DBRS Assigns Provisional Rating to Silver Arrow S.A., in respect of its Compartment 6

DBRS Ratings Limited (DBRS) has today assigned provisional ratings to the following notes issued by Silver Arrow S.A., acting in respect of its Compartment 6 (Silver Arrow 6):

-- EUR [] Class A notes at AAA (sf)

Silver Arrow 6 is a securitisation of auto loan receivables backed by loans to German borrowers. The auto loans were originated by Mercedes-Benz Bank AG (MBB) to individuals and commercial clients in Germany for the purchase of new and used passenger and commercial vehicles. Silver Arrow 6 will issue the rated Class A notes together with the Class B notes to finance the purchase of the collateral portfolio. Furthermore, MBB will fund the General Reserve Ledger through a subordinated loan. The portfolio will be serviced by MBB.

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

-- Transaction capital structure and form and sufficiency of available credit enhancement; the initial Class A notes’ [7.55]% credit enhancement consists of the subordination of [6.55]% the Class B notes and the [1.0]% General Reserve Ledger. The transaction is static and the amortisation of the notes will start on the first payment date. The amortisation of principal of the Class A notes will be fully sequential with no payment of principal on the Class B notes until the Class A notes are redeemed in full.

-- The Class A notes will be supported by the EUR [] million General Reserve Ledger which covers senior fees, net swap payments and interest payment shortfalls on the Class A notes. The General Reserve Ledger will eventually be released in the waterfall at amortisation of the portfolio of receivables.

-- The rating of the Class A notes address the timely payment of interest and full payment of principal by the legal final maturity date in accordance with the terms and conditions of the notes.

-- The portfolio consists of 100% auto loan receivables that pay a fixed interest rate while the notes pay a floating interest rate. The transaction will enter into a fixed to floating interest rate swap with Royal Bank of Canada (AA/Neg./R-1 (high)/Neg) to mitigate the risk that may arise from any mismatch between the fixed interest rate paid by the portfolio of receivables and the one-month Euribor index paid on the notes.

-- As of March 2015, the auto loan receivable portfolio’s main characteristics include: (1) 62,128 loans with an average outstanding loan amount of EUR 17,706, where the top 20 customers account for 0.48% of the portfolio; (2) 47.4 months weighted-average (WA) original term, 31.3 months WA remaining term and 15.4 months seasoning; (3) The portfolio WA interest rate stands at 3.6%; (4) 65.9% of the loans will be repaid with a bullet payment at maturity date and 38.7% of the loans were used to purchase used cars; (5) loans to commercial clients accounted as of initial balance for 55.1%; (6) the top concentrations by vehicle make are cars (56.7%) and vans (26.8); and (7) the top three geographical concentrations by Federal Estate are Nordrhein-Westfalen (20.3%), Baden-Wuerttemberg (14.0%) and Bayern (12.0%).

-- Relevant credit enhancement is in the form of subordination, the General Reserve Ledger and excess spread. Credit enhancement levels are sufficient to support DBRS’s expected credit loss assumptions under various stress scenarios at AAA (sf).

-- A Commingling Reserve Ledger of EUR [] will cover for potential shortfalls should MBB, acting as the servicer and collection account bank, default under its obligations and create a servicer termination event. The Commingling Reserve Ledger will be funded as of closing date as it is linked to Daimler AG’s rating, which is currently at A (low), below the required rating by the transactions documents of A.

-- A Set-off Reserve Ledger which will be funded to cover the excess of potential set-off risk exceeding 0.5% of the initial auto loan receivables portfolio amount.

-- The transaction parties’ capabilities with respect to originations, underwriting, servicing and financial strength.

-- The credit quality of the collateral and ability of MBB 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 DBRS’s “Legal Criteria for European Structured Finance Transactions” methodology.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable is “Rating European Consumer and Commercial Asset-Backed Securitisations”. Other methodologies and criteria referenced in this transaction are listed at the end of this press release and can be found at http://www.dbrs.com/about/methodologies.

The sources of information used for this rating include performance data relating to the receivables provided by MBB. DBRS considers the information available to it for the purposes of providing this rating was of satisfactory quality.

DBRS does not rely upon third-party due diligence in order to conduct its analysis.

DBRS was supplied with third-party assessments. However, this did not impact the rating analysis.

Data checks were performed and DBRS did not apply additional cash flow stresses in its scenarios.

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.

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 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):

-- Probability of Default (PD) Rate Used: Base Case PD of 2.1%, a 25% and 50% increase on the base case PD.
-- Loss given default (LGD) Rate Used: Base case LGD of 35%, a 25% and 50% increase on the base case PD.

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 not result in a downgrade the rating of the Class A Notes.

-- A hypothetical increase of the base case PD by 50% or a hypothetical increase of the LGD by 50%, ceteris paribus, would not result in a downgrade the rating of the Class A Notes.

-- A hypothetical increase of the base case PD by 25% and a hypothetical increase of the LGD by 25%, ceteris paribus, would not result in a downgrade the rating of the Class A Notes.

-- A hypothetical increase of the base case PD by 50% and a hypothetical increase of the LGD by 25%, ceteris paribus, would not result in a downgrade the rating of the Class A Notes.

-- A hypothetical increase of the base case PD by 25% and a hypothetical increase of the LGD by 50%, ceteris paribus, would not result in a downgrade the rating of the Class A Notes.

-- A hypothetical increase of the base case PD by 50% and a hypothetical increase of the LGD by 50%, ceteris paribus, would result in a downgrade of the rating of the Class A Notes to AA (high) (sf).

For further information on DBRS historic default rates published by the European Securities and Markets Administration 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: Sebastian Hoepfner
Initial Final Rating Date: 1 September 2015
Initial Final Rating Committee Chair: Chuck Weilamann
Lead Surveillance Analyst: Vito Natale

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
Derivative Criteria for European Structured Finance Transactions
Unified Interest Rate Model for U.S. and European Structured Credit

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