DBRS Confirms Ratings on Driver Master SA - Compartment 2

DBRS Ratings Limited (DBRS) has today confirmed the ratings of the Series 2015-1 Class A and Class B Notes issued by Driver Master SA - Compartment 2 (the Issuer) as follows:

-- Series 2015-1, Class A Notes rated AAA (sf)
-- Series 2015-1, Class B Notes rated A (high) (sf)

DBRS initially assigned the above ratings on 27 July 2015. The ratings were then confirmed on 27 June 2016 following the execution of the following amendments:

-- The extension of the revolving period of the outstanding series of notes for 12 additional months, moving the revolving period end date from 27 June 2016 to 25 June 2017.
-- The reduction of the General Cash Collateral Account target from 1.2% down to 1.0% of the outstanding notes.
-- The reset of some triggers: the Class A and Class B early amortisation triggers were increased to 9.6% and 5.4%, respectively, from 9.4% and 5.25%; and the thresholds for the Cumulative Net Loss Ratio were decreased to 0.45%, 1.00%, 1.35% and 1.75% (from 0.45%, 1.20%, 1.75% and 2.25%, respectively).
-- The increase of the discount rate to be used for the additional receivables up to 0.95%.
-- That the subordination (following issuance of further notes or amortisation) will be redistributed between sub loan and overcollateralisation.

The program features and provisions remain substantially unchanged. The rating action follows the EUR 3.9 billion tap issuance of the Notes. The updated portfolio will include the receivables from other Driver Master Compartments (namely Driver Master SA Compartment 5, Driver Master SA Compartment 6 and Driver Master SA Compartment 7), whose Notes will be repurchased on the same date and their respective ratings discontinued. The Notes are backed by a EUR 7.3 billion pool of receivables related to auto loan contracts granted by Volkswagen Bank GmbH (VWB) to private and commercial customers in Germany.

The ratings are based upon review by DBRS 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, 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 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 under which they have invested.
-- VWB’s experience as an originator, underwriter and servicer, and the financial strength of the multinational motor company it is a part of.
-- The credit quality of the underlying collateral and the ability of VWB 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.

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 warrant the application of the entire principal methodology. Given the master trust structure, no asset or cash flow analysis was conducted, as the asset portfolio complies with the composition limits set forth in the transaction legal documents and current transaction performance is within expectations.

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” on: http://www.dbrs.com/industries/bucket/id/10036/name/commentaries/

The sources of data and information used for these ratings includes performance data relating to receivables sourced by VWB directly or through its agents, Commerzbank AG and Volkswagen Financial Services AG. DBRS received historical gross loss and net loss data relating to VWB’s originations by monthly vintages on a cumulative basis dating back to 2004. Data was also provided relating to delinquencies, prepayments and early settlements 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.

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 was 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 27 June 2016 when DBRS confirmed the ratings on the Class A and Class B Notes.

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

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):

-- Probability of Default (PD): Base Case of 2.11%, a 25% and 50% increase on Base Case PD.
-- Recovery Rate Used: Base Case Recovery Rate of 50%
-- Loss Given Default (LGD): Base Case LGD of 50%, 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 (low) (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 (low) (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 (low) (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 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 (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 (low) (sf).

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.

Lead Analyst: Matthew Nyong, Senior Financial Analyst
Rating Committee Chair: Vito Natale, Senior Vice President
Initial Rating Date: 31 May 2016

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.

-- Rating European Consumer and Commercial Asset-Backed Securitisations (25 October 2016)
-- 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 (14 October 2016)
-- Operational Risk Assessment for European Structured Finance Originators (14 October 2016)
-- Unified Interest Rate Model for European Securitisations (2 November 2016)

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.