DBRS Takes Rating Actions on VCL Master S.A., acting through its Compartment 1

DBRS Ratings Limited (DBRS) has today assigned a new rating to VCL Master S.A., acting through its Compartment 1 (the Issuer) as follows:

-- Series 2017-1, Class A Notes at AAA (sf)

DBRS has also confirmed the ratings previously assigned to the Issuer as follows:

-- Series 2010-1, Class A Notes at AAA (sf)
-- Series 2010-2, Class A Notes at AAA (sf)
-- Series 2010-4, Class A Notes at AAA (sf)
-- Series 2011-2, Class A Notes at AAA (sf)
-- Series 2012-1, Class A Notes at AAA (sf)
-- Series 2012-2, Class A Notes at AAA (sf)
-- Series 2012-3, Class A Notes at AAA (sf)
-- Series 2012-4, Class A Notes at AAA (sf)
-- Series 2013-1, Class A Notes at AAA (sf)
-- Series 2013-2, Class A Notes at AAA (sf)
-- Series 2015-1, Class A Notes at AAA (sf)
-- Series 2014-1, Class B Notes at A (high) (sf)
-- Series 2014-2, Class B Notes at A (high) (sf)
-- Series 2014-3, Class B Notes at A (high) (sf)
-- Series 2014-4, Class B Notes at A (high) (sf)

DBRS initially assigned the aforementioned ratings on 26 September 2016.

The rating actions follow the execution of an amendment agreement that envisages:

-- The issuance of new notes under Series 2017-1;
-- The set-up of hedging agreements related to the Series 2017-1 notes;
-- The tap-up issuance of the notes issued under Class A Series 2010-1, 2011-2, 2012-1, 2012-2, 2012-3, 2012-4, 2013-1, 2013-2 and 2015-1, and Class B Series 2014-1 and 2014-2;
-- The extension of the hedging agreement in place under Class A Series 2010-1, 2011-2, 2012-1, 2012-2, 2012-3, 2012-4, 2013-1, 2013-2 and 2015-1, and Class B Series 2014-1 and 2014-2;
-- The repurchase of EUR 75 million of the notes under Class A Series 2010-2.

The program features and provisions remain substantially unchanged.

The notes are backed by a EUR 1.6 billion pool of receivables related to motor vehicle lease contracts originated by Volkswagen Leasing GmbH (VWL).

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

-- The program’s capital structure and form and sufficiency of available credit enhancement.
-- Credit enhancement in the form of subordination, overcollateralisation and a fully funded liquidity 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) and A (high) (sf) standard for the series of Class A Notes and Class B Notes, respectively.
-- The ability of the structure to withstand stressed cash flow assumptions and repay investors according to the terms in which they have invested.
-- The program counterparties’ capabilities with regard to originations, underwriting, servicing and its financial strength.
-- DBRS conducted an operational risk review of VWL at their premises in Brunswick and deems it to be an acceptable servicer.
-- 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 rated AAA with a Stable trend by DBRS.
-- 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.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable is: “Rating 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.

In DBRS’s opinion, the changes under consideration do not require the application of the entire principal methodology. Given the Master Trust structure of the transaction, the asset portfolio complying with the composition limits set forth in the transaction legal documents and current transaction performances, no asset or cash flow analysis was conducted for this 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” 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 VWL directly or through their agents, Volkswagen Financial Services AG and HSBC Bank plc. DBRS received historical net loss data relating to VWL’s originations by monthly vintages on a cumulative basis dating back to 2002. Data was also provided relating to delinquencies and prepayments dating back to 2010. Portfolio stratifications on the updated portfolio were provided in the form of the latest investor report, and the portfolio composition remains relatively unchanged. DBRS has not updated its base case assumptions of gross default and recovery. 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 not been supplied with updated 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.

The lead responsibilities for this transaction have been transferred to Matthew Nyong.

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 1.77%, a 25% and 50% increase on base case PD.
-- Loss Given Default (LGD) of 42% for the Class A Notes and 51% for the Class B Notes, a 25% and 50% increase on LGDs.

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 not lead to a change of the Class A Notes.
-- A hypothetical increase of the base case PD by 50%, ceteris paribus, would lead to a downgrade of the Class A Notes to AA (high) (sf).
-- A hypothetical increase of the LGD 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 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 AA (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 AA (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 (high) (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 lead to a downgrade of the Class B Notes to A (sf).
-- A hypothetical increase of the base case PD by 50%, ceteris paribus, would lead to a downgrade of the Class B Notes to A (sf).
-- 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 25% 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 50% and a hypothetical increase of the LGD by 25%, ceteris paribus, would lead to a downgrade of the Class B Notes to BBB (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 (low) (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 BB (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: Matthew Nyong, Senior Financial Analyst
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: 26 September 2016

DBRS Ratings Limited
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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 (October 2016)
-- Legal Criteria for European Structured Finance Transactions (September 2016)
-- Derivative Criteria for European Structured Finance Transactions (October 2016)
-- Operational Risk Assessment for European Structured Finance Servicers (October 2016)
-- Operational Risk Assessment for European Structured Finance Originators (October 2016)
-- Unified Interest Rate Model for European Securitisations (November 2016)

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