DBRS Confirms Ratings on Driver UK Multi-Compartment S.A. Acting for and on Behalf of its Compartment Driver UK Two, Three and Four

DBRS Ratings Limited (DBRS) confirmed its ratings on three Driver UK Multi-Compartment S.A. transactions (the Transactions) as follows:

Driver UK Multi-Compartment S.A. Acting for and on Behalf of its Compartment Driver UK two (Driver UK 2)
-- Series 2013-1, Class A Notes confirmed at AAA (sf)
-- Series 2013-1, Class B Notes confirmed at A (high) (sf)

Driver UK Multi-Compartment S.A. Acting for and on Behalf of its Compartment Driver UK three (Driver UK 3)
-- Class A Notes confirmed at AAA (sf)
-- Class B Notes confirmed at A (high) (sf)

Driver UK Multi-Compartment S.A. Acting for and on Behalf of its Compartment Driver UK four (Driver UK 4)
-- Class A Notes confirmed at AAA (sf)
-- Class B Notes confirmed at A (high) (sf)

The above-mentioned rating actions follow an annual review of the Transactions and are based on the following analytical considerations:
-- The overall portfolios’ performance as of the September 2017 payment dates, particularly with regard to low levels of delinquencies and cumulative net losses;
-- Updated default rate, recovery rate and expected loss assumptions for the remaining collateral pools;
-- The current available credit enhancement (CE) to the Notes to cover expected losses assumed in line with the AAA (sf) and A (high) (sf) rating levels, respectively.

The ratings on the Notes address the timely payment of interest and ultimate payment of principal payable on or before the relevant Final Maturity Date.

The Transactions are securitisations collateralised by portfolios of auto loan receivables granted by Volkswagen Financial Services UK Limited (VWFS) to retail and commercial customers residing in Great Britain. As of the September 2017 payment date, the three Transactions included both included Hire Purchase (HP) loans and Personal Contract (PCP) agreements secured by new and used vehicles. PCP agreements had a weight of 92.0% in Driver UK 2 portfolio and 94.1% in both Driver UK 2 and Driver UK 3 pools.

Under HP contracts, the outstanding balance is typically amortised in equal monthly instalments, and at the end of the agreement, vehicle ownership is transferred to the obligor after the payment of an additional fee. In the case of PCP agreements, equal monthly instalments are followed by an option to either take ownership by making the final balloon payment or returning the vehicle; this feature exposes the Transactions to residual value risk.

VWFS is expected to exercise the Clean-Up Call option of Driver UK 2 on 25 October 2017, given the portfolio discounted balance as of 30 September 2017 is expected to be below 10% of the Initial Receivables balance.

PORTFOLIO PERFORMANCE
As of the September 2017 payment date, 31- to 60-day delinquencies and 61- to 90-day delinquencies represented 0.5% and 0.3% of Driver UK 2 portfolio discounted balance, respectively, while delinquencies greater than 90 days were 0.3%. The Cumulative Net Loss Ratio was 1.3%.

In Driver UK 3 portfolio, 31- to 60-day delinquencies and 61- to 90-day delinquencies were 0.4% and 0.1%, respectively, while delinquencies greater than 90 days were 0.1%. The Cumulative Net Loss Ratio was 0.5%.

The Driver UK 4 portfolio had 0.3% and 0.2% loans in arrears by, respectively, 31- to 60-days and 61- to 90-days, and 0.1% of more than 90 days delinquencies. The Cumulative Net Losses was 0.1%.

PORTFOLIO ASSUMPTIONS
DBRS has conducted an analysis of the updated vintage data provided by VWFS. As a result, DBRS has updated its portfolio default and recovery Base Case assumptions on each outstanding portfolio as follows:
-- Driver UK 2: Probability of Default (PD) of 4.0%, Recovery Rate of 69.4%.
-- Driver UK 3: Probability of Default (PD) of 4.0%, Recovery Rate of 69.6%.
-- Driver UK 4: Probability of Default (PD) of 4.1%, Recovery Rate of 69.5%.

DBRS’s Residual Value Haircuts have been kept constant at 42.8% for the AAA (sf) rating level and 25.8% for the A (high) (sf) rating level.

CREDIT ENHANCEMENT
The Transactions have a sequential/pro rata amortisation structure whereby all principal payments from the receivables pay down each of the Class A Notes until Class A overcollateralisation (OC) reaches its target level of 33.0% (Driver UK 2) and 30.0% (Driver UK 3 and Driver UK 4). As of the September 2017 payment date, Driver UK 2 Class A Notes OC was 33.0% and Class B OC was 19.0%. For Driver UK 3, Class A Notes OC was 30.0% and Class B OC was 19.0% and for Driver UK 4, Class A Notes and Class B Notes OC was 26.2% and 18.5%, respectively.

The Transactions structure include a Cash Collateral Account with two separate ledgers:
-- The amounts standing on the Interest Compensation Ledger are available to pay a compensation to the relevant Issuer for interest shortfalls suffered as a result of Early Settlements of the receivables.
-- The General Cash Collateral Account is available to cover senior expenses, missed interest payments on the notes and, as soon as the portfolio balance is reduced to zero or on the relevant Final Maturity Date, to repay principal on the notes. These accounts were funded at closing with GBP 14.2 million for Driver UK 2, GBP 5.4 million for Driver UK 3 and GBP 9.0 million for Driver UK 4, and their target balance is equal to 1.2% of the Aggregate Discounted Receivables Balance, subject to a floor of GBP 11.8 million (Driver UK 2), GBP 4.5 million (Driver UK 3) and GBP 7.5 million (Driver UK 4).

Elavon Financial Services DAC, U.K. Branch (Elavon) is the Account Bank for Driver UK 2, The Bank of New York Mellon - London Branch (BNY Mellon, London) is the Account Bank for Driver UK 3 and Citibank N.A./London Branch (Citibank, London) is the Account Bank for Driver UK 4. The DBRS Long-Term Senior Debt of BNY Mellon London at AA and the DBRS private rating for Elavon and Citibank, London comply 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.

A swap structure is in place for each transaction to mitigate the interest rate mismatch between the Class A and Class B Notes, indexed to one-month Libor in both deals, and the fixed interest rate payments for the securitised portfolios. Royal Bank of Canada (RBC) is the swap counterparty of Driver UK 2, Credit Agricole Corporate & Investment Bank (CACIB) is the swap counterparty of Driver UK 3 and DZ BANK AG Deutsche Zentral-Genossenschaftsbank (DZ Bank) is the swap counterparty of Driver UK 4. The DBRS Long-Term Issuer Rating of RBC at AA, the private rating of CACIB and the Long Term Critical Obligations Rating of DZ Bank at AA comply with the First Rating Threshold defined in DBRS’s “Derivative Criteria for European Structured Finance Transactions”.

Notes:
All figures are in GBP 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 surveillance section of the principal methodology.

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

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 investor reports provided by VWFS and loan-level data from the European DataWarehouse GmbH.

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 Driver UK 2 took place on 30 September 2016, when DBRS confirmed the rating on Series 2013-1, Class A Notes at AAA (sf) and the rating on Series 2013-1, Class B Notes at A (high) (sf).

The last rating action on Driver UK 3 took place on 30 September 2016, when DBRS confirmed the rating on Class A Notes at AAA (sf) and the rating on Class B Notes at A (high) (sf).

The last rating action on Driver UK 4 took place on 25 November 2016, when DBRS finalised the provisional ratings assigned to the Class A Notes at AAA (sf) and Class B Notes at A (high) (sf).

The lead analyst responsibilities for Driver UK 4 have been transferred to Joana Seara da Costa.

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 ratings, DBRS considered the following stress scenarios, as compared to the parameters used to determine the rating (the “Base Case”):

Driver UK 2
-- PD: Base Case of 4.0%, a 25% and 50% increase on the Base Case PD.
-- Loss Given Default (LGD) Used: Base Case of 30.6%, whereas 40.8% and 49.5% LGD were used at A (high) (sf) and AAA (sf) scenarios, respectively. Both scenarios with a 25% and 50% increase in the LGD.
-- Residual Value (RV) Loss: 42.8% and 25.8% for the AAA (sf) and A (high) (sf) scenarios, respectively. Both scenarios with a 25% and 50% increase in the RV Loss.

DBRS concludes that for the Series 2013-1, Class A Notes:
-- A hypothetical increase of the PD and LGD rates by 25%, ceteris paribus, would lead to a downgrade of the Series 2013-1, Class A Notes to AA (high) (sf).
-- A hypothetical increase of the PD and LGD rates by 50%, ceteris paribus, would lead to a downgrade of the Series 2013-1, Class A Notes to AA (sf).
-- A hypothetical increase of the RV Loss Rate by 25%, ceteris paribus, would lead to a downgrade of the Series 2013-1, Class A Notes to AA (high) (sf) rating.
-- A hypothetical increase of the RV Loss Rate by 25%, and a hypothetical increase of the PD and LGD Rates by 25%, ceteris paribus, would lead a downgrade of the Series 2013-1, Class A Notes to AA (sf).
-- A hypothetical increase of the RV Loss Rate by 25%, and a hypothetical increase of the PD and LGD Rates by 50%, ceteris paribus, would lead to a downgrade of the Series 2013-1, Class A Notes to AA (sf).
-- A hypothetical increase of the RV Loss Rate by 50%, ceteris paribus, would lead to a downgrade of the Series 2013-1, Class A Notes to AA (sf).
-- A hypothetical increase of the RV Loss Rate by 50%, and a hypothetical increase of the PD and LGD Rates by 25%, ceteris paribus, would lead a downgrade of the Series 2013-1, Class A Notes to AA (low) (sf).
-- A hypothetical increase of the RV Loss Rate by 50% and a hypothetical increase of the PD and LGD Rates by 50%, ceteris paribus, would lead to a downgrade of the Series 2013-1, Class A Notes to A (high) (sf).

DBRS concludes that for the Series 2013-1, Class B Notes:
-- A hypothetical increase of the PD and LGD rates by 25%, ceteris paribus, would lead to a downgrade of the Series 2013-1, Class B Notes at A (sf).
-- A hypothetical increase of the PD and LGD rates by 50%, ceteris paribus, would lead to a downgrade of the Series 2013-1, Class B Notes to A (low) (sf).
-- A hypothetical increase of the RV Loss Rate by 25%, ceteris paribus, would lead to a confirmation of the Series 2013-1, Class B Notes at A (low) (sf).
-- A hypothetical increase of the RV Loss Rate by 25%, and a hypothetical increase of the PD and LGD Rates by 25%, ceteris paribus, would lead a downgrade of the Series 2013-1, Class B Notes to BBB (high) (sf).
-- A hypothetical increase of the RV Loss Rate by 25%, and a hypothetical increase of the PD and LGD Rates by 50%, ceteris paribus, would lead to a downgrade of the Series 2013-1, Class B Notes to BBB (high) (sf).
-- A hypothetical increase of the RV Loss Rate by 50%, ceteris paribus, would lead to a downgrade of the Series 2013-1, Class B Notes to BBB (high) (sf).
-- A hypothetical increase of the RV Loss Rate by 50%, and a hypothetical increase of the PD and LGD Rates by 25%, ceteris paribus, would lead a downgrade of the Series 2013-1, Class B Notes to BBB (high) (sf).
-- A hypothetical increase of the RV Loss Rate by 50% and a hypothetical increase of the PD and LGD Rates by 50%, ceteris paribus, would lead to a downgrade of the Series 2013-1, Class B Notes to BBB (sf).

Driver UK 3
-- PD: Base Case of 4.0%, a 25% and 50% increase on the Base Case PD.
-- Loss Given Default (LGD) Used: Base Case of 30.4%, whereas 40.7% and 49.4% LGD were used at A (high) (sf) and AAA (sf) scenarios, respectively. Both scenarios with a 25% and 50% increase in the LGD.
-- Residual Value (RV) Loss: 42.8% and 25.8% for the AAA (sf) and A (high) (sf) scenarios, respectively. Both scenarios with a 25% and 50% increase in the RV Loss.

DBRS concludes that for the Class A Notes:
-- A hypothetical increase of the PD and LGD rates by 25%, ceteris paribus, would lead to a downgrade of the Class A Notes to AA (high) (sf).
-- A hypothetical increase of the PD and LGD rates by 50%, ceteris paribus, would lead to a downgrade of the Class A Notes to AA (sf).
-- A hypothetical increase of the RV Loss Rate by 25%, ceteris paribus, would lead to a downgrade of the Class A Notes to AA (high) (sf) rating.
-- A hypothetical increase of the RV Loss Rate by 25%, and a hypothetical increase of the PD and LGD Rates by 25%, ceteris paribus, would lead a downgrade of the Class A Notes to AA (sf).
-- A hypothetical increase of the RV Loss Rate by 25%, and a hypothetical increase of the PD and LGD Rates by 50%, ceteris paribus, would lead to a downgrade of the Class A Notes to AA (sf).
-- A hypothetical increase of the RV Loss Rate by 50%, ceteris paribus, would lead to a downgrade of the Class A Notes to AA (sf).
-- A hypothetical increase of the RV Loss Rate by 50%, and a hypothetical increase of the PD and LGD Rates by 25%, ceteris paribus, would lead a downgrade of the Class A Notes to AA (low) (sf).
-- A hypothetical increase of the RV Loss Rate by 50% and a hypothetical increase of the PD and LGD Rates by 50%, ceteris paribus, would lead to a downgrade of the Class A Notes to A (high) (sf).

DBRS concludes that for the Class B Notes:
-- A hypothetical increase of the PD and LGD rates by 25%, ceteris paribus, would lead to a confirmation of the Class B Notes at A (high) (sf).
-- A hypothetical increase of the PD and LGD rates by 50%, ceteris paribus, would lead to a downgrade of the Class B Notes to A (sf).
-- A hypothetical increase of the RV Loss Rate by 25%, ceteris paribus, would lead to a confirmation of the Class B Notes at A (high) (sf).
-- A hypothetical increase of the RV Loss Rate by 25%, and a hypothetical increase of the PD and LGD Rates by 25%, ceteris paribus, would lead a downgrade of the Class B Notes to A (low) (sf).
-- A hypothetical increase of the RV Loss Rate by 25%, and a hypothetical increase of the PD and LGD Rates by 50%, ceteris paribus, would lead to a downgrade of the Class B Notes to A (low) (sf).
-- A hypothetical increase of the RV Loss Rate by 50%, ceteris paribus, would lead to a downgrade of the Class B Notes to A (low) (sf).
-- A hypothetical increase of the RV Loss Rate by 50%, and a hypothetical increase of the PD and LGD Rates by 25%, ceteris paribus, would lead a downgrade of the Class B Notes to BBB (high) (sf).
-- A hypothetical increase of the RV Loss Rate by 50% and a hypothetical increase of the PD and LGD Rates by 50%, ceteris paribus, would lead to a downgrade of the Class B Notes to BBB (high) (sf).

Driver UK 4
-- PD: Base Case of 4.1%, a 25% and 50% increase on the Base Case PD.
-- Loss Given Default (LGD) Used: Base Case of 30.5%, whereas 40.8% and 49.4% LGD were used at A (high) (sf) and AAA (sf) scenarios, respectively. Both scenarios with a 25% and 50% increase in the LGD.
-- Residual Value (RV) Loss: 42.8% and 25.8% for the AAA (sf) and A (high) (sf) scenarios, respectively. Both scenarios with a 25% and 50% increase in the RV Loss.

DBRS concludes that for the Class A Notes:
-- A hypothetical increase of the PD and LGD rates by 25%, ceteris paribus, would lead to a downgrade of the Class A Notes to AA (high) (sf).
-- A hypothetical increase of the PD and LGD rates by 50%, ceteris paribus, would lead to a downgrade of the Class A Notes to AA (sf).
-- A hypothetical increase of the RV Loss Rate by 25%, ceteris paribus, would lead to a downgrade of the Class A Notes to AA (high) (sf) rating.
-- A hypothetical increase of the RV Loss Rate by 25%, and a hypothetical increase of the PD and LGD Rates by 25%, ceteris paribus, would lead a downgrade of the Class A Notes to AA (sf).
-- A hypothetical increase of the RV Loss Rate by 25%, and a hypothetical increase of the PD and LGD Rates by 50%, ceteris paribus, would lead to a downgrade of the Class A Notes to AA (low) (sf).
-- A hypothetical increase of the RV Loss Rate by 50%, ceteris paribus, would lead to a downgrade of the Class A Notes to AA (sf).
-- A hypothetical increase of the RV Loss Rate by 50%, and a hypothetical increase of the PD and LGD Rates by 25%, ceteris paribus, would lead a downgrade of the Class A Notes to AA (low) (sf).
-- A hypothetical increase of the RV Loss Rate by 50% and a hypothetical increase of the PD and LGD Rates by 50%, ceteris paribus, would lead to a downgrade of the Class A Notes to A (high) (sf).

DBRS concludes that for the Class B Notes:
-- A hypothetical increase of the PD and LGD rates by 25%, ceteris paribus, would lead to a confirmation of the Class B Notes at A (high) (sf).
-- A hypothetical increase of the PD and LGD rates by 50%, ceteris paribus, would lead to a downgrade of the Class B Notes to A (sf).
-- A hypothetical increase of the RV Loss Rate by 25%, ceteris paribus, would lead to a confirmation of the Class B Notes at A (high) (sf).
-- A hypothetical increase of the RV Loss Rate by 25%, and a hypothetical increase of the PD and LGD Rates by 25%, ceteris paribus, would lead a downgrade of the Class B Notes to A (sf).
-- A hypothetical increase of the RV Loss Rate by 25%, and a hypothetical increase of the PD and LGD Rates by 50%, ceteris paribus, would lead to a downgrade of the Class B Notes to A (low) (sf).
-- A hypothetical increase of the RV Loss Rate by 50%, ceteris paribus, would lead to a downgrade of the Class B Notes to A (sf).
-- A hypothetical increase of the RV Loss Rate by 50%, and a hypothetical increase of the PD and LGD Rates by 25%, ceteris paribus, would lead a downgrade of the Class B Notes to A (low) (sf).
-- A hypothetical increase of the RV Loss Rate by 50% and a hypothetical increase of the PD and LGD Rates by 50%, ceteris paribus, would lead to a downgrade of the Class B Notes to BBB (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 and US regulations only.

Lead Analyst: Joana Seara da Costa, Senior Financial Analyst
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Dates: 21 August 2014 (Driver UK 2); 1 September 2015 (Driver UK 3); 14 October 2016 (Driver UK 4)

DBRS Ratings Limited
20 Fenchurch Street, 31st Floor, London EC3M 3BY 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.

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

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.