DBRS Finalises Provisional Ratings Assigned to Bavarian Sky - German Auto Loans 4

DBRS Ratings Limited (DBRS) has today finalised provisional ratings previously assigned to Bavarian Sky S.A. acting in respect of its Compartment German Auto Loans 4 (the issuer) as follows:

-- Class A Notes: AAA (sf);

The notes are backed by a pool of €1.07 billion receivables related to auto loan contracts originated by BMW Bank GmbH (BMW).

The ratings are based upon review by DBRS of the following analytical considerations:

-- Transaction capital structure, proposed ratings and form and sufficiency of available credit enhancement.
-- Credit enhancement in the form of subordination from overcollateralisation and a fully funded reserve from the issuance date.
-- Credit enhancement levels are sufficient to support the expected cumulative net loss assumption projected under various stress scenarios at a AAA (sf) standard for the Class A Notes.
-- The ability of the transaction to withstand stressed cash flow assumptions and repay investors according to the terms in which they have invested. For this transaction, the rating addresses the payment of timely interest on a monthly basis and principal by the legal final maturity date.
-- BMW’s capabilities with regard to originations, underwriting, servicing and the financial strength of the multinational motor company they are a part of.
-- DBRS conducted an operational risk review of BMW’s premises in Munich and deems it to be an acceptable servicer.
-- The transaction parties’ financial strength with regard to their respective roles.
-- The credit quality of the underlying collateral and the ability of BMW to perform collection activities on the collateral.
-- The credit quality and industry diversification of the collateral and historical and projected performance of the seller’s portfolio.
-- The sovereign rating of the Federal Republic of Germany, currently at AAA.
-- The transaction’s consistency of the legal structure with DBRS’s “Legal Criteria for European Structured Finance Transactions” methodology and the presence of legal opinions that address the true sale of the assets to the issuer and non-consolidation of the special-purpose vehicle with the seller.
The transaction was modelled in Intex DealMaker.

Notes:

All figures are in euros unless otherwise noted.

The principal methodology applicable is: “Rating European Consumer and Commercial Asset-Backed Securitisations”.

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

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

For a more detailed discussion of the sovereign risk impact on Structured Finance ratings, please refer to DBRS’s “The Effect of Sovereign Risk on Securitisations in the Euro Area” commentary on: http://www.dbrs.com/industries/bucket/id/10036/name/commentaries/

The sources of information used for these ratings include performance data relating to receivables provided by BMW. DBRS received historical gross loss and net loss data relating to BMW originations by quarterly vintages on a cumulative basis dating back to 2009. Data was also provided relating to delinquencies and prepayment. Prepayment data was provided on the securitised portfolios originated by BMW. A detailed summary and an amortisation schedule were provided for the portfolio selected by BMW as at 31 March 2016 that allowed DBRS to further assess the collateral. DBRS considers the information available to it for the purposes of providing this rating was of satisfactory quality.

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

DBRS has been supplied with third-party assessments. However, this did not impact the rating analysis.

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.

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

These ratings were disclosed to BMW.

These ratings concerns a newly issued financial instrument. This is the first DBRS rating on this financial instrument.

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

To assess the impact of the changing the transaction parameters on the rating, DBRS considered the following stress scenarios, as compared to the parameters used to determine the rating (the Base Case):

-- Probability of Default (PD): Base Case of 2.40%, a 25% and 50% increase on base case PD
-- Loss Given Default (LGD): Base Case of 40%, a 25% and 50% increase on base case LGD
-- Recovery Rate: Base Case Recovery Rate of 60%

DBRS concludes that for the Class A Notes:
-- A hypothetical increase of the Base Case PD by 25% or a hypothetical increase of the LGD by 25%, ceteris paribus, would maintain the rating of the Class A notes at a AAA (sf) rating.
-- A hypothetical increase of the Base Case PD by 50% or a hypothetical increase of the LGD by 50%, ceteris paribus, would maintain the rating of the Class A notes at a AAA (sf) rating.
-- A hypothetical increase of the Base Case PD by 25% and a hypothetical increase of the LGD by 25%, ceteris paribus, would maintain the rating of the Class A notes at a AAA (sf) rating.
-- A hypothetical increase of the Base Case PD by 50% and a hypothetical increase of the LGD by 25%, ceteris paribus, would maintain the rating of the Class A notes at a AAA (sf) rating.
-- A hypothetical increase of the Base Case PD by 25% and a hypothetical increase of the LGD by 50%, ceteris paribus, would maintain the rating of the Class A notes at a AAA (sf) rating.
-- A hypothetical increase of the Base Case PD by 50% and a hypothetical increase of the LGD by 50%, ceteris paribus, would result in a downgrade of the Class A notes to a AA (high) (sf) rating.

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: Paolo Conti, Senior Vice President
Initial Rating Date: 18 April 2016
Initial Rating Committee Chair: Jamie Feehely, Managing Director

DBRS Ratings Limited
20 Fenchurch Street, 31st Floor, London EC3M 3BY United Kingdom
Registered in England and Wales: No. 7139960

The rating methodologies used in the analysis of this transaction are listed below:

--Rating European Consumer and Commercial Asset-Backed Securitisations (30 September 2015)
--Legal Criteria for European Structured Finance Transactions (19 February 2016)
--Derivative Criteria for European Structured Finance Transactions (19 February 2016)
--Operational Risk Assessment for European Structured Finance Servicers (31 December 2015)
--Operational Risk Assessment for European Structured Finance Originators (15 December 2015)
-- Unified Interest Rate Model for European Securitisations (12 October 2015)

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

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