DBRS Confirms Class A Notes Issued by Silver Arrow S.A., Acting in Respect of Its Compartments 6 and 7

DBRS Ratings Limited (DBRS) has today confirmed the ratings on the two series of Class A notes (the Notes) issued by Silver Arrow S.A., acting in respect of its Compartment 6 and Compartment 7 (SA-6 and SA-7) at AAA (sf).

Today’s rating actions follow an annual review of the transactions and are based on the following analytical considerations:

-- Portfolio performance, in terms of delinquencies and defaults.
-- Portfolio Default (PD) Rate and Recovery Rate (RR) assumptions and the ability of the transaction to withstand stressed cash flow assumptions and repay investors according to the terms and conditions of the Notes.
-- The credit enhancement (CE) available to the Notes to cover the expected losses at the AAA (sf) rating level.

SA-6 and SA-7 are each a securitisation of German auto loan receivables originated and serviced by Mercedes-Benz Bank AG. Silver Arrow is a public limited company incorporated under the law of Luxembourg. The receivables are loans granted to private and commercial borrowers residing in Germany to finance the purchase of new and used vehicles.

PORTFOLIO PERFORMANCE AND ASSUMPTIONS
As of the end of May 2017, the loans more than 90 days delinquent as a percentage of the outstanding portfolio balance were 0.06% in both SA-6 and SA-7. The cumulative default rates as a percentage of the portfolio balance at the transaction closing were 0.53% and 0.31% in SA-6 and SA-7, respectively. Both arrears and defaults remained low and within DBRS’s expectations. The default recovery rates were 56.2% and 28.89% in SA-6 and SA-7, respectively. DBRS expects the recovery rates to increase as the transactions season further. In this analysis, DBRS has maintained the base case default and recovery rate at 2.10% and 65.0%, respectively, for SA-6 and 2.08% and 65.0%, respectively, for SA-7.

CREDIT ENHANCEMENT
The transactions are both non-revolving. As a result, the CE available to each series of Class A notes has increased. For the SA-6 Class A notes, the CE has increased to 18.95% from 11.01% at the last review. For the SA-7 Class A Notes, the CE has increased to 12.04% from 7.50% at closing. The sources of CE are the subordinated Class B Notes and the General Reserves. Both transactions have non-amortising General Reserves that are currently at their respective target amounts.

Elavon Financial Services DAC, UK Branch, is the Issuer Account Bank for both transactions. It has a DBRS private rating that meets the Minimum Institution Rating criteria as described in DBRS’s “Legal Criteria for European Structured Finance Transactions” methodology, given the rating assigned to the Class A Notes.

Royal Bank of Canada (rated AA/R-1 (high) by DBRS) is the swap counterparty in SA-6 and DZ BANK AG Deutsche Zentral-Genossenschaftsbank (with DBRS Critical Obligations Ratings of AA/R-1 (middle)) is the swap counterparty in SA-7. Both entities have ratings that meet the first rating threshold given the rating assigned to the Notes, as described in DBRS’s “Derivative Criteria for European Structured Finance Transactions” methodology.

Notes:
All figures are in euros unless otherwise noted.

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

DBRS has applied the principal methodology consistently and conducted a review of the transactions in accordance with the principal methodology.

A review of the transactions legal documents was not conducted as the documents have remained unchanged since the most recent rating action.

Other methodologies referenced in these transactions 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 the monthly investor reports from Elavon Financial Services Limited.

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 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.

The last rating action on SA-6 took place on 23 September 2016 when DBRS confirmed the Class A notes at AAA (sf). The last rating action on SA-7 took place on 13 July 2016 when DBRS finalised its provisional AAA (sf) rating on the Class A Notes.

The lead analyst responsibilities for SA-7 have been transferred to Kevin Ma.

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):

-- For SA-6, PD of 2.10% and RR of 65% (or 35% Loss Given Default (LGD) Rate).
-- For SA-7, PD of 2.08% and RR of 65% (or 35% LGD).

SA-6 Class A Notes Sensitivity:
-- 25% increase in LGD, expected rating of AAA (sf)
-- 50% increase in LGD, expected rating of AAA (sf)
-- 25% increase in PD, expected rating of AAA (sf)
-- 50% increase in PD, expected rating of AAA (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of AAA (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of AAA (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of AAA (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of AAA (sf)

SA-7 Class A Notes Sensitivity:
-- 25% increase in LGD, expected rating of AAA (sf)
-- 50% increase in LGD, expected rating of AAA (sf)
-- 25% increase in PD, expected rating of AAA (sf)
-- 50% increase in PD, expected rating of AAA (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of AAA (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of AAA (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of AAA (sf)
-- 50% increase in PD and 50% increase in LGD, expected 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: Kevin Ma, Assistant Vice President
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: 1 September 2015 for SA-6 and 20 June 2016 for SA-7.

DBRS Ratings Limited
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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.

-- Legal Criteria for European Structured Finance Transactions
-- Master European Structured Finance Surveillance Methodology
-- Rating European Consumer and Commercial Asset-Backed Securitisations
-- Operational Risk Assessment for European Structured Finance Servicers
-- Unified Interest Rate Model for European Securitisations
-- Derivative Criteria for European Structured Finance Transactions

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.