Pepper Money (ASX:PPM) unit, Pepper Asset Securities No.2 Trust, has received a rating upgrade on three pass-through floating rate notes by Fitch Ratings with a positive outlook, according to a Friday statement by Fitch Ratings.

The transaction is backed by a pool of first-ranking Australian automotive and equipment loan and lease receivables originated by Pepper Money unit Pepper Asset Finance, and the notes were issued by BNY Trust Company of Australia as trustee for Pepper Asset Securities No.2 Trust.

The upgrade of the class B, C, and D notes to "AA-sf," 'BBB+sf," and "BB+sf," respectively, from "BBB+sf," "BB+sf," and "B+sf," is driven by the build-up of credit enhancement, the statement added.

Other drivers include increased overcollateralization through the diversion of income collections to repay the class G notes and the transaction's asset performance, which has led to a reduction in the default base case.

Fitch said the positive outlook reflects its expectation of the continued build-up of credit enhancement before the start of the pro rata period and the continued increase in overcollateralization from retention amount payments.