DBRS Confirms VCL 20

DBRS Ratings Limited (DBRS) has today confirmed its ratings of Multi-Compartment S.A. acting for and on behalf of its Compartment VCL 20 (VCL 20) as follows:

-- Class A Notes at AAA (sf)
-- Class B Notes at A (high) (sf)

VCL 20 is a securitisation supported by a portfolio of German lease receivables to retail and commercial customers secured by new, used and demonstration vehicles. The receivables were originated and are serviced by Volkswagen Leasing, GmbH.

The confirmations are based upon the following analytical considerations:

-- Portfolio performance of the receivables in terms of arrears and cumulative net losses as of the September 2015 payment date.
-- Updated default, recovery and loss assumptions on the remaining receivables balance.
-- Current available credit enhancement for each class of notes to cover the expected losses at the respective rating level.

As of the 21 September 2015 payment date, the 90+ delinquency ratio was 0.23%. The cumulative net loss ratio was at 0.02% of the original collateral balance.

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 reaches its target level of 12.25%. As of September 2015, the Class A overcollateralisation level was 10.96%.

Credit enhancement to the Class B Notes stems from the overcollateralisation and a Cash Reserve Fund. Additionally, the Class A Notes are supported by the Class B Notes. Overcollateralisation is currently equal to 6.00% and 10.96%, for the Class B and Class A Notes, respectively.

The amortising Cash Reserve Fund is equal to EUR 10.7 million. It has been funded at closing with an amount equal to 1.20% of the original portfolio balance and was allowed to amortise down to 1.0% of the original portfolio balance.

Elavon Financial Services Limited holds the Treasury Account for the transaction. The DBRS private rating of Elavon Financial Services Limited complies with the threshold for the Account Bank given the rating assigned to Class A, as described in DBRS’s “Legal Criteria for European Structured Finance Transactions” methodology.

The Bank of Nova Scotia is the swap counterparty. The DBRS public rating of The Bank of Nova Scotia is above the First Rating Threshold as described in the DBRS “Derivative Criteria for European Structured Finance Transactions” methodology.

On 23 September 2015, DBRS Limited placed the long-term ratings of Volkswagen AG Under Review with Negative Implications. The rating action followed VW’s announcement that, with respect to emissions, 11 million diesel vehicles worldwide generate noticeable deviations between bench-test results and actual road use. For more details, please see the 23 September 2015 press release “DBRS Places Volkswagen Under Review with Negative Implications” on the DBRS website.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable is the “Master European Structured Finance Surveillance Methodology,” which can be found on www.dbrs.com at http://www.dbrs.com/about/methodologies. 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’s legal documents was not conducted as the documents have remained unchanged since the most recent rating action.

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

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 servicer reports provided by Volkswagen Leasing GmbH. 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 not supplied with third-party assessments. However, this did not impact the rating analysis.

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 is the first rating action since the Initial Rating Date.

The last rating action on this transaction took place on 27 October 2014, when DBRS finalised its ratings of AAA (sf) and A (high) (sf) on the Class A and Class B Notes, respectively.

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

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.

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):
-- DBRS expected a Base Case Probability of Default (PD) and Loss Given Default (LGD) for each pool of receivables 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 2.23% and 40%, respectively.
-- The Risk Sensitivity overview below illustrates the expected rating of each class of 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 ratings for the Class A notes would be expected to remain at AAA (sf), all else being equal. If the PD increases by 50%, the ratings for the Class A Notes would be expected to remain at AAA (sf), all else being equal. If both the PD and LGD increase by 50%, the ratings for the Class A Notes would be expected to decrease to AA (high) (sf).

Class A 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 AA (high) (sf).

Class B Risk Sensitivity:
-- 25% increase in LGD, expected rating of A (high) (sf).
-- 50% increase in LGD, expected rating of A (high) (sf).
-- 25% increase in PD, expected rating of A (high) (sf).
-- 50% increase in PD, expected rating of A (high) (sf).
-- 25% increase in LGD and 25% increase in PD, expected rating of A (high) (sf).
-- 25% increase in LGD and 50% increase in PD, expected rating of A (high) (sf).
-- 50% increase in LGD and 25% increase in PD, expected rating of A (high) (sf).
-- 50% increase in LGD and 50% increase in PD, expected rating of A (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: Alex Garrod
Initial Rating Date: 27 October 2014
Initial Rating Committee Chair: Chuck Weilamann

Lead Surveillance Analyst: Vito Natale
Rating Committee Chair: Diana Turner

DBRS Ratings Limited
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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.
-- 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.
-- Derivative Criteria for European Structured Finance Transactions.