DBRS Finalises Provisional Rating Assigned to Silver Arrow S.A., acting in respect of its Compartment 8

DBRS Ratings Limited (DBRS) has today finalised a provisional rating of AAA (sf) on the Class A Notes (the Notes) to be issued by Silver Arrow S.A., acting in respect of its Compartment 8 (the Issuer).

The transaction represents the issuance of Class A Notes backed by EUR 1.2 billion of receivables related to auto loan contracts granted by Mercedes-Benz Bank AG (MBB) to private and commercial borrowers in Germany. The transaction represents ongoing issuance of auto loans originated by MBB in the Federal Republic of Germany. The receivables are serviced by MBB.

The rating is 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 net loss assumptions projected under various stress scenarios at the AAA (sf) standard for the Notes.
-- The transaction’s ability to withstand stressed cash flow assumptions and repay investors according to the terms under which they have invested.
-- MBB’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 MBB 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 Federal Republic of Germany at AAA 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 to the rating 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 this rating include performance data relating to receivables provided by MBB. DBRS received historical gross loss and recovery data relating to MBB originations by quarterly vintages, on a cumulative basis, dating back to the first quarter of 2010. As well as default and recovery data, MBB provided delinquency and prepayment data, which also goes back to the first quarter of 2010, as well as detailed stratification tables of the portfolio selected by MBB as at 30 April 2017, and an amortisation schedule.

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

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 purposes of providing this rating 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 rating was disclosed to the MBB and the Arranger, Landesbank Baden-Wurttemburg.

This rating concerns a newly issued financial instrument. This is the first DBRS rating on this 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 (the “Base Case”):

-- Expected Default Rates Used: Base case probability of default (PD) of 1.77%, a 25% and 50% increase on the base case PD.
-- Recovery Rates Used: Recovery Rate of 45% at the AAA (sf) stress level, a 25% and 50% decrease in the base case Recovery Rate. Note that the percentage decreases in the recovery rates are assumed for the other stress recovery rate levels.
-- Loss Given Default (LGD) Used: LGD Rate of 55% at the AAA (sf) stress level, a 25% and 50% increase in the base case 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 not lead to a downgrade of the Class A Notes.
-- A hypothetical increase of the base case PD by 50% or a hypothetical increase of the LGD by 50%, ceteris paribus, would not lead to a downgrade of the Class A Notes.
-- 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 (high) (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 (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 A Notes to AA (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 A Notes to 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 Analyst: Matthew Nyong, Senior Financial Analyst – EU ABS
Rating Committee Chair: Christian Aufsatz, Managing Director – Head of EU Structured Finance
Initial Rating Date: 9 June 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