DBRS Confirms Rating on Bavarian Sky S.A. acting in respect of its Compartment German Auto Loans 4

DBRS Ratings Limited (DBRS) confirmed its rating on the Class A Notes issued by Bavarian Sky S.A. acting in respect of its Compartment German Auto Loans 4 (the Issuer) at AAA (sf).

The confirmation follows an annual review of the transaction and is based on the following analytical considerations:

-- The portfolio performance, in terms of level of delinquencies and cumulative net losses, as of the April 2018 payment date;
-- Default rate and expected loss assumptions for the remaining collateral pool; and
-- The current levels of credit enhancement (CE) available to the Class A Notes to cover expected losses assumed at the AAA (sf) rating level.

The rating on the Class A Notes addresses the timely payment of interest and the ultimate repayment of principal on or before the Final Legal Maturity Date in October 2023.

The Issuer is a securitisation of German auto loans originated by BMW Bank GmbH (BMW Bank). The EUR 400.0 million portfolio, as of the April 2018 payment date, consisted of loans granted to both private (72.7% of the outstanding portfolio balance) and corporate (27.30%) clients for the purchase of new (50.3%) and used (49.7%) vehicles. Most of the loans (99.2%) included a final balloon payment.

PORTFOLIO PERFORMANCE AND ASSUMPTIONS
As of the April 2018 payment date, 30-day to 60-day delinquencies represented 0.3% of the outstanding principal balance and 60-day to 90-day delinquencies represented 0.1%, while delinquencies greater than 90 days represented 0.1%. The gross cumulative defaults as a ratio of the original portfolio were 0.6%, of which 52.1% have been recovered.

DBRS maintained its expected default and recovery rate assumptions at 2.4% and 60%, respectively.

CREDIT ENHANCEMENT
CE is provided by the subordination of the Class B Notes and overcollateralisation. CE for the Class A Notes increased to 32.1% in April 2018, from 7.5% at closing.

Elavon Financial Services DAC, U.K. Branch acts as the Account Bank for the transaction. DBRS’s private rating of Elavon Financial Services DAC, U.K. Branch 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.

The Royal Bank of Canada (RBC) acts as the Swap Counterparty for the transaction. The current public rating of RBC at AA is consistent with the First Rating Threshold as defined 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 rating is: “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 this rating include monthly investor reports provided by BMW Bank 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 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.

The last rating action on this transaction took place on 12 May 2017, when DBRS confirmed its rating of AAA (sf) on the Class A Notes.

The lead analyst responsibilities for this transaction have been transferred to Matt Albin.

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

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

-- DBRS expected a base case probability of default (PD) and loss given default (LGD) for the portfolio 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 Base Case PD and LGD of the current pool of receivables are 2.4% and 40.0%, respectively.

For example, if the LGD increases by 50%, the rating of the Class A Notes would be expected to remain at AAA (sf), ceteris paribus. If the PD increases by 50%, the rating of the Class A Notes would be expected to remain at AAA (sf), ceteris paribus. Furthermore, if both the PD and LGD increase by 50%, the rating of the Class A Notes would be expected to remain at AAA (sf), ceteris paribus.

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)
-- 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, 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 and US regulations only.

Lead Analyst: Matt Albin, Financial Analyst
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: 18 April 2016

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.

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