DBRS Finalizes Provisional Ratings on Auto ABS Spanish Loans 2016, Fondo de Titulización

DBRS Ratings Limited (DBRS) has today finalised its provisional ratings on the Auto ABS Spanish Loans 2016, Fondo de Titulización (the Issuer) as follows:

-- Class A Notes at AAA (sf)
-- Class B Notes at A (high) (sf)

The Class A and Class B Notes are backed by a EUR 720 million pool of receivables related to auto loan contracts originated by PSA Financial Services Spain, E.F.C., S.A. (PFS).

The ratings are based on DBRS’s review of the following analytical considerations:

-- The transaction’s capital structure and form and sufficiency of available credit enhancement.
-- Credit enhancement in the form of subordination and a fully funded reserve fund from the issue date.
-- Credit enhancement levels are sufficient to support the expected cumulative net loss assumption projected under various stress scenarios at a AAA (sf) and an A (high) (sf) standard for the Class A Notes and Class B Notes, respectively.
-- The ability of the transaction to withstand stressed cash flow assumptions and repay investors according to the terms in which they have invested.
-- PFS’s experience as an originator, underwriter and servicer and the financial strength of the multinational motor company of which it is a part.
-- The credit quality of the underlying collateral and the ability of PFS to perform collection activities on the collateral.
-- The legal structure and presence of legal opinions addressing the assignment of the assets to the Issuer and the consistency with DBRS’s “Legal Criteria for European Structured Finance Transactions” methodology.

The transaction was modelled in INTEX DealMaker and the default rates at which the rated notes did not return all specified cash flows in a timely manner were determined.

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.

An asset and a cash flow analysis were both conducted. However, due to the inclusion of a revolving period in the transaction and no change in assumptions, the initial analysis based on worst-case replenishment criteria set forth in the transaction legal documents was assumed.

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 the DBRS commentary “The Effect of Sovereign Risk on Securitisations in the Euro Area” found at 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 PFS directly or through its agent, Crédit Agricole Corporate and Investment Bank. DBRS received historical gross loss and recovery data relating to PFS originations by quarterly vintages on a
cumulative basis dating back between 2006 and 2015. Data was also provided relating to delinquencies and prepayments. A summary for the portfolio selected by PFS was provided as at 20 September 2016, which allowed DBRS to further assess the collateral.

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 these ratings to be of satisfactory quality.

These ratings concern a newly issued financial instrument.

These are the first DBRS ratings 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 ratings, DBRS considered the following stress scenarios, as compared to the parameters used to determine the rating (the Base Case):

-- Probability of Default (PD) Rate Used (excluding sovereign stress): Base Case PD of 5.47%, a 25% and 50% increase on the base case PD.
-- Recovery Rate Used (excluding sovereign stress): Base Case Recovery Rate of 36.10%.
-- Loss Given Default (LGD): Base Case LGD of 63.90%, a 25% and 50% increase on the base case LGD.

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 lead to a downgrade of the Class A Notes to AA (high) (sf).
-- A hypothetical increase of the base case PD by 50% or a hypothetical increase of the LGD by 50%, ceteris paribus, would lead to a downgrade of the Class A Notes to AA (sf).
-- A hypothetical increase of the base case PD by 25% and a hypothetical increase of the LGD by 25%, ceteris paribus, would lead to a downgrade of the Class A Notes to AA (sf).
-- A hypothetical increase of the base case PD by 50% and a hypothetical increase of the LGD by 25%, ceteris paribus, would lead to a downgrade of the Class A Notes to A (high) (sf).
-- A hypothetical increase of the base case PD by 25% and a hypothetical increase of the LGD by 50%, ceteris paribus, would lead to a downgrade of the Class A Notes to A (high) (sf).
-- A hypothetical increase of the base case PD by 50% and a hypothetical increase of the LGD by 50%, ceteris paribus, would lead to a downgrade of the Class A Notes to A (sf).

DBRS concludes that for the Class B Notes:
-- A hypothetical increase of the base case PD by 25% or a hypothetical increase of the LGD by 25%, ceteris paribus, would not lead to a change in rating on the Class B Notes.
-- A hypothetical increase of the base case PD by 50% or a hypothetical increase of the 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 PD by 25% and a hypothetical increase of the LGD 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 by 50% and a hypothetical increase of the LGD by 25%, ceteris paribus, would lead to a downgrade of the Class B Notes to BBB (high) (sf).
-- A hypothetical increase of the base case PD by 25% and a hypothetical increase of the LGD by 50%, ceteris paribus, would lead to a downgrade of the Class B Notes to BBB (high) (sf).
-- A hypothetical increase of the base case PD by 50% and a hypothetical increase of the LGD by 50%, ceteris paribus, would lead to a downgrade of the Class B Notes to BBB (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: Alessio Pignataro, Vice President
Initial Rating Date: 6 October 2016
Initial Rating Committee Chair: Chuck Weilamann, Managing Director

DBRS Ratings Limited
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United Kingdom
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:

-- Rating European Consumer and Commercial Asset-Backed Securitisations (30 September 2015)
-- Legal Criteria for European Structured Finance Transactions (14 September 2016)
-- Derivative Criteria for European Structured Finance Transactions (3 October 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)

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.