DBRS Finalises Provisional Ratings Assigned to Driver España Four, Fondo de Titulización

DBRS Ratings Limited (DBRS) has today finalised the following ratings to the notes previously assigned to Driver España Four, Fondo de Titulización (the Issuer):

-- Class A Notes rated AAA (sf)
-- Class B Notes rated A (sf)

The transaction represents the issuance of notes backed by a of approximately EUR 1 billion of receivables related to auto loan contracts (the receivables or, collectively, the portfolio) granted by Volkswagen Finance, S.A., E.F.C. (VW Finance, the seller or the originator) to borrowers in Spain. The securitised portfolio comprises receivables related to standard amortising and balloon loans granted to retail and commercial customers for the acquisition of either new or used motor vehicles. None of the receivables poses direct residual value risk to the transaction.
The ratings are based on DBRS’s review of the following analytical considerations:

-- Transaction capital structure and form and sufficiency of available credit enhancement.
-- Relevant credit enhancement in the form of subordination and a reserve fund.
-- Credit enhancement levels are sufficient to support the expected credit and residual value net loss assumptions projected under various stress scenarios at AAA (sf) and A (sf) standards for the Class A and Class B Notes, respectively.
-- VW Finance’s financial strength and its capabilities with respect to originations, underwriting and servicing.
-- The credit quality of the collateral and the servicer’s ability to perform collection activities on the collateral.
-- The operational risk review conducted on VW Finance by DBRS to conclude that it is an acceptable servicer.
-- The transaction parties’ financial strength with regard to their respective roles.
-- The credit quality and industry diversification of the collateral as well as historical and projected performance of the seller’s portfolio.
-- The sovereign rating of the Kingdom of Spain at A (low) with a Stable trend.
-- The legal structure and presence of legal opinions addressing the assignment of 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 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.

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 and portfolio data relating to the auto loans originated by VW Finance. In particular, DBRS received quarterly gross loss, net loss, amortisation and prepayment static vintage analysis relating to originations from January 2005 to March 2017. Dynamic data was also provided relating to delinquencies, as well as a set of stratification tables detailing a portfolio provisionally selected by VW Finance as at 31 May 2017. All data was sourced by VW Finance directly or through the transaction arrangers, Volkswagen Financial Services AG and Lloyds Bank plc.

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 or independently verify the data or information it receives in connection with the rating process.

These ratings concern a newly issued financial instrument.

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: PD Rate of 2.34% with a 25% and 50% increase on the base case PD.
-- Recovery Rate Used: 40%.
-- Loss Given Default (LGD) Used: Expected LGD of 61% with a 25% and 50% increase in the 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 (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 AA (low) (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 AA (low) (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 (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 (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 (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 BB (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 B Notes to BB (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 B Notes to B (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 Analyst: Matthew Nyong, Senior Financial Analyst
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: 17 May 2017

DBRS Ratings Limited
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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