DBRS Confirms Ratings on Driver UK Multi-Compartment S.A. acting for and on behalf of its Compartment Driver UK two

DBRS Ratings Limited (DBRS) has today confirmed its ratings on the following notes issued by Driver UK Multi-Compartment S.A. acting for and on behalf of its Compartment Driver UK two (the Issuer):
-- £670,971,463.42 Class A Notes: confirmed at AAA (sf)
-- £135,900,000.00 Class B Notes: confirmed at A (high) (sf)

The confirmation of the rating on the Class A Notes is based upon the following analytical considerations:
-- Portfolio Performance, in terms of delinquencies and defaults, as of August 2015 payment date.
-- Ability of the transaction to withstand stressed cash flow assumptions and repay investors according to the terms in which they have invested.
-- Current available credit enhancement to the notes to cover expected losses assumed in line with the AAA (sf) rating level for the Class A Notes and the A (high) (sf) rating level for the Class B Notes.

The notes are collateralised by a portfolio of automobile purchase contracts granted by Volkswagen Financial Services (UK) Limited (VWFS) to customers resident in the United Kingdom. The transaction closed on 25 September 2014 and had a six-month revolving period.

The pool is composed of Hire Purchase and Personal Contract Plans agreements, secured by new and used vehicles. The transaction is exposed to Residual Value risk, which is 50% of the portfolio as of the August 2015 payment date.

As of the August 2015 payment date, 30-60 day delinquencies and 60-90 day delinquencies were 0.18% and 0.12% of the collateral discounted balance, respectively, while delinquencies greater than 90 days were 0.14%. The cumulative gross default ratio was 0.10% of the aggregated original balance, with cumulative recoveries of 31.39%.

Credit enhancement for the Class A Notes (33.53%) is provided by the subordination of the Class B Notes and the Cash Collateral Account. Credit enhancement for the Class B Notes (19.76%) is provided by the Cash Collateral Account.

The Cash Collateral Account required balance is 1.2% of the Aggregate Discounted Receivables Balance, with a floor of £11,824,400. Since closing, it has always been at the required level.

Volkswagen Financial Services (UK) Limited, a subsidiary of Volkswagen AG, is the Servicer of the transaction. Volkswagen AG’s DBRS Rating is “A”, placed Under Review with Negative Implications on 23 September 2015.

Elavon Financial Services Limited, U.K. Branch is the Account Bank for this transaction. The DBRS private rating of Elavon Financial Services Limited, U.K. Branch complies with the Minimum Institution Rating given the rating assigned to the notes, as described in DBRS’s “Legal Criteria for European Structured Finance Transactions” methodology.

Royal Bank of Canada is the Counterparty of both the Class A Swap Agreement and the Class B Swap Agreement. Royal Bank of Canada is rated AA, complying with the First Rating Threshold defined in DBRS’s “Derivative Criteria for European Structured Finance Transactions” methodology.

Notes:
All figures are in GBP unless otherwise noted.

The principal methodology applicable is “Master European Structured Finance Surveillance Methodology”.

DBRS has applied the principal methodology consistently and conducted a review of the transaction in accordance with the principal methodology.

A review of the transaction legal documents was not conducted, as the documents have remained unchanged since the most recent rating action.

Other methodologies referenced in this transaction are listed at the end of this press release. This may be found on www.dbrs.com at http://www.dbrs.com/about/methodologies.

The sources of information used for this rating include information provided by Volkswagen Financial Services (UK) Limited (the Servicer).

DBRS does not rely upon third-party due diligence in order to conduct its analysis.

DBRS was not supplied with third-party assessments; however, this did not impact the rating analysis.

DBRS considers the information available to it for the purposes of providing this rating was of satisfactory quality.

DBRS does not audit the information it receives in connection with the rating process, and it does not and cannot independently verify that information in every instance.

This is the first rating action since the Initial Rating Date.

Information regarding DBRS ratings, including definitions, policies and methodologies are available on www.dbrs.com.

To assess the impact of the changing transaction parameters on the rating, DBRS considered the following stress scenarios compared with the parameters used to determine the rating (the base case):

-- DBRS expected a base case probability of default (PD) and loss given default (LGD) and Residual Value Loss for the portfolio based on a review of the current assets. Adverse changes to asset performance may cause stresses to base case assumptions and, therefore, have a negative effect on credit ratings.

-- The base case PD and LGD of the current pool of receivables are 6.65% and 27.50%, respectively.
-- Residual Value Loss: For Class A, a stressed residual value of 48% and for Class B a stressed value of 35%.

DBRS concludes that for the Class A Notes:
-- A hypothetical increase of the base case PD and LGD by 25%, ceteris paribus, would lead to the Class A Notes maintaining a AAA (sf) rating.
-- A hypothetical increase of the base case PD and LGD by 50%, ceteris paribus, would lead to the Class A Notes maintaining a AAA (sf) rating.
-- A hypothetical increase of the base case Residual Value Loss by 25%, ceteris paribus, would lead to the Class A Notes maintaining a AAA (sf) rating.
-- A hypothetical increase of the base case Residual Value Loss by 50%, ceteris paribus, would lead to the Class A Notes maintaining a AAA (sf) rating.
-- A hypothetical increase of the base case PD and LGD by 25% and a hypothetical increase of the Residual Value Loss by 25%, ceteris paribus, would lead to the Class A Notes maintaining a AAA (sf) rating.
-- A hypothetical increase of the base case PD and LGD by 50% and a hypothetical increase of the Residual Value Loss by 25%, ceteris paribus, would lead to a downgrade of the Class A Notes to AA (high) (sf).
-- A hypothetical increase of the base case PD and LGD by 25% and a hypothetical increase of the Residual Value Loss by 50%, ceteris paribus, would lead to a downgrade of the Class A Notes to AA (high) (sf).
-- A hypothetical increase of the base case PD and LGD by 50% and a hypothetical increase of the Residual Value Loss by 50%, ceteris paribus, would lead to a downgrade of the Class A Notes to AA (high) (sf).

DBRS concludes that for the Class B Notes:
-- A hypothetical increase of the base case PD and LGD by 25%, ceteris paribus, would lead to the Class B Notes maintaining a A (high) (sf) rating.
-- A hypothetical increase of the base case PD and LGD by 50%, ceteris paribus, would lead to a downgrade of the Class B Notes to A (sf).
-- A hypothetical increase of the base case Residual Value Loss by 25%, ceteris paribus, would lead to the Class B Notes maintaining a A (high) (sf) rating.
-- A hypothetical increase of the base case Residual Value Loss by 50%, ceteris paribus, would lead to the Class B Notes maintaining a A (high) (sf) rating.
-- A hypothetical increase of the base case PD and LGD by 25% and a hypothetical increase of the Residual Value Loss by 25%, ceteris paribus, would lead to the Class B Notes maintaining a A (high) (sf) rating.
-- A hypothetical increase of the base case PD and LGD by 50% and a hypothetical increase of the Residual Value Loss by 25%, ceteris paribus, would lead to a downgrade of the Class B Notes to A (sf).
-- A hypothetical increase of the base case PD and LGD by 25% and a hypothetical increase of the Residual Value Loss by 50%, ceteris paribus, would lead to Class B Notes maintaining a A (high) (sf) rating.
-- A hypothetical increase of the base case PD and LGD by 50% and a hypothetical increase of the Residual Value Loss by 50%, ceteris paribus, would lead to a downgrade of the Class B Notes to A (sf).

For further information on DBRS historic default rates published by the European Securities and Markets Administration (ESMA) in a central repository, see
http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml.

Ratings assigned by DBRS Ratings Limited are subject to EU regulations only.

Initial Lead Analyst: Alexander Garrod
Initial Rating Date: 25 September 2014
Initial Rating Committee Chair: Chuck Weilamann

Lead Surveillance Analyst: Vito Natale
Rating Committee Chair: Chuck Weilamann

DBRS Ratings Limited
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Registered in England and Wales: No. 7139960

The rating methodologies used in the analysis of this transaction can be found at http://www.dbrs.com/about/methodologies.

-- Legal Criteria for European Structured Finance Transactions
-- Master European Structured Finance Surveillance Methodology
-- Operational Risk Assessment for European Structured Finance Servicers
-- Rating European Consumer and Commercial Asset-Backed Securitisations
-- Unified Interest Rate Model for European Securitisations
-- Derivative Criteria for European Structured Finance Transactions

A description of how DBRS analyses structured finance transactions and how the methodologies are collectively applied can be found at http://www.dbrs.com/research/278375.