DBRS Takes Rating Actions on Bavarian Sky S.A., Compartment 3

DBRS Ratings Limited (“DBRS”) has reviewed Bavarian Sky S.A. – Compartment 3 (“the Issuer”) and has taken the following rating actions:
• Class A Notes confirmed at AAA (sf), and
• Class B Notes upgraded to AA (sf) from A (high) (sf).

The above mentioned rating actions are based upon the following analytical considerations:
• Portfolio performance, in terms of defaults and delinquencies, as of the July 2014 payment date.
• Updated default, recovery and loss assumptions on the remaining balance of the collateral portfolio.
• Current available credit enhancement to the Class A and Class B Notes to cover the expected losses at the AAA (sf) and AA (sf) rating level, respectively.

This is a securitisation of auto lease receivables granted by BMW Bank GmbH (the Originator) initially to both private and commercial obligors located in Germany. Due to a repurchase of all lease contracts relating to private lessees in July 2013, the current pool comprises of commercial obligors only. BMW Bank GmbH is a fully owned German subsidiary of BMW AG.

The transaction envisaged a 1-year revolving period which terminated in July 2013. Since the August 2013 payment date, the Class A Notes have started to amortise. The current bond factor for the Class A Notes, defined as the proportion of principal that is yet to be repaid, is low at 0.25.

The pool is fairly granular, moderately seasoned (two years) and most of the loans (98.92%) pay through a direct debit scheme.

The portfolio is performing within DBRS initial expectations. The cumulative gross default ratio (as a percentage of the initial portfolio) increased over the year but it is still very low at 0.07%. Delinquencies have also attained low levels, the current 90+ delinquency ratio being 0.54%.

The Class A Notes are supported by subordination of the Class B Notes and a Cash Reserve, while the Class B Notes are supported by mainly the Cash Reserve. Credit enhancement for the Class A and Class B Notes (as a percentage of the performing portfolio) increased to 33.67% from 9.30% and to 19.91% from 5.50%, respectively.

The transaction benefits from a non-amortising and fully funded Cash Reserve available as protection against shortfalls in the amounts required to pay interest under the Notes, principal and other payment obligations of the Issuer. On the July 2014 payment date, the Cash Reserve was at the initial and target level of EUR 44.00 million (approximately 20% of the outstanding balance of the Class A and Class B Notes).

The deal is exposed to potential commingling risk and set-off risk (as debtors may open accounts with the Originator). As a mitigant to the potential commingling risk, the Originator has funded a Commingling Reserve currently equal to EUR 55.21 million. Additionally, the Originator undertakes to fund a Set-Off Reserve if the set-off risk resulting from the lessee deposits with the Originator is greater than 1% and certain rating thresholds defined in the legal documentation are breached.

BNP Paribas Securities Services SA, Frankfurt branch is the Issuer Account Bank for the transaction. The DBRS private rating of BNP Paribas Securities Services SA, Frankfurt branch is at least equal to the Minimum Institution Rating given the rating assigned to the Class A Notes, as described in the DBRS Legal Criteria for European Structured Finance Transactions. Additionally, DZ Bank AG Deutsche Zentral-genossenschaftsbank acts as swap counterparty. The DBRS public rating of DZ Bank AG Deutsche Zentral-genossenschaftsbank complies with the current DBRS Derivative Criteria for European Structured Finance Transactions.

Notes:
All figures are in Euro unless otherwise noted.
The principal methodology applicable is the Master European Structured Finance Surveillance Methodology. 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

The sources of information used for this rating include investor reports provided by BNP Paribas Securities Services SA, Luxembourg Branch. DBRS considers the information available to it for the purposes of providing this rating was of satisfactory quality.

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 last rating action on this transaction took place on 6 August 2013, when DBRS confirmed the ratings of AAA (sf) and A (high) (sf) to the Class A and Class B Notes, respectively.

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”):
• DBRS expected a Base Case Probability of Default (PD) and Loss Given Default (LGD) for the pool based on a review of the transaction performance. 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 2.60% and 40%, respectively.
• The Risk Sensitivity overview below illustrates the ratings expected for the Class A Notes 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 for the Class A Notes would be expected to remain at AAA (sf), all else being equal. If the PD increases by 50%, the rating for the Class A Notes would be expected to remain at AAA (sf), all else being equal. If both the LGD and PD increase by 50%, the rating of the Class A Notes would be expected to remain AAA (sf), all else being equal.

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 LGD and 25% increase in PD, expected rating of AAA (sf).
• 25% increase in LGD and 50% increase in PD, expected rating of AAA (sf).
• 50% increase in LGD and 25% increase in PD, expected rating of AAA (sf).
• 50% increase in LGD and 50% increase in PD, expected rating of AAA (sf).

Class B Notes Risk Sensitivity:

• 25% increase in LGD, expected rating of AA (sf).
• 50% increase in LGD, expected rating of AA (sf).
• 25% increase in PD, expected rating of AA (sf).
• 50% increase in PD, expected rating of AA (sf).
• 25% increase in LGD and 25% increase in PD, expected rating of AA (sf).
• 25% increase in LGD and 50% increase in PD, expected rating of AA (sf).
• 50% increase in LGD and 25% increase in PD, expected rating of AA (sf).
• 50% increase in LGD and 50% increase in PD, expected rating of AA (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: Michael Babick
Initial Rating Date: 18 June 2012
Initial Rating Committee Chair: Claire Mezzanotte

Lead Surveillance Analyst: Elisa Scalco
Rating Committee Chair: Diana Turner

DBRS Ratings Limited
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United Kingdom

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

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