DBRS Ratings Limited Finalises Provisional Ratings to Bavarian Sky S.A. – Compartment German Auto Loans 2

DBRS Ratings Limited (‘DBRS’) has today finalised provisional ratings to the following notes issued by Bavarian Sky S.A. – Compartment German Auto Loans 2:

--AAA (sf) to €946,200,000 to Class A Notes
--A (high) (sf) to €53, 800,000 to Class B Notes

Bavarian Sky SA. – Compartment German Auto Loans 2 is a securitisation of a portfolio of auto loans receivables issued in Germany and originated by BMW Bank GmbH (“BMW Bank”, also the “Seller” or the “Originator”). At closing, the transaction will use the proceeds of Class A, Class B and Subordinated Loan to purchase the € 1,025.64million portfolio of auto loan receivables. The Portfolio will be serviced by BMW Bank (also the “Servicer”).

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

• Transaction capital structure and form and sufficiency of available credit enhancement.The rated Class A Notes benefit from 9.00% credit enhancement in the form of € 53.80 million (5.25%) Class B Notes, €25.65 million (2.5%) overcollateralisation (funded through the Subordinated Loan) and €12.82 million (1.25%) Cash Reserve. The Cash Reserve will be maintained at its target level though the term of the transaction and will cover for payment of senior expenses and interest of the Class A and Class B Notes. The Cash Reserve will be used to pay principal on the Notes at the legal final maturity date if the aggregate balance of the Cash Reserve is equal or greater than the outstanding balance of the Notes. The cash flow structure has a ‘full turbo’ feature and allows, following the replenishment of the Cash Reserve, excess spread to be used to pay down the Notes. This effectively means that until the Notes are paid off in full no amounts can be used to pay junior items in the priority of payments’ waterfall.
• The portfolio consists of 100% fixed rate auto loan receivables. The interest rate paid under the Class A and Class B Notes is 1 month Euribor. The transaction has in place a fixed - floating swap to mitigate any potential mismatch between amounts received from collections and payment under the Notes.
• The main characteristics of the portfolio include: (i) 66,092 auto loans, (ii) 28.38% commercial clients, (ii) top 20 borrowers 0.45%, (iv) 54.42% used cars, (v) 97.74.% balloon instalment loans and (vi) approximately1.8 years weighted average life (assuming 0% CPR).
• Relevant credit enhancement in the form of a cash reserve account and subordination. Credit enhancement levels are sufficient to support DBRS projected expected cumulative net loss (CNL) assumption under various stress scenarios at AAA (sf) and ‘A’ (high) (sf).
• The ability of the transaction to withstand stressed cash flow assumptions and repay investors according to the terms in which they have invested.
• The transaction parties’ capabilities with respect to originations, underwriting, servicing, and financial strength.
• The credit quality of the collateral and ability of BMW Bank to manage collections activities on the collateral.
• The legal structure and presence of legal opinions addressing the assignment of the assets to the issuer and the consistency with the DBRS Legal Criteria for European Structured Finance Transactions.

Notes:
All figures are in Euro unless otherwise noted.
The principal methodology applicable is the European Consumer and Commercial Asset-Backed Securitisations.

Other methodologies and criteria referenced in this transaction are listed at the end of this press release.

This can be found on www.dbrs.com at:
http://www.dbrs.com/about/methodologies

For a more detailed discussion of 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 information used for this rating include Merrill Lynch International, BMW Bank and their agents. DBRS considers the information available to it for the purposes of providing this rating was of satisfactory quality. The information upon which DBRS ratings and reports are based, and any other content displayed on the Site, is obtained by DBRS from sources DBRS believes to be accurate and reliable. DBRS does not audit the information it receives in connection with the rating process, and it does not and cannot independently verify that information in every instance. The extent of any factual investigation or independent verification depends on facts and circumstances.

This rating concerns a newly issued financial instrument. This is the first DBRS rating on this financial instrument.

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

To assess the impact of the 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”):

• Base Case Probability of Default (PD) of 2.52%, a 25% and 50% increase on the base case PD.
• Base case Recovery Rate of 61.03% (or a Loss Given Default (LGD) of 38.96%), a 25% and 50% increase on the base case LGD.

DBRS concludes that for the Class A Notes:

• A hypothetical increase of the base case PD by 25% or a hypothetical increase of the LGD by 25%, ceteris paribus, would lead to maintain the rating of the Class A Notes to AAA(sf).
• A hypothetical increase of the base case PD by 50% or a hypothetical increase of the LGD by 50%, ceteris paribus, would lead to maintain the rating of the Class A Notes to AAA (sf).
• A hypothetical increase of the base case PD by 25% and a hypothetical increase of the LGD by 25%, ceteris paribus, would lead to maintain the rating of the Class A Notes to AAA (sf).
• A hypothetical increase of the base case PD by 50% and a hypothetical increase of the LGD by 25%, ceteris paribus, would lead to maintain the rating of the Class A Notes to AAA (sf).
• A hypothetical increase of the base case PD by 25% and a hypothetical increase of the LGD by 50%, ceteris paribus, would to maintain the rating of the Class A Notes to AAA (sf).
• A hypothetical increase of the base case PD by 50% and a hypothetical increase of the LGD by 50%, ceteris paribus, would lead to maintain the rating the Class A Notes to AAA (sf).

DBRS concludes that for the Class B Notes:
• A hypothetical increase of the base case PD by 25% or a hypothetical increase of the LGD by 25%, ceteris paribus, would lead to maintain the rating of the Class B Notes to A (high)(sf).
• A hypothetical increase of the base case PD by 50% or a hypothetical increase of the LGD by 50%, ceteris paribus, would lead to maintain the rating of the Class B Notes to A (high) (sf).
• A hypothetical increase of the base case PD by 25% and a hypothetical increase of the LGD by 25%, ceteris paribus, would lead to maintain the rating of the Class B Notes to A (high) (sf).
• A hypothetical increase of the base case PD by 50% and a hypothetical increase of the LGD by 25%, ceteris paribus, would lead to maintain the rating of the Class B Notes to A (high) (sf).
• A hypothetical increase of the base case PD by 25% and a hypothetical increase of the LGD by 50%, ceteris paribus, would to maintain the rating of the Class B Notes to A (high) (sf).
• A hypothetical increase of the base case PD by 50% and a hypothetical increase of the LGD by 50%, ceteris paribus, would lead to maintain the rating the Class B Notes to A (high) (sf).

For further information on DBRS historic default rates published by the European Securities and Markets Administration (“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.

Initial Lead Analyst: David Sanchez Rodriguez
Initial Final Rating Date: August 20, 2014
Initial Final Rating Committee Chair: Mary Jane Potthoff
Lead Surveillance Analyst: Elisa Scalco

DBRS Ratings Limited
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Registered in England and Wales: No. 7139960

The rating methodologies and criteria 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.
• Legal Criteria for European Structured Finance Transactions.
• Operational Risk Assessment for European Structured Finance Servicers.
• Unified Interest Rate Model Methodology for European Securitisations.
• Derivative Criteria for European Structured Finance Transactions