DBRS Upgrades and Confirms Ratings on Driver France FCT Compartment Driver France three

DBRS Ratings Limited (DBRS) upgraded and confirmed the following ratings on the bonds issued by Driver France FCT acting exclusively through the Compartment Driver France three (the Issuer):

-- Class A Notes confirmed at AAA (sf)
-- Class B Notes upgraded to AAA (sf) from A (high) (sf)

The ratings on the Class A Notes and Class B Notes address the timely payment of interest and ultimate payment of principal on or before the legal final maturity date.

The ratings follow an annual review of the transaction and are based on the following analytical considerations:
-- Portfolio performance, in terms of delinquencies, defaults and losses as at the February 2018 payment date.
-- Probability of default (PD), loss given default (LGD) and expected loss assumptions on the remaining receivables.
-- Current available credit enhancement to the notes to cover the expected losses at the AAA (sf) rating level.
The Issuer is a securitisation of a pool of French auto loans granted to retail and commercial customers secured by new and used vehicles. The receivables are originated and serviced by Volkswagen Bank GmbH (French Branch).

PORTFOLIO PERFORMANCE
As of February 2018, two- to three-month arrears represented 0.2% of the outstanding portfolio balance and the 90+ delinquency ratio was 0.4%. The cumulative gross loss ratio was 0.2%.

PORTFOLIO ASSUMPTIONS
DBRS conducted an analysis on the remaining pool of receivables and has maintained its base case PD assumption at 2.5% and updated its expected LGD assumption to 70.0% from 60.0% (at the AAA (sf) rating level).

CREDIT ENHANCEMENT
The transaction has a sequential/pro rata amortisation structure, whereby all principal payments from the receivables pay down the Class A Notes until Class A overcollateralisation (OC) reaches its target level of 13.0%. As of the January 2018 payment date, the Class A Notes OC was 13.0%, up from 10.4% at the DBRS initial rating. The Class B Notes OC was 9.0%, up from 6.5% at the DBRS initial rating.

The transaction benefits from a Reserve Fund, currently funded to its target level of EUR 5 million. The Reserve Fund covers any shortfall in senior fees and Class A and Class B interest, as well as any principal loss on the final payment date.

BNP Paribas Securities Services S.C.A. acts as the account bank for the transaction. The DBRS private rating of BNP Paribas Securities Services S.C.A. is consistent 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.

ING Bank N.V. acts as the swap counterparty for the transaction. DBRS's public Long-Term Critical Obligations Rating of ING Bank N.V. at AA (high) (sf) is above the First Rating Threshold 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 the “Master European Structured Finance Surveillance Methodology”.

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

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

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 “Appendix C: The Impact of Sovereign Ratings on Other DBRS Credit Ratings” of the “Rating Sovereign Governments” methodology at: http://dbrs.com/research/319564/rating-sovereign-governments.pdf.

The sources of data and information used for these ratings include investor reports provided by Volkswagen Bank GmbH (French Branch) and loan-level data provided by 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 this transaction took place on 27 April 2017, when DBRS finalised its provisional ratings on the Notes.

The lead analyst responsibilities for this transaction have been transferred to Andrew Lynch.

Information regarding DBRS ratings, including definitions, policies and methodologies is available at www.dbrs.com.

To assess the impact of changing the transaction parameters on the ratings, DBRS considered the following stress scenarios as compared with the parameters used to determine the ratings (the “Base Case”):

-- DBRS expected a lifetime base case PD and LGD for the pool based on a review of the current assets. Adverse changes to asset performance may cause stresses to base case assumptions and therefore have a negative effect on credit ratings.
-- The expected PD and LGD of the current pool of loans at the AAA (sf) rating level are 2.5% and 70.0%, respectively.
-- The Risk Sensitivity overview below illustrates the ratings expected if the PD and LGD increase by a certain percentage over the base case assumption. For example, if the LGD increases by 50%, the rating of the Class A Notes would be expected to remain at AAA (sf), assuming no change in the PD. If the PD increases by 50%, the rating of the Class A Notes would be expected to remain at AAA (sf), assuming no change in the PD. Furthermore, if both the PD and LGD increase by 50%, the rating of the Class A Notes would be expected to fall to AA (sf).

Class A Notes Risk 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 AA (high) (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of AA (high) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of AA (sf)

Class B Notes Risk Sensitivity:
-- 25% increase in LGD, expected rating of AA (high) (sf)
-- 50% increase in LGD, expected rating of AA (sf)
-- 25% increase in PD, expected rating of AA (high) (sf)
-- 50% increase in PD, expected rating of AA (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of AA (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of AA (low) (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of AA (low) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of A (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: Andrew Lynch, Assistant Vice President
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: 16 March 2017

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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
-- Operational Risk Assessment for European Structured Finance Servicers
-- Rating European Consumer and Commercial Asset-Backed Securitisations
-- Interest Rate Stresses for European Structured Finance Transactions
-- 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.

For more information on this credit or on this industry, visit www.dbrs.com or contact us at info@dbrs.com.