DBRS Takes Rating Actions on VCL Master S.A., acting through its Compartment 1

DBRS Ratings Limited (DBRS) assigned new ratings to VCL Master S.A., acting on behalf of its Compartment 1 (the Issuer) as follows:

-- Series 2017-2, Class A Notes at AAA (sf)
-- Series 2017-3, Class A Notes at AAA (sf)

DBRS also confirmed the ratings previously assigned to the Issuer as follows:

-- Series 2010-2, Class A Notes at AAA (sf)
-- Series 2010-4, Class A Notes at AAA (sf)
-- Series 2011-2, Class A Notes at AAA (sf)
-- Series 2012-1, Class A Notes at AAA (sf)
-- Series 2012-2, Class A Notes at AAA (sf)
-- Series 2012-3, Class A Notes at AAA (sf)
-- Series 2012-4, Class A Notes at AAA (sf)
-- Series 2013-1, Class A Notes at AAA (sf)
-- Series 2015-1, Class A Notes at AAA (sf)
-- Series 2017-1, Class A Notes at AAA (sf)

DBRS also upgraded the following ratings:

-- Series 2014-1, Class B Notes upgraded to AA (sf) from A (high) (sf)
-- Series 2014-3, Class B Notes upgraded to AA (sf) from A (high) (sf)
-- Series 2014-4, Class B Notes upgraded to AA (sf) from A (high) (sf)

Finally, DBRS discontinued the AAA (sf) ratings on the Series 2010-1 and 2013-2 Class A Notes, and the A (high) (sf) rating on the Series 2014-2 Class B Notes.

The rating actions follow the execution of an amendment agreement that envisages:

-- The issuance of new Class A Notes under Series 2017-2 and 2017-3;
-- The set-up of hedging agreements related to the Series 2017-2 and 2017-3 Class A Notes;
-- The extension of the hedging agreements in place under Series 2010-2, 2010-4, 2011-2, 2012-1, 2012-2, 2012-3, 2012-4, 2013-1, 2015-1, 2017-1 Class A Notes and Series 2014-1, 2014-2 and 2014-4 Class B Notes;
-- The extension of the revolving period of the Series 2010-2, 2010-4, 2011-2, 2012-1, 2012-2, 2012-3, 2012-4, 2013-1, 2015-1, 2017-1 Class A Notes and Series 2014-1, 2014-2 and 2014-4 Class B Notes;
-- The redemption and repayment of the Series 2010-1 and 2013-2 Class A Notes, and the Series 2014-4 Class B Notes.

The programme features and provisions remain substantially unchanged.

The notes are backed by a EUR 2.56 billion pool of receivables related to motor vehicle lease contracts originated by Volkswagen Leasing GmbH (VWL).

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

-- The programme’s capital structure and form and sufficiency of available credit enhancement.
-- Credit enhancement in the form of subordination, overcollateralisation and a fully funded liquidity reserve from the issuance date.
-- Credit enhancement levels are sufficient to support the expected cumulative net loss assumption projected under various stress scenarios at a AAA (sf) and AA (sf) standard for the series of Class A Notes and Class B Notes, respectively.
-- The ability of the structure to withstand stressed cash flow assumptions and repay investors according to the terms in which they have invested.
-- The programme counterparties’ capabilities with regard to originations, underwriting, servicing and their financial strength.
-- DBRS conducted an operational risk review of VWL at their premises in Brunswick and deems it to be an acceptable servicer.
-- The credit quality and industry diversification of the collateral and historical and projected performance of the seller’s portfolio.
-- The sovereign rating of the Federal Republic of Germany, currently rated AAA with a Stable trend by DBRS.
-- 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.

The transaction was modelled in Intex DealMaker

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the ratings is “Rating 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.

-- An asset and a cashflow analysis were both conducted. Due to the inclusion of a revolving period in the transaction, the analysis is and continues to be based on the worst-case replenishment criteria set forth in the transaction legal documents.

-- In DBRS’s opinion, a discontinued-repaid rating action does not warrant the application of the entire principal methodology, as the bond has been repaid in full.

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 performance data relating to receivables provided by VWL directly or through their agents, Volkswagen Financial Services AG and Credit Agricole Corporate and Investment Bank. DBRS received historical net loss data relating to VWL’s originations by monthly vintages on a cumulative basis dating back to 2002. Data was also provided relating to delinquencies and prepayments dating back to 2010. Portfolio stratifications on the updated portfolio were provided in the form of the latest investor report.

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

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

-- DBRS was supplied with one or more third-party assessments. DBRS applied additional cash flow stresses in its 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.

These ratings concern a newly issued financial instrument. These are the first DBRS ratings on this financial instrument.

The last rating action on this transaction took place on 28 March 2017.

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”):

-- Probability of Default Rates Used: Base Case PD of 1.75%, a 25% and 50% increase on the base case PD.
-- Recovery Rates Used: Recovery Rate of 40% at the AAA (sf) stress level and 49% at the AA (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.

DBRS concludes that for the Class A Notes:

-- A hypothetical increase in the PD by 25%, ceteris paribus, would lead to a downgrade of the Class A Notes to AA (high).
-- A hypothetical increase of the PD by 50%, ceteris paribus, would lead to a downgrade of the Class A Notes to AA.
--A hypothetical increase in the loss given default (LGD) by 25%, ceteris paribus, would lead to a downgrade of the Class A Notes to AA (high).
-- A hypothetical increase in the LGD by 50%, ceteris paribus, would lead to a downgrade of the Class A Notes to AA.
-- A hypothetical increase in the PD and LGD by 25%, ceteris paribus, would lead to a downgrade of the Class A Notes to AA.
-- A hypothetical increase in the PD by 50%, with a hypothetical increase in LGD by 25%, ceteris paribus, would lead to a downgrade of the Class A Notes to AA (low).
-- A hypothetical increase in the PD by 25%, with a hypothetical increase in LGD by 50%, ceteris paribus, would lead to a downgrade of the Class A Notes to AA (low).
-- A hypothetical increase in the PD and LGD, and RV loss by 50%, ceteris paribus, would lead to a downgrade of the Class A Notes to A.

DBRS concludes that for the Class B Notes:

-- A hypothetical increase in the PD by 25%, ceteris paribus, would not lead to a downgrade of the Class B Notes.
-- A hypothetical increase of the PD by 50%, ceteris paribus, would not lead to a downgrade of the Class B Notes.
--A hypothetical increase in the LGD by 25%, ceteris paribus, would not lead to a downgrade of the Class B Notes.
-- A hypothetical increase in the LGD by 50%, ceteris paribus, would not lead to a downgrade of the Class B Notes.
-- A hypothetical increase in the PD and LGD by 25%, ceteris paribus, would not lead to a downgrade of the Class B Notes.
-- A hypothetical increase in the PD by 50%, with a hypothetical increase in LGD by 25%, ceteris paribus, would lead to a downgrade of the Class B Notes to A (high).
-- A hypothetical increase in the PD by 25%, with a hypothetical increase in the LGD by 50%, ceteris paribus, would lead to a downgrade of the Class B Notes to A (high).
-- A hypothetical increase in the PD and LGD by 50%, ceteris paribus, would lead to a downgrade of the Class B Notes to “A.”

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 and US regulations only.

Lead Analyst: Matthew Nyong, Senior Financial Analyst – ABS
Rating Committee Chair: Christian Aufsatz, Managing Director – Head of European Structured Finance
Initial Rating Date: 25 September 2016

DBRS Ratings Limited
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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 (October 2016)
-- Legal Criteria for European Structured Finance Transactions (September 2016)
-- Derivative Criteria for European Structured Finance Transactions (October 2016)
-- Operational Risk Assessment for European Structured Finance Servicers (October 2016)
-- Operational Risk Assessment for European Structured Finance Originators (October 2016)
-- Unified Interest Rate Model for European Securitisations (November 2016)

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.