DBRS Takes Rating Actions on Driver UK Master S.A., Compartment 2

DBRS Ratings Limited (DBRS) has today assigned the following ratings to the notes of Driver Master S.A., acting for and on behalf of its Compartment 2 (the Issuer):

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

DBRS has also confirmed the ratings of the other notes of the Issuer as follows:

-- Series 2013-1, Class A Notes at AAA (sf)
-- Series 2013-2, Class A Notes at AAA (sf)
-- Series 2013-3, Class A Notes at AAA (sf)
-- Series 2013-4, Class A Notes at AAA (sf)
-- Series 2013-5, Class A Notes at AAA (sf)
-- Series 2013-7, Class A Notes at AAA (sf)
-- Series 2013-8, Class A Notes at AAA (sf)
-- Series 2013-10, Class A Notes at AAA (sf)
-- Series 2014-1, Class A Notes at AAA (sf)
-- Series 2014-2, Class A Notes at AAA (sf)
-- Series 2014-3, Class A Notes at AAA (sf)
-- Series 2015-1, Class A Notes at AAA (sf)
-- Series 2016-1, Class A Notes at AAA (sf)
-- Series 2016-2, Class A Notes at AAA (sf)
-- Series 2016-3, Class A Notes at AAA (sf)
-- Series 2013-1, Class B Notes at A (high) (sf)
-- Series 2013-2, Class B Notes at A (high) (sf)
-- Series 2013-3, Class B Notes at A (high) (sf)
-- Series 2015-1, Class B Notes at A (high) (sf)
-- Series 2016-1, Class B Notes at A (high) (sf)
-- Series 2016-2, Class B Notes at A (high) (sf)
-- Series 2016-3, Class B Notes at A (high) (sf)

DBRS has also discontinued its ratings on the Series 2013-6 Class A, Series 2014-1 Class B, Series 2016-4 Class A and Series 2016-4 Class B Notes as they have been repaid.

DBRS had previously assigned, finalised and confirmed, as the case may be, the aforementioned ratings on 23 October 2013, 20 November 2013, 21 August 2014, 25 November 2014, and 25 November 2015. The rating actions follow the issuance of the Class A and Class B Notes of the Series 2017-1, and the execution of some amendments, including:

-- Extension of the revolving period of some of the existing series of notes (listed below) for a further 12 months (new expiry date in June 2018);
-- Overcollateralisation Target to remain unchanged (during revolving period: 30.90% / 20.90%);
-- Tap issuance of the Series 2013-8, Class A Notes by GBP 50 million;
-- Tap issuance of the Series 2015-1, Class A Notes by GBP 244.5 million;
-- Tap issuance of the Series 2016-2, Class A Notes by GBP 30.5 million;
-- Tap issuance of the Series 2015-1, Class B Notes by GBP 30.5 million;

Following the extension of the revolving period the spread payable under the notes which are still in their revolving period, and the subordinated loan, and the swap fixed costs were confirmed as follows:
-- Class A Notes margin: 1-month LIBOR + 0.55%
-- Class B Notes margin: 1-month LIBOR + 1.00%
-- Class A swap fixed rate: 0.95%;
-- Class B swap fixed rate: 1.40%

The notes are backed by a GBP 5.3 billion pool of receivables related to auto loan contracts granted by Volkswagen Financial Services (UK) Limited (VWFS) to private and commercial customers in England, Wales and Scotland.
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.
-- VW’s experience as an originator, underwriter and servicer and the financial strength of the multinational motor company they are a part of.
-- The credit quality of the underlying collateral and the ability of VWFS 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.

Notes:
All figures are in British pounds 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.

Due to the inclusion of a revolving period in the transaction, the collateral was initially modelled based on the worst-case replenishment criteria set forth in the transaction legal documents. These assumptions have not changed and consequently cash flow analysis was not conducted.

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 data and information used for these ratings include performance data relating to receivables sourced by VWFS directly or through their agents Volkswagen Financial Services AG and HSBC Bank plc. DBRS received historical gross loss and net loss data relating to VW’s originations by monthly vintages on a cumulative basis dating back to July 2002. Data was also provided relating to delinquencies, prepayments and early settlements and loan-by-loan realisation from sale of turned-in vehicles 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 did 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 considers the information available to it for the purposes of providing these ratings to be of satisfactory quality.

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

As regards the Series 2017-1 Class A and Series 2017-1 Class B Notes, these ratings concern newly issued financial instruments. As regards the existing classes of notes, the last rating action took place on 25 October 2016 when DBRS assigned new ratings to the Series 2016-3 and 2016-4 Class A and Class B Notes while confirming the remaining existing series of Class A and Class B Notes at AAA (sf) and A (high) (sf), respectively.

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:

-- Probability of Default (PD) Rates Used: Expected Default Rate of 4.2% with a 25% and 50% increase on the base case PD.
-- Recovery Rate Used: Expected Recovery Rate of 70%, with 60% and 50% Recovery Rates applied to the A (high) (sf) and AAA (sf) scenarios, respectively.
-- Loss Given Default (LGD) Used: Expected LGD of 30%, with a 40% and 50% LGD applied to the A (high) (sf) and AAA (sf) scenarios, respectively. Both scenarios with a 25% and 50% increase in the LGD.
-- Residual Value (RV): 45.2% and 35.7% for the AAA (sf) and A (high) scenarios, respectively. Both scenarios with a 25% and 50% increase in the RV Loss.

DBRS concludes that for the Class A Notes:
-- A hypothetical increase of the base case PD and 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 and 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 RV haircut 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 RV haircut 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 and LGD by 25% and a hypothetical increase of the RV haircut 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 and LGD by 50% and a hypothetical increase of the RV haircut by 25%, ceteris paribus, would lead to a downgrade of the Class A Notes to A (low) (sf).
-- A hypothetical increase of the base case PD and LGD by 25% and a hypothetical increase of the RV haircut by 50%, ceteris paribus, would lead to a downgrade of the Class A Notes to AA (low) (sf).
-- A hypothetical increase of the base case PD and LGD by 50% and a hypothetical increase of the RV haircut 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 and LGD by 25%, ceteris paribus, would not lead to a downgrade of the Class B Notes.
-- A hypothetical increase of the base case PD and 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 RV haircut by 25%, ceteris paribus, would not lead to a downgrade of the Class B Notes.
-- A hypothetical increase of the base case RV haircut 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 and LGD by 25% and a hypothetical increase of the RV haircut 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 and LGD by 50% and a hypothetical increase of the RV haircut 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 and LGD by 25% and a hypothetical increase of the RV haircut 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 and LGD by 50% and a hypothetical increase of the RV haircut by 50%, ceteris paribus, would lead to a downgrade of the Class B Notes to A (low) (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 Analyst: Matthew Nyong – Senior Financial Analyst, EU ABS
Rating Committee Chair: Christian Aufsatz – Managing Director, EU Structured Finance
Initial Rating Date: 23 October 2013

DBRS Ratings Limited
20 Fenchurch Street, 31st Floor, London EC3M 3BY 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
-- Legal Criteria for European Structured Finance Transactions
-- Derivative Criteria for European Structured Finance Transactions
-- Operational Risk Assessment for European Structured Finance Servicers
-- Operational Risk Assessment for European Structured Finance Originators
-- Unified Interest Rate Model for European Securitisations

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