DBRS Confirms and Upgrades Ratings on Driver thirteen UG (Haftungsbeschränkt)

DBRS Ratings Limited (DBRS) has today taken the following rating actions on the bonds issued by Driver thirteen UG (Haftungsbeschränkt) (the Issuer):

-- Class A notes confirmed at AAA (sf)
-- Class B notes upgraded to AA (sf) from A (high) (sf)

The rating actions on the Class A and Class B notes (together, the Rated Notes) follow an annual review of the transaction and are based on the following analytical considerations as described more fully below:
-- Portfolio performance, in terms of delinquencies and defaults, as of November 2016.
-- Updated default, recovery and loss assumptions on the remaining receivables.
-- Current available credit enhancement to the Class A and Class B notes to cover the expected losses at the AAA (sf) and AA (sf) rating levels, respectively.

The Issuer is a securitisation of German auto loans originated and serviced by Volkswagen Bank, GmbH.

As of November 2016, two- to three-month arrears were at 0.22% and the 90+ delinquency ratio was at 0.19%. The current cumulative net loss ratio is low at 0.07%.

The transaction has a sequential/pro-rata amortisation structure whereby all principal payments from the receivables pay down the Class A notes until Class A overcollateralisation (OC) reaches its target level of 11.00%. As of the December 2016 payment date, that target has been reached and principal is being allocated on a pro-rata basis, as no performance triggers have been breached. Class A OC was at 11.00%. Class B OC was at 7.00%.

The transaction benefits from a Cash Collateral Account, currently at the target level of EUR 7.50 million. The Cash Collateral Account covers senior fees, Class A and Class B interest and principal losses on the final payment date.

Elavon Financial Services DAC, U.K. Branch (Elavon) is the account bank for the transaction. The DBRS private rating of Elavon complies with DBRS’s Minimum Institution Rating, given the rating assigned to the Class A notes, as described in DBRS’s “Legal Criteria for European Structured Finance Transactions” methodology. Lloyds Bank plc is the swap counterparty for the transaction. DBRS’s public Long Term Critical Obligations Rating of Lloyds Bank plc at AA is above the First Rating Threshold as described in DBRS’s “Derivative Criteria for European Structured Finance Transactions” methodology.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the rating 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 legal 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 the DBRS commentary “The Effect of Sovereign Risk on Securitisations in the Euro Area” at: http://www.dbrs.com/industries/bucket/id/10036/name/commentaries.

The sources of data and information used for this rating include monthly investor reports provided by Volkswagen Bank GmbH.

DBRS did not rely upon third-party due diligence in order to conduct its analysis. At the time of the initial rating, DBRS was not supplied with third-party assessments. However, this did not impact the rating analysis.

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

DBRS does not audit or independently verify the data or information it receives in connection with the rating process.

The last rating action on this transaction took place on 8 February 2016, when DBRS confirmed the rating of AAA (sf) on the Class A notes and confirmed the rating of A (high) (sf) on the Class B notes.

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

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

-- DBRS expected a lifetime base-case probability of default (PD) and loss given default (LGD) for the pool 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 loans for the Issuer are 1.66% and 50.00%, 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 of the Class A notes would be expected to remain at AAA (sf), assuming no change in the PD. If the PD increases by 50%, the rating for the Class A notes would be expected to remain at AAA (sf), assuming no change in the LGD. Furthermore, if both the PD and LGD increase by 50%, the rating of the Class A notes would be expected to fall to AA (high) (sf).

Class A notes Risk 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 AA (high) (sf).

Class B notes Risk Sensitivity:
-- 25% increase in LGD, expected rating of AA (sf).
-- 50% increase in LGD, expected rating of AA (sf).
-- 25% increase in PD, expected rating of AA (sf).
-- 50% increase in PD, expected rating of AA (sf).
-- 25% increase in PD and 25% increase in LGD, expected rating of AA (sf).
-- 25% increase in PD and 50% increase in LGD, expected rating of AA (low) (sf).
-- 50% increase in PD and 25% increase in LGD, expected rating of AA (low) (sf).
-- 50% increase in PD and 50% increase in LGD, expected rating of A (high) (sf).

For further information on DBRS historic 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.

Lead Analyst: Andrew Lynch, Assistant Vice President
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: 14 January 2015

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