DBRS Confirms Ratings on Driver UK Multi-Compartment S.A., acting for and on behalf of its Compartment Private Driver UK 2016-1

DBRS Ratings Limited (DBRS) has today taken the following rating actions on the bonds issued by Driver UK Multi-Compartment S.A., acting for and on behalf of its Compartment Private Driver UK 2016-1 (the Issuer):
-- Class A Notes confirmed at AAA (sf)
-- Class B Notes confirmed A (high) (sf)

The rating actions on the Class A and Class B Notes follow an annual review of the transaction and are based on the following analytical considerations:

-- Portfolio performance, in terms of delinquencies and defaults, as of May 2017.
-- Updated default, recovery and loss assumptions for the remaining receivables.
-- Current available credit enhancement to the Class A and Class B notes to cover the expected losses at the AAA (sf) and A (high) (sf) rating levels, respectively.

The Issuer is a securitisation of UK auto loans originated and serviced by Volkswagen Financial Services (UK) plc (VWFS). The transaction had an 11-month revolving period which ended in May 2017.

PORTFOLIO PERFORMANCE
As of May 2017, two-to-three month arrears were at 0.08% and the 90+ delinquency ratio was at 0.06%. The current cumulative net loss ratio is low at 0.006%.

PORTFOLIO ASSUMPTIONS
DBRS has conducted an analysis of the updated vintage data provided by VWFS. As a result, DBRS has reduced its net loss assumption for the remaining collateral pool to 1.16% from 2.12%. DBRS’s Residual Value Haircuts have been kept constant.

CREDIT ENHANCEMENT
The transaction has a sequential/pro rata amortisation structure whereby all principal payments from the receivables pay down the Class A Notes until Class A overcollateralisation (OC) reaches its target level of 30.00%. As of the May 2017 payment date, Class A OC was 24.01% and Class B OC was 15.79%.

The transaction benefits from a Cash Collateral Account, currently at the target level of GBP 9.00 million. The Cash Collateral Account covers senior fees, Class A and Class B interest and principal losses on the final payment date.

The Bank of New York Mellon, London Branch is the account bank for the transaction. The DBRS public rating of The Bank of New York Mellon, London Branch of AA complies with the Minimum Institution Rating, given the rating assigned to the Class A Notes, as described in DBRS’s “Legal Criteria for European Structured Finance Transactions” methodology.

Notes:
All figures are in British pounds unless otherwise noted.

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

DBRS has applied the principal methodology consistently and conducted a review of the transaction in accordance with 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 the 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 data and information used for these ratings include monthly investor reports provided by VWFS.

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

At the time of the initial rating DBRS was supplied with third-party assessments. However, this did not impact the rating analysis.

DBRS considers the data and information available to it for the purpose of providing these ratings to be of satisfactory quality.

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

This is the first rating action since the initial rating date on 27 June 2016 when DBRS assigned ratings of AAA (sf) and A (high) (sf) to the Class A and Class B Notes, respectively.

The lead analyst responsibilities for this transaction have been transferred to Andrew Lynch.

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 with the parameters used to determine the rating (the “Base Case”):
-- DBRS expected a lifetime Base Case probability of default (PD) and loss given default (LGD) for the pool 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 credit ratings.
-- The base case PD for the current pool of loans for the Issuer is 4.06%.
-- The base case LGD is 28.67%. Stressed LGD assumptions of 49.13% and 40.50% were assumed at the AAA (sf) and A (high) (sf) rating levels, respectively.
-- Residual Value Haircuts of 45.17% and 35.62% were assumed at the AAA (sf) and A (high) (sf) rating levels, respectively.
-- The Risk Sensitivity overview below illustrates the ratings expected following the hypothetical increase in the PD and LGD and the hypothetical increase in the Residual Value (RV) Loss by a certain percentage over the base case assumption. For example, if the PD and LGD increase by 50%, the rating of the Class A Notes would be expected to fall to AA (high) (sf), assuming no change in RV Loss. If the RV Loss increases by 50%, the rating for the Class A Notes would be expected to fall to AA (sf), assuming no change in the PD and LGD. Furthermore, if both the PD and LGD, and RV Loss increase by 50%, the rating of the Class A Notes would be expected to fall to A (high) (sf).

Class A Notes Risk Sensitivity:
-- 25% increase in PD and LGD, expected rating of AAA (sf)
-- 50% increase in PD and LGD, expected rating of AA (high) (sf)
-- 25% increase in RV Loss, expected rating of AA (high) (sf)
-- 50% increase in RV Loss, expected rating of AA (sf)
-- 25% increase in PD and LGD, and 25% increase in RV Loss, expected rating of AA (high) (sf)
-- 50% increase in PD and LGD, and 25% increase in RV Loss, expected rating of AA (sf)
-- 50% increase in RV Loss, and 25% increase in PD and LGD, expected rating of AA (low) (sf)
-- 50% increase in RV Loss, and 50% increase in PD and LGD, expected rating of A (high) (sf)

Class B Notes Risk Sensitivity:
-- 25% increase in PD and LGD, expected rating of A (high) (sf)
-- 50% increase in PD and LGD, expected rating of A (high) (sf)
-- 25% increase in RV Loss, expected rating of A (high) (sf)
-- 50% increase in RV Loss, expected rating of A (low) (sf)
-- 25% increase in PD and LGD, and 25% increase in RV Loss, expected rating of A (sf)
-- 50% increase in PD and LGD, and 25% increase in RV Loss, expected rating of A (low) (sf)
-- 50% increase in RV Loss, and 25% increase in PD and LGD, expected rating of A (low) (sf)
-- 50% increase in RV Loss, and 50% increase in PD and LGD, expected rating of A (low) (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: Andrew Lynch, Assistant Vice President
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: 27 June 2016

DBRS Ratings Limited
20 Fenchurch Street, 31st Floor, London EC3M 3BY United Kingdom
Registered in England and Wales: No. 7139960

The rating methodologies and criteria used in the analysis of this transaction can be found at http://www.dbrs.com/about/methodologies.

-- Legal Criteria for European Structured Finance Transactions
-- Master European Structured Finance Surveillance Methodology
-- Operational Risk Assessment for European Structured Finance Servicers
-- Operational Risk Assessment for European Structured Finance Originators
-- Rating European Consumer and Commercial Asset-Backed 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.