DBRS Confirms Class A Notes Issued by Silver Arrow S.A., Acting in Respect of its Compartment 6

DBRS Ratings Limited (DBRS) has today confirmed the AAA (sf) rating on the Class A notes (the Notes) issued by Silver Arrow S.A., acting in respect of its Compartment 6 (Silver Arrow 6).

The rating action is based on the following analytical considerations:

-- The current portfolio performance, in terms of delinquencies and defaults.
-- The ability of the transaction to withstand stressed cash flow assumptions and repay investors according to the terms and conditions of the Notes.
-- Current credit enhancement (CE) available to the Class A Notes to cover the expected losses at the AAA (sf) rating levels.

Silver Arrow 6 is a securitisation of German auto loan receivables originated and serviced by Mercedes-Benz Bank AG. Silver Arrow 6 is a compartment in Silver Arrow, a public limited company incorporated under the law of Luxembourg. The receivables are granted to private and commercial borrowers residing in Germany to finance the purchase of new and used vehicles.

As of 30 June 2016, loans more than 90 days delinquent as a percentage of the outstanding loan balance were 0.03%. Cumulative defaulted loans as a percentage of the aggregate pool balance at the transaction closing were 0.20%. The collateral performance is within DBRS’s expectations. DBRS has therefore maintained its Probability of Default (PD) and Loss Given Default (LGD) ratio assumptions on the remaining collateral pool at 2.1% and 35.0%, respectively, in this rating review.

As of the 15 July 2016 payment date, the CE available to the Class A Notes increased to 11.0% from 7.6% at closing through the deleveraging of the transaction. The sources of CE include 9.6% of the subordination in the form of the Class B Notes and 1.46% in the form of the General Reserve Ledger, which is non-amortising and currently at its target level of EUR 11 million. The General Reserve Ledger mainly provides liquidity support to the transaction and can provide credit support on the final repayment date when the funds can be applied to the Notes as principal payment.

The transaction’s set-off risk exposure remains low at 0.01% as of 30 June 2016, below the 0.5% trigger level. The commingling reserve remains fully funded at the required amount of EUR 42.2 million as of 15 July 2016.

The transaction benefits from an interest rate swap to hedge the risks of interest rate mismatch between the collateral and the Class A Notes. The swap counterparty, Royal Bank of Canada (currently rated AA with negative trend by DBRS), complies with the rating requirement as described in DBRS’s “Derivative Criteria for European Structured Finance Transactions” methodology, given the rating assigned to the Class A Notes.

Elavon Financial Services DAC, UK Branch, is the Issuer Account Bank to the transaction. It has a DBRS private rating that meets the Minimum Institution Rating criteria as described in DBRS’s “Legal Criteria for European Structured Finance Transactions” methodology, given the rating assigned to the Class A Notes.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable is the 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.

These 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 commentary “The Effect of Sovereign Risk on Securitisations in the Euro Area” on: http://www.dbrs.com/industries/bucket/id/10036/name/commentaries/.

The sources of information used for this rating is the monthly investor reports provided by Mercedes-Benz Bank AG and the loan by loan data file from European Data Warehouse GmbH.

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 to be 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.

The last rating action on this transaction took place on 23 September 2015, when DBRS finalised the provisional AAA (sf) rating on the Class A notes.

The lead responsibilities for this transaction have been transferred to Kevin Ma.

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

To assess the impact of 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):

-- DBRS expected a base case PD and LGD for the pool based on a review of the current assets and the transaction’s eligibility criteria. 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 remaining pool of loans are 2.10% and 35.00%, respectively.

-- The Risk Sensitivity overview below illustrates the ratings expected if the PD and LGD increase by a certain percentage over the base case assumption. For example, if the LGD increases by 50%, the rating on the Class A Notes would be expected to be at AAA (sf), assuming no change in the PD. If the PD increases by 50%, the rating on the Class A Notes would be expected to be at AAA (sf), assuming no change in the LGD. Furthermore, if both the PD and LGD increase by 50%, the rating on the Class A Notes would be expected to be at AAA (sf).

Class A Notes Sensitivity:
-- 25% increase in LGD, expected rating of AAA (sf)
-- 50% increase in LGD, expected rating of AAA (sf)
-- 25% increase in PD, expected rating of AAA (sf)
-- 50% increase in PD, expected rating of AAA (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of AAA (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of AAA (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of AAA (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of AAA (sf)

For further information on DBRS historical default rates published by the European Securities and Markets Authority (“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: Sebastian Hoepfner, Vice President
Initial Rating Date: 1 September 2015
Initial Rating Committee Chair: Chuck Weilamann, Managing Director

Lead Surveillance Analyst: Kevin Ma, Assistant Vice President
Rating Committee Chair: Christian Aufsatz, Senior Vice President

DBRS Ratings Limited
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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 analysis structured finance transactions and how the methodologies are collectively applied can be found at: http://www.dbrs.com/research/278375.