DBRS Upgrades and Confirms Ratings on VCL Multi-Compartment S.A. acting for and on behalf of its Compartment VCL 21

DBRS Ratings Limited (DBRS) has today taken the following rating actions on the Class A Notes and Class B Notes (together, the Notes) issued by VCL Multi-Compartment S.A. acting for and on behalf of its Compartment VCL 21 (the Issuer or VCL 21):

-- EUR 228,942,300.00 Class A Notes confirmed at AAA (sf)
-- EUR 12,392,827.20 Class B Notes upgraded to AAA (sf) from AA (sf)

The above-mentioned rating actions reflect an annual review of the transaction and are based on the following analytical considerations, as described more fully below:

-- The overall portfolio performance as of the April 2017 payment date, in particular with regard to low levels of cumulative net loss and delinquencies.
-- The ability of the transaction to withstand stressed cash flow assumptions and repay investors according to the terms and conditions of the Notes.
-- The increased levels of credit enhancement (CE) available to the Notes to cover expected losses assumed in line with their respective rating levels.

The ratings of the Notes address the timely payment of interest and the ultimate payment of principal on or before the final maturity date in August 2021.

VCL 21 is a securitisation of German auto leases originated by Volkswagen Leasing GmbH (VWL). The EUR 259.7 million portfolio (including only performing and delinquent leases) as of the April 2017 payment date comprises leases for the purpose of new (95.5%), used (2.0%) and demonstration (2.5%) vehicles, granted to both retail (76.0%) and corporate (24.0%) customers.

PORTFOLIO PERFORMANCE
As of the April 2017 payment date, 30-day to 60-day delinquencies were 0.7% of the outstanding discounted balance and 60-day to 90-day delinquencies were 0.2%, while delinquencies greater than 90 days were 0.7%. Cumulative net losses, as defined in the transaction documents, were 0.1% of the original outstanding discounted balance.

CREDIT ENHANCEMENT
CE for the Notes is provided by overcollateralisation, subordination of the respective junior obligations and the general reserve fund. CE for the Class A Notes increased to 15.9% in April 2017, from 7.3% at closing in May 2015, while the CE for the Class B Notes increased to 11.1% from 4.6%.

The transaction benefits from a general reserve fund available to cover senior fees and the interest due on the Notes, funded at closing with part of the proceeds of a subordinated loan. In the event of Issuer default, it can also be used to cover principal payments on the rated Notes. At closing, it was funded with an amount equal to 1.2% of the original portfolio discounted balance and can be amortised down to the minimum between EUR 10.7 million and the aggregate outstanding principal amount of the Notes. Since the closing date, the general reserve fund has always been at least at its target level and is currently at EUR 10.7 million.

A swap structure is in place to hedge the interest rate mismatch between the Class A and Class B Notes, indexed to one-month Euribor and the fixed interest rate payments from the collateral portfolio. Royal Bank of Canada is the counterparty of the swap agreements and the DBRS Issuer Rating of Royal Bank of Canada of AA complies with the First Rating Threshold defined in DBRS’s “Derivative Criteria for European Structured Finance Transactions” methodology.

Elavon Financial Services DAC, U.K. Branch acts as the Account Bank for the transaction. DBRS’s private rating of Elavon Financial Services DAC, U.K. Branch complies with the minimum institution rating given the ratings assigned to the Notes, as described in DBRS’s “Legal Criteria for European Structured Finance Transactions” methodology.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the rating is: “Master European Structured Finance Surveillance Methodology”.

DBRS has applied the principal methodology consistently and conducted a review of the transaction in accordance with the surveillance section of 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 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 include data and information provided by VWL (the Servicer).

DBRS does not rely upon third-party due diligence in order to conduct its analysis.

DBRS was not supplied with third party assessments at the initial rating. 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 26 May 2016, when DBRS confirmed the rating of the Class A Notes at AAA (sf) and upgraded the rating of the Class B Notes to AA (sf).

The lead responsibilities for this transaction have been transferred to Joana Seara da Costa.

Information regarding DBRS ratings, including definitions, policies and methodologies, is 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”):

-- DBRS expected a Base Case probability of default (PD) and loss given default (LGD) for the portfolio 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 the credit ratings.

-- The Base Case of PD and LGD of the current pool of assets of receivables are 1.7% and 48.7%, respectively.

-- The risk sensitivity overview below illustrates the ratings expected for the Notes if the PD and LGD increase by a certain percentage over the Base Case assumptions.

For example, if the LGD increases by 50%, the ratings for the Class A and Class B Notes would be expected to remain at AAA (sf) and AAA (sf), respectively, ceteris paribus. If the PD increases by 50%, the ratings for the Class A and Class B Notes would be expected to remain at AAA (sf) and AAA (sf), respectively, ceteris paribus. Furthermore, if both the PD and LGD increase by 50%, the rating for the Class A Notes would be expected to remain at AAA (sf) and the rating for the Class B Notes would decrease to AA (high) (sf), respectively, ceteris paribus.

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)
-- 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, 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)
Class B 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)
-- 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, 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)
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.

Lead Surveillance Analyst: Joana Seara da Costa, Senior Financial Analyst
Rating Committee Chair: Vito Natale, Senior Vice President
Initial Rating Date: 22 April 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:

-- Master European Structured Finance Surveillance Methodology
-- Legal Criteria for European Structured Finance Transactions
-- 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.