DBRS Confirms Ratings Assigned to DFM Master S.A.

DBRS Ratings Limited (DBRS) has today confirmed the following ratings to the notes assigned to DFM Master S.A. (the Issuer) as follows:

-- Asset Backed Notes, Series 2011-1: AAA (sf)
-- Asset Backed Notes, Series 2011-2: AAA (sf)
-- Asset Backed Notes, Series 2011-5: AAA (sf)
-- Asset Backed Notes, Series 2013-1: AAA (sf)
-- Asset Backed Notes, Series 2015-1: AAA (sf)

The confirmation follows the execution of an Amendment Agreement on 26 May 2017 that, among other lesser changes, envisages the extension of the Notes’ revolving period to the payment date falling in February 2018.

DBRS had previously assigned, finalised and confirmed, as the case may be, the aforementioned ratings on 26 May 2011, 29 August 2011, 24 January 2012, 26 April 2012, 29 May 2012, 28 May 2013, 27 May 2014, 5 June 2015, 28 July 2015 and 25 May 2016.

The Notes are backed by loans granted by Dealers Financierings Maatschaapij N.V. (DFM N.V. or the originator) to corporate lessors for the purpose of financing their leasing business. The loans are secured by a security interest in the underlying vehicles and leases. DFM N.V is a subsidiary of Volkswagen Pon Financial Services, B.V. (VWPFS) which is 60% owned by Volkswagen Financial Services Group.

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

-- Transaction capital structure and form and sufficiency of available credit enhancement.
-- Relevant credit enhancement in the form of a cash collateral account and overcollateralisation. Credit enhancement levels are sufficient to support DBRS’s projected expected cumulative net loss assumptions (including residual value loss) under various stress scenarios at a AAA (sf) standard.
-- The ability of the transaction to withstand stressed cash flow assumptions and repay investors according to the terms in which they have invested.
-- The transaction parties’ capabilities with respect to originations, underwriting, servicing and financial strength.
-- The credit quality of the collateral and ability of the Servicer to perform collection activities on the collateral.
-- The amendment agreement dated 26 May 2016.
-- 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 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 DFM N.V. who provided detailed portfolio information and monthly performance reports related to the securitised portfolio. DBRS considers the information available to it for the purposes of providing these ratings was of satisfactory quality.

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

DBRS has not yet 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 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 was taken on 25 May 2016 when the ratings were confirmed at AAA (sf).

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:

DBRS expected a Base Case Probability of Default (PD) and Loss Given Default (LGD) for the portfolio based on a review of historical data. Additionally, given the revolving nature of the portfolio DBRS assumed a more conservative distribution given the portfolio concentration limits under the transaction documentations. Adverse changes to asset performance may cause stresses to the Base Case assumptions and therefore have a negative effect on the credit rating.

-- Probability of Default Rates Used: Base Case PD of 2.90%, a 25% and 50% increase on the base case PD.
-- Recovery Rates Used: Base case Recovery Rate of 50%.
-- Loss Given Default Rate Used: Base Case LGD of 50% and a 25% and 50% increase in the base case LGD.
-- Residual Value Haircut: Base Case 40% and a 50% increase on the base case.

DBRS concludes that, following a 50% increase in the Residual Value Haircut:
-- A hypothetical increase of the base case PD by 25%, or a hypothetical increase in the base case LGD by 25%, ceteris paribus, would lead to the notes maintaining their rating of AAA (sf).
-- A hypothetical increase of the base case PD by 50%, or a hypothetical increase in the base case LGD by 50%, ceteris paribus, would lead to the notes maintaining their rating of AAA (sf).
-- A hypothetical increase of the base case PD by 25% and a hypothetical increase of the base case LGD by 25%, ceteris paribus, would lead to the notes maintaining their rating of AAA (sf).
-- A hypothetical increase of the base case PD by 50% and a hypothetical increase of the base case
LGD by 25%, ceteris paribus, would lead to the notes maintaining their rating of AAA (sf).
-- A hypothetical increase of the base case PD by 25% and a hypothetical increase of the base case LGD by 50%, ceteris paribus, would lead to the notes maintaining their rating of AAA (sf).
-- A hypothetical increase of the base case PD by 50% and a hypothetical increase of the base case LGD by 50%, ceteris paribus, would lead to the notes maintaining their rating of AAA (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: 24 May 2011

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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
-- 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