 Million Automobile Receivables-Backed Notes Series 2016-1 Rationale Key Rating Considerations Sierra Transaction Overview Transaction Structure Payment Structure Portfolio Performance Pool Analysis S&P Global Ratings' Expected Loss: 19.00%-20.00% Cash Flow Modeling: Break-Even Cash Flows Sensitivity Analysis Legal Final Maturity Related Criteria And Research WWW.STANDARDANDPOORS.COM/RATINGSDIRECT

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Presale:

Sierra Auto Receivables Securitization Trust 2016-1 $135.00 Million Automobile Receivables-Backed Notes Series 2016-1 This presale report is based on information as of June 17, 2016. The ratings shown are preliminary. This report does not constitute a recommendation to buy, hold, or sell securities. Subsequent information may result in the assignment of final ratings that differ from the preliminary ratings.

Preliminary Ratings As Of June 17, 2016 Class

Preliminary rating(i) Type

Interest rate Preliminary amount (mil. $) Legal final maturity date

A

A (sf)

Senior

Fixed

102.20 Jan. 18, 2022

B

BBB (sf)

Subordinate Fixed

16.90 Jan. 18, 2022

C

BB (sf)

Subordinate Fixed

15.90 Sept. 15, 2023

(i)The rating on each class of securities is preliminary and subject to change at any time.

Profile Expected closing date

June 29, 2016.

Collateral

Subprime auto loan receivables

Originator, sponsor, and servicer

Sierra Auto Finance LLC.

Depositor

Sierra Auto Receivables Funding LLC.

Issuer

Sierra Auto Receivables Securitization Trust 2016-1.

Structuring lead manager

Wells Fargo Securities.

Indenture trustee, custodian, and backup servicer Wells Fargo Bank N.A. Owner trustee

Wells Fargo Delaware Trust Co. N.A.

Credit Enhancement Summary SARST 2016-1 Subordination (% of the initial receivables)(i) Class A

21.02

Class B

10.19

Overcollateralization Initial (% of the initial receivables)

13.50

Target(% of the current receivables)(ii)

20.00

Floor (% of the initial receivables)

1.00

Reserve fund (% of the initial receivables) Initial

1.50

Target

1.50

Floor

1.50

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Credit Enhancement Summary (cont.) SARST 2016-1 Total initial hard credit enhancement (% of the initial receivables) Class A

36.02

Class B

25.19

Class C

15.00

Excess spread per year (estimated %)(iii)

13.35

(i)Principal on the preliminary rated notes will be paid sequentially. (ii)The target overcollateralization will increase to 24.00% following a cumulative net loss trigger. (iii)Includes the 3.50% servicing fee. SARST 2016-1—Sierra Auto Receivables Securitization Trust 2016-1.

Rationale The preliminary ratings assigned to Sierra Auto Receivables Securitization Trust 2016-1's (SARST 2016-1's) automobile receivables-backed notes reflect: • The availability of approximately 41.8%, 32.8%, and 26.9% credit support for the class A, B and B notes, respectively, based on stressed cash flow scenarios (including excess spread), which provides coverage of more than 2.1x, 1.6x, and 1.3x our 19.00%-20.00% expected cumulative net loss (CNL; see the Cash Flow Modeling section for more information). • The timely interest and principal payments made to the preliminary rated notes by the assumed legal final maturity dates under stressed cash flow modeling scenarios that we believe are appropriate for the assigned preliminary ratings. • Our expectation that under a moderate ('BBB') stress scenario, all else being equal, our rating on the class A notes would remain within one rating category of our preliminary 'A (sf)' rating during the first year and that our ratings on the class B and C notes would remain within two rating categories of our preliminary 'BBB (sf)' and 'BB (sf)' ratings, respectively, during the first year. These potential rating movements are consistent with our credit stability criteria, which outline the outer bound of credit deterioration as a two-category downgrade within the first year for 'A (sf)', 'BBB (sf)' and 'BB (sf)' rated securities under moderate stress conditions (see "Methodology: Credit Stability Criteria," published May 3, 2010). • The collateral characteristics of the overall subprime automobile loan pool securitized in this transaction. • The transaction's payment and legal structures.

Key Rating Considerations SARST 2016-1 is Sierra Auto Finance LLC's (Sierra's) first auto asset-backed securities (ABS) transaction. The securities are collateralized by subprime retail automobile installment contracts with FICO scores predominantly below 600. This pool's weighted average FICO is 537. Based on our review of Sierra's operations, we considered the following strengths of the transaction: • Experienced, proven management team. Experienced executive management team including CEO, Sam Ellis and Chief Operating Officer Brett Beebe both of whom held senior positions at AmeriCredit for several years (see the Management section below). • Satisfactory liquidity position. The company has a two-year $200 million warehouse line from Wells Fargo Bank

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N.A. that was just renewed in the fourth quarter of 2015 and increased from $150 million. • Long-term equity partner. Emerald Development Managers L.P. (Emerald), the largest equity partner with a 68.0% current ownership, has been characterized by Sierra as "permanent equity," allowing the company to focus on credit and profitability. Emerald has invested over $50 million in Sierra to date. Emerald has a history of owning companies for extended periods of time. For example, Emerald Affiliates partnered in starting American Rock Salt Co. LLC ('B/Stable') in 1997, which it continues to own today. • Modest growth. In 2015, its portfolio grew only 10.0% year over year. However, growth did pick up in the first quarter, with the portfolio increasing 36.0% from March 2015 to March 2016 (see the Portfolio Performance section). • Improved performance. Improved portfolio performance as evidenced by the lower delinquencies and losses in first-quarter of March 2016 compared to first-quarter March 2015. • Strong legal compliance leadership. David Keene, director of compliance and licensing, has over 34 years of subprime auto, collections, and consumer finance experience. • Seasoning. The pool is approximately 12 months seasoned. • Experienced backup servicer and custodian. Wells Fargo Bank N.A. (AA-/Stable/A-1+), as the backup servicer, indenture trustee, and the loan files' custodian, completed the data mapping for Sierra's servicing system, which we believe will facilitate a smoother servicing transfer, if necessary. • Lockbox account. The collections from the loans in the pool are remitted to a lockbox account at Wells Fargo Bank N.A. and then transferred within two days to a collection account also at Wells Fargo Bank N.A. The lockbox account and the collection account are in the indenture trustee's name. Despite the strengths outlined above, we believe that the following limitations, taken as a whole, weigh against assigning a rating above 'A (sf)' to this transaction: • Short operating history of approximately four years. The company was founded in 2012, and as such, has not yet demonstrated that it can manage an economic downturn or an intensely competitive market in which competition is based on pricing. However, the company was capital-constrained during mid- to late-2014 and has proven that it can scale back its originations and improve performance. • Limited performance data. The company has provided monthly origination static pool data since 2012. While this appears limited, we have adequate credit performance to size an expected loss range. • Unprofitable. For fiscal-year 2015, the company reported net losses of $5 million, down from $10 million for the same period in 2014.

Sierra Sierra was founded in mid-2012 as an independent, specialty auto finance company that provides indirect financing to consumers with limited access to traditional financial sources. Sierra is a wholly owned subsidiary of DriverUp Corp., a holding company formed in 2012 as Sierra Holdings LLC and converted to DriverUp Corp. in 2015. A majority of the equity of DriverUp Corp. is owned by three private equity funds, which are affiliates of Emerald, RRE Ventures, and SF Capital Group. Sierra is headquartered in Dallas, where all of the company's operations are centralized. It currently operates in 25 states. As of March 31, 2016, Sierra had 168 employees, was licensed to purchase automobile retail installment sale contracts in 39 states, was a party to over 3,000 dealer agreements, and serviced a portfolio of approximately 22,734

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motor vehicle contracts with an aggregate principal balance of approximately $241 million. The company has originated over $425.9 million in receivables as of March 31, 2016.

Management Sierra was founded by Sam Ellis, the founder and former CEO of Exeter Finance LLC (Exeter) and who has over 19 years of experience in the indirect subprime auto finance market. He left Exeter in the fall of 2011 as Navigation Partners (the largest investor in Exeter) was negotiating the sale of the company to Blackstone Group L.P. Prior to founding Exeter, Ellis was the senior vice president of risk management at AmeriCredit (from November 1997 to March 2006). Before AmeriCredit, Mr. Ellis served as the vice president of risk management for Summit Acceptance, the predecessor company to Capital One. Sierra's executive management team, mostly from AmeriCredit, has between 15 and 34 years of experience in auto finance or other related fields.

Originations Sierra purchases retail installment loan contracts from both franchise and independent dealers. The company historically purchased a majority of its contracts from independent dealers, but since April 2015, that percentage has decreased as more contracts have increasingly been purchased from franchise dealers. In April 2015, over 80% of the contracts were purchased from independent dealers. This percentage has decreased to around 60% since then. Sierra generally buys the contracts at a discount, which is based on various factors, including the credit quality of the consumer and the overall structure of the loan. Sierra's contract acquisition process begins with the submission to Sierra of credit applications from its network of independent and franchised automobile dealers in connection with an obligor's purchase of an automobile from the dealer. Such applications are typically submitted to Sierra through industry internet portals such as DealerTrack or RouteOne. Upon a dealer's submission of a credit application, Sierra conducts an automated analysis of the applicant's credit and takes steps to verify the information in the obligor's application forms. Such analysis includes a review of the vehicle being purchased and the terms of the related contract for obligor suitability and ability to repay considerations. In a substantial number of cases, the credit application is systematically declined even before reaching Sierra's underwriting department for review. According to management, Sierra currently verifies income, employment, and other parameters on 100% of the loans during the funding stage. Sierra's servicing operations are centralized in Dallas. Sierra's accounts are all serviced in-house on the Shaw system at its Dallas headquarters.

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Presale: Sierra Auto Receivables Securitization Trust 2016-1

Transaction Overview SARST 2016-1 will issue $135.00 million of securities backed by retail installment sales contracts for new and used vehicles. The transaction is structured as a true sale of the receivables to Sierra Auto Receivables Funding LLC (the depositor) from Sierra (the originator, servicer, and sponsor). The depositor sells the receivables to SARST 2016-1 (the issuing entity), which pledges its interest in the receivables to the indenture trustee on the noteholders' behalf. Sierra will service the receivables on the issuing entity's behalf. In rating this transaction, S&P Global Ratings will review the legal matters that it believes are relevant to its analysis, as outlined in its criteria. (See chart 1 for the transaction structure.)

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Presale: Sierra Auto Receivables Securitization Trust 2016-1

Transaction Structure SARST 2016-1 incorporates the following structural features: • A sequential-pay mechanism among the notes that increases credit enhancement for the rated notes as the pool amortizes. • Initial overcollateralization of 13.50% of the initial pool balance that will build to a target of 20.00% of the current pool balance by using any excess spread available after covering net losses to pay principal on the outstanding notes. The overcollateralization floor is set at 1.00% of the initial pool balance. • A loss trigger that will step up the overcollateralization target to 24.00% if the collateral performance deteriorates and losses exceed the loss threshold. The triggers will be tested monthly and are curable if the CNLs stay below the thresholds for three consecutive months. • A nonamortizing reserve account that will equal 1.50% of the initial pool balance and will be fully funded at closing.

Payment Structure The class A, B ,and C notes' issuance amount will equal $135.00 million, and the notes will pay a fixed interest rate. Interest and principal are scheduled to be paid to the rated notes on each monthly distribution date on the 15th day of each month or, if that is not a business day, the next business day, beginning on July 15, 2016.

Payment distribution before an event of default Before an event of default, on each payment date distributions will be made from available funds according to a specific payment priority (see table 1). Table 1

Payment Waterfall Priority

Payment

1

Sequentially, to the servicer, the servicing fee, any supplemental servicing fees, reimbursements for mistaken deposits, and other related amounts; to any successor servicer, transition fees up to the specified cap.

2

Pro rata, to the custodian, the owner trustee, the indenture trustee, and the backup servicer, fees and expenses (if not already paid) in each case subject to a maximum specified annual limit.

3

Interest on the class A notes.

4

On any payment date prior to the final scheduled distribution date, principal, for parity, on the class A notes. On the final scheduled distribution date, principal on the class A notes.

5

Interest on the class B notes.

6

On any payment date prior to the final scheduled distribution date, principal, for parity, on the class B notes. On the final scheduled distribution date, principal on the class B notes.

7

Interest on the class C notes.

8

On any payment date prior to the final scheduled distribution date, principal, for parity, on the class C notes. On the final scheduled distribution date, principal on the class C notes.

9

To the reserve account up to the required amount.

10

Principal to achieve the specified amount of overcollateralization.

11

Additional fees, expenses, and indemnities owed to the indenture trustee, the custodian, the owner trustee, the backup servicer, and any successor servicer in excess of the related cap.

12

Any remaining funds to the residual certificateholders.

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Events of default Any of the following will constitute an event of default: • A default in the interest payment on the senior-most class of notes that remains uncured for five days. • A default in the principal payment on any note on its final scheduled distribution date. • A default in the observance or performance of any material covenant or agreement of the issuer or any materially incorrect representation or warranty of the issuer that is not cured for 45 days (up to 90 days in certain cases). • The issuer becomes insolvent. The third item above requires notice by the indenture trustee or the holders of at least 25% majority of the noteholders holding the senior-most classof notes outstanding.

Payment distribution after an event of default On each payment date following an event of default (other than an event of default related to a breach of a covenant or a representation and warranty), following the acceleration of the notes or upon liquidation of the trust assets, available funds will be distributed according to the priority shown in table 1. Following an event of default related to a breach of a covenant or a representation and warranty, payments on the notes shall be made in the order and priority set forth in table 1, expect amounts distributed in priority payment 1 and 2 will be made without regard to the cap or annual limitation, and all remaining funds will be distributed under priority payment 10, sequentially. Table 2

Payment Waterfall Following An Event Of Default Priority

Payment

1

The amounts due, pro rata, to the servicer, the trustees, the custodian, and the backup servicer, disregarding the caps and limitations.

2

The class A note interest, pro rata, to the class A noteholders.

3

The class A note principal to the class A noteholders until the class A note balance has been reduced to zero.

4

The class B note interest to the class B noteholders.

5

The class B note principal to the class B noteholders until the class B note balance has been reduced to zero.

6

The class C note interest to the class C noteholders.

7

The class C note principal to the class C noteholders until the class C note balance has been reduced to zero.

8

Any remaining funds to the residual certificateholders.

Servicer termination events Any of the following will constitute a servicing termination: • The servicer's failure to deliver any required payment to the trust collateral agent that remains unremedied for two business days. • Any failure to deliver to the indenture trustee the monthly servicer's certificate within three days after the date it is due • The servicer's failure to observe or perform in any covenant or agreement materially and adversely affecting the noteholders' rights that remains unremedied for 30 days • Events of bankruptcy, insolvency, receivership, liquidation similar proceedings regarding the servicer, or actions by the servicer, indicating its insolvency, reorganization under bankruptcy proceedings, or inability to pay its obligations. • Any incorrect servicer representation, warranty, or statement that remains unremedied for 30 days.

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If a servicer termination occurs, the indenture trustee at the direction of the majority of the noteholders holding the senior-most class can terminate the servicer's rights and obligations.

Portfolio Performance Sierra's managed portfolio performance slightly improved with decreasing delinquencies and net losses. As of March 31, 2016, delinquencies for 31 days or more decreased to 7.93% from 10.13% on the same date in 2015. Furthermore, annualized losses for the first three months ended March 31, 2016, were 7.73% versus 11.87%. Table 3

Managed Portfolio As of March 31, 2016 As of March 31, 2015 Period-end principal outstanding (mil. $)

As of Dec. 31, 2015

As of Dec. 31, 2014

As of Dec. 31, 2013

241.04

177.07

205.61

186.66

126.20

31-60 days

6.16

7.95

9.42

10.23

5.44

61-90 days

1.36

1.71

2.46

2.52

2.39

90-plus days

0.41

0.47

0.60

0.84

0.74

Total delinquencies as a % of principal amount outstanding

7.93

10.13

12.48

13.60

8.58

Three months ended March 31, 2016

Three months ended March 31, 2015

As of Dec. 31, 2015

As of Dec. 31, 2014

As of Dec. 31, 2013

227.83

180.57

182.14

166.06

69.75

7.73

11.87

10.28

9.82

7.73

Delinquencies (%)(i)

Net charge-offs(ii) Average month-end principal balance of receivables outstanding (mil. $) Annualized net charge-offs as a percentage of average principal outstanding (%)

(i)Sierra considers an automobile loan contract delinquent when an obligor fails to make at least 90% of a contractual payment by the due date. The period of delinquency is based on the number of days payments are contractually past due. (ii)Net credit losses equal gross charge-offs minus net proceeds from the liquidation of the vehicle, excluding accrued and unpaid interest.

Pool Analysis As of May 31, 2016, the statistical calculation date, the collateral pool comprised approximately $156 million in auto loans (see table 5). The pool is close to 12 months seasoned, the vehicles are predominantly used vehicles (96.97%), and approximately 89% of the loans have a FICO score lower than 600 (73.50%) or no score (15.60%). Table 4

SARST Collateral(i) SARST 2016-1 Total Pool size (mil. $)

156.07

No. of receivables

14,733

Avg. principal balance ($)

10,593

Weighted avg. APR (%)

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18.82

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Table 4

SARST Collateral(i) (cont.) SARST 2016-1 Weighted avg. original term (mos.)

63.15

Weighted avg. remaining term (mos.)

51.49

Weighted avg. seasoning (mos.)

11.66

Loans with original term of 61-72 mos. (%)

51.12

Loans with original term of 73-75 mos. (%)

0.00

New vehicles (%)

3.03

Used vehicles (%)

96.97

Weighted avg. LTV (%)

112.88

Weighted avg. credit bureau score

537

No score (%)

15.60

Less than or equal to 600 (%)

73.50

601 to 700 (%)

10.17

701 and greater

0.72

Top three state concentrations (%) TX=13.87 PA=8.49 SC=7.45 (i)All percentages are of the principal balance. SARST-- Sierra Auto Receivables Securitization Trust. APR--Annual percentage rate. LTV--Loan-to-value.

S&P Global Ratings' Expected Loss: 19.00%-20.00% To derive the transaction's base-case expected loss, we analyzed SARST's static pool CNL and gross loss performance since July 2012 (see charts 2 and 3). Given that we have only a few years of static pool data, we took into account timing curves derived from industry peers and used them to project Sierra's outstanding vintages. We then weighted these projections based on the actual concentration of the various vintages for the 2016-1 pool.

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Presale: Sierra Auto Receivables Securitization Trust 2016-1

Chart 2

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Presale: Sierra Auto Receivables Securitization Trust 2016-1

Chart 3

In addition to analyzing the static pool performance, we compared the pool's collateral characteristics with peers. We also considered economic considerations (namely our expectation for lower used vehicle values in the future) in deriving an expected loss on the pool, ultimately arriving at our loss expectation of 19.00%-20.00%. Table 5

Collateral Peer Comparison Issuer

SARST 2016-1

SDART 2015-5(ii)

EART 2016-2(iii)

Initial pool (mil. $)

156.07

882.35

325.21

Avg. loan ($)

14,733

17,400

16,595

Avg. FICO

537

600

570

No FICO (%)

15.60

14.04

6.12

Less than 601 (%)

73.50

45.80

70.62

601–700 (%)

10.17

40.17(i)

23.27(i)

701 and greater (%)

0.72

Avg. APR (%)

18.82

16.32

20.55

Avg. original term

63.15

71

70

Avg. remaining term

51.49

66

65

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Table 5

Collateral Peer Comparison (cont.) Issuer

SARST 2016-1

SDART 2015-5(ii)

EART 2016-2(iii)

Avg. seasoning

11.66

5

5

Loans with original term greater than 60 mos. (%)

51.12

91.85

84.88

112.88

107.47

111.84

Avg. new/used (%)

3.03/96.97

40.12/59.88

14.86/85.14

Top three states

TX, PA, SC

FL, TX, CA

CA, GA, TX

19.0-20.0

15.50-16.25

18.75-19.75

Avg. LTV (%)

Expected CNL (%)

(i)Represents loans with FICO 601 or higher. (ii)As of October 2015. (iii)As of April 2016. APR--Annual percentage rate. LTV--Loan-to-value. CNL--Cumulative net loss. SARST 2016-1--Sierra Auto Receivables Securitization Trust 2016-1. SDART 2015-5-- Santander Drive Auto Receivables Trust 2015-5. EART 2016-2--Exeter Auto Receivables Trust 2016-2.

Cash Flow Modeling: Break-Even Cash Flows We modeled the transaction to simulate stress scenarios appropriate for the assigned preliminary ratings. For these stress scenarios, we applied both front- and back-loaded loss curves (see table 6). Table 6

Cash Flow Assumptions And Results Front-loaded loss curve Class Scenario (preliminary rating)

A

B

C

A (sf)

BBB (sf)

BB (sf)

45/35/20

45/35/20

45/35/20

0.80

0.80

0.80

40.00

40.00

40.00

4

4

4

Servicing fee (%)

3.50

3.50

3.50

Approximate break-even net loss levels (%)(i)

41.8

32.8

26.9

A

B

C

Loss timing by months outstanding (12/24/36/48) (%) Voluntary ABS (%) Recoveries (%) Recovery lag (mos.)

Back-loaded loss curve Class Scenario (preliminary rating)

A (sf)

BBB (sf)

BB (sf)

35/30/20/15

35/30/20/15

35/30/20/15

0.80

0.80

0.80

40.00

40.00

40.00

4

4

4

Servicing fee (%)

3.50

3.50

3.50

Approximate break-even net loss levels (%)(i)

42.5

34.4

27.8

Loss timing by months outstanding (12/24/36/48/60) (%) Voluntary ABS (%) Recoveries (%) Recovery lag (mos.)

(i)The maximum cumulative net losses on the pool that the transaction can withstand without a payment default on the relevant classes of notes. ABS--Absolute prepayment speed.

We ran cash flow stress scenarios using the assumptions outlined in table 6 above. We also modeled the transaction's CNL trigger (see table 7 for the CNL trigger levels for each payment date). If the CNL rate exceeds the percentage per the trigger thresholds for any payment date, the transaction target overcollateralization level will increase to 24.00% of

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the outstanding pool balance from 13.50% of the outstanding pool balance. The triggers cure if the CNLs stay below the trigger thresholds for three consecutive months, which effectively makes the 13.50% overcollateralization target operative once again. In our aforementioned break-even cash flow scenarios, the CNL trigger is breached and reaches the higher overcollateralization target only in the 'BB' rated back-loaded loss curve scenario. The CNL trigger benefits the transaction in months 12-27 by requiring a higher target overcollateralization; this delays releasing excess spread and thereby keeps more credit enhancement in the deal for a longer period. In this scenario, the trigger is breached in month 12 and thereafter, but the initial target overcollateralization is only reached in month 14. In months 28, the higher target overcollateralization of 24.0% is reached due to the amortization of the pool balance. Releases occur in months 28–29, after which excess spread is absorbed by the high loss levels so the structure cannot maintain the higher target overcollateralization level. Although the CNL trigger is also breached for classes A, B, and C under the front-loaded loss curve and for classes A and B under the back-loaded loss curve, under these scenarios the available excess spread is absorbed by the high loss levels so the structure cannot reach the initial overcollateralization target of 13.50%. In these scenarios, unlike the 'BB' back-loaded curve, releases do not occur. Table 7

Cumulative Net Loss Triggers Period

Payment date

Trigger event

1-6

July 2016-December 2016

5.00%

7

January 2017

5.75%

8

February 2017

6.50%

9

March 2017

7.25%

10

April 2017

8.00%

11

May 2017

8.75%

12

June 2017

9.00%

13

July 2017

9.65%

14

August 2017

10.15%

15

September 2017

10.85%

16

October 2017

11.00%

17

November 2017

11.79%

18

December 2017

12.41%

19

January 2018

13.04%

20

February 2018

13.66%

21

March 2018

14.29%

22

April 2018

14.92%

23

May 2018

15.54%

24

June 2018

16.17%

25

July 2018

16.58%

26

August 2018

17.00%

27

September 2018

17.42%

28

October 2018

17.83%

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Table 7

Cumulative Net Loss Triggers (cont.) Period

Payment date

Trigger event

29

November 2018

18.25%

30

December 2018

18.67%

31

January 2019

19.09%

32

February 2019

19.50%

33

March 2019

19.92%

34

April 2019

20.34%

35

May 2019

20.75%

36

June 2019

21.17%

37

July 2019

21.48%

38

August 2019

21.80%

39

September 2019

22.11%

40

October 2019

22.42%

41

November 2019

22.74%

42

December 2019

23.05%

43

January 2020

23.36%

44

February 2020

23.67%

45

March 2020

23.99%

46

April 2020

24.30%

47

May 2020

24.61%

48

June 2020

25.40%

The break-even results show that the class A, B, and C notes can withstand higher losses under the back-loaded loss curve than the front-loaded loss curve because excess spread is more stressed under the front-loaded loss curve. Using the expected net loss of 19.0%-20.0% and applying the above stresses in our internal cash flow runs, the break-even results show that under both the front- and back-loaded loss curves, the class A, B, and C notes are enhanced to the degree necessary to withstand stressed net losses that are consistent with the preliminary ratings.

Sensitivity Analysis Besides analyzing break-even cash flows, we conducted a sensitivity analysis to see whether under a moderate ('BBB') stress scenario, all else being equal, our ratings on the class A, B and C notes would remain within two rating categories of the assigned preliminary ratings for the first year as allowed under our ratings stability criteria. We applied both front- and back-loaded loss curves (see table 8). Under a front-loaded and back-loaded loss curve in a 'BBB' moderate stress scenario, though the CNL trigger is breached, the available excess spread is absorbed by the high loss levels so the structure cannot build to the initial target overcollateralization, and releases do not occur.

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Table 8

Sensitivity Analysis Summary: Moderate 'BBB' Stress (1.60x Base-Case) Front-loaded loss curve Cumulative net loss level (%)

30.80

Loss timing by months outstanding (12/24/36/48/60) (%)

45/35/20

Voluntary ABS (%)

0.80

Recoveries (%)

40.00

Recovery lag (mos.)

4

Servicing fee (%)

3.50

Coverage of remaining losses Class A (A (sf))

Initially 1.43x and then grows steadily, reaching 1.84x by month 12.

Class B (BBB (sf))

Initially 1.08x and then grows steadily, reaching 1.18x by month 12.

Class C (BB (sf))

Initially 0.75x, remaining relative stable for the first six months, then declining, reaching 0.56x by month 12.

Back-loaded loss curve Cumulative net loss level (%)

30.80

Loss timing by months outstanding (12/24/36/48/60) (%)

35/30/20/15

Voluntary ABS (%)

0.80

Recoveries (%)

40.00

Recovery lag (mos.)

4

Servicing fee (%)

3.50

Coverage of remaining losses Class A (A (sf))

Initially 1.48x and then grows steadily, reaching 1.81x by month 12.

Class B (BBB (sf))

Initially 1.12x and then grows steadily, reaching 1.24x by month 12.

Class C (BB (sf))

Initially 0.79x, remaining relative stable for the first four months, then declining, reaching 0.70x by month 12.

ABS--Absolute prepayment speed.

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Presale: Sierra Auto Receivables Securitization Trust 2016-1

Chart 4

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Presale: Sierra Auto Receivables Securitization Trust 2016-1

Chart 5

In our view, under the 1.60x stress scenario, all else being equal, we expect our rating on the class A notes would remain within one rating category of our preliminary 'A (sf)' rating during the first year and that our ratings on the class B and C notes would remain within two rating categories of our preliminary 'BBB (sf)' and 'BB (sf)' ratings, respectively, during the first year. This is consistent with our credit stability criteria, which state that the maximum deterioration is a two-category downgrade within the first year for 'A (sf)', 'BBB (sf),' and 'BB (sf)' rated securities (for more information, see "Methodology: Credit Stability Criteria," published May 3, 2010).

Legal Final Maturity To test the legal final maturity dates set for classes A and B, we determined the date on which the respective notes were fully amortized in a zero-loss, zero-prepayment scenario and then added three months to the result. For the longest-dated security (class C), we added nine months to the tenor of the longest receivable in the pool to accommodate extensions on the receivables. Furthermore, in the break-even scenario for each respective rating level, we confirmed that there was sufficient credit enhancement to both cover losses and repay the related notes in full by legal final maturity.

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Related Criteria And Research Related Criteria • Methodology And Assumptions For Ratings Above The Sovereign--Single-Jurisdiction Structured Finance, May 29, 2015 • Methodology: Criteria For Global Structured Finance Transactions Subject To A Change In Payment Priorities Or Sale Of Collateral Upon A Nonmonetary EOD, March 2, 2015 • Criteria Methodology Applied To Fees, Expenses, And Indemnifications, July 12, 2012 • Global Investment Criteria For Temporary Investments In Transaction Accounts, May 31, 2012 • Standard & Poor's Revises Criteria Methodology For Servicer Risk Assessment, May 28, 2009 • General Methodology And Assumptions For Rating U.S. Auto Loan Securitizations, Jan. 11, 2011 • Legal Criteria: Legal Criteria For U.S. Structured Finance Transactions: Appendix III: Revised UCC Article 9 Criteria, Oct. 1, 2006 • Legal Criteria: Legal Criteria For U.S. Structured Finance Transactions: Criteria Related To Asset-Backed Securities, Oct. 1, 2006 • Legal Criteria: Legal Criteria For U.S. Structured Finance Transactions: Securitizations By Code Transferors, Oct. 1, 2006 • Legal Criteria: Legal Criteria For U.S. Structured Finance Transactions: Special-Purpose Entities, Oct. 1, 2006

Related Research • Global Structured Finance Scenario And Sensitivity Analysis: Understanding The Effects Of Macroeconomic Factors On Credit Quality, July 2, 2014 In addition to the criteria specific to this type of security (listed above), the following criteria articles, which are generally applicable to all ratings, may have affected this rating action: "Post-Default Ratings Methodology: When Does Standard & Poor's Raise A Rating From 'D' Or 'SD'?," March 23, 2015; "Global Framework For Assessing Operational Risk In Structured Finance Transactions," Oct. 9, 2014; "Methodology: Timeliness of Payments: Grace Periods, Guarantees, And Use of 'D' And 'SD' Ratings," Oct. 24, 2013; "Counterparty Risk Framework Methodology And Assumptions," June 25, 2013; "Criteria For Assigning 'CCC+', 'CCC', 'CCC-', And 'CC' Ratings," Oct. 1, 2012; "Methodology: Credit Stability Criteria," May 3, 2010; and "Use of CreditWatch And Outlooks," Sept. 14, 2009. The analysts would like to thank Jenna Cilento for her analytical contributions on this transaction and presale report.

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