DBRS Upgrades and Confirms Ratings on VCL 19

DBRS Ratings Limited (DBRS) has today taken the following rating actions on the notes issued by VCL Multi-Compartment S.A. acting for and on behalf of its Compartment VCL 19 (the Issuer):

-- EUR 147,250,689.75 Class A notes confirmed at AAA (sf)
-- EUR 7,970,766.75 Class B notes upgraded to AA (sf) from A (high) (sf)

The rating actions are based on the following analytical considerations:
-- Portfolio performance, in terms of delinquencies and cumulative net losses (CNLs), as of the February 2016 payment date.
-- The ability of the transaction to withstand stressed cash flow assumptions and repay investors according to the terms in which they have invested.
-- The current available credit enhancement to the notes to cover expected losses assumed in line with AAA (sf) rating level for Class A notes and AA (sf) rating level for Class B notes.

The ratings of the Class A and Class B notes address the timely payment of interest and the ultimate payment of principal on the Legal Maturity Date.

The Issuer is a securitisation collateralised by a portfolio of auto lease receivables granted by Volkswagen Leasing GmbH (VWL) to retail and commercial clients resident in Germany. The transaction closed on 25 February 2014 and uses a securitisation structure with the Luxembourg-based VCL Multi-Compartment S.A.

On 23 September 2015, DBRS placed the long-term ratings of Volkswagen AG (VW) Under Review with Negative Implications following VW’s announcement that, with respect to emissions, some 11 million diesel vehicles worldwide generate noticeable deviations between bench-test results and actual road use. On 16 November 2015, DBRS downgraded the long-term ratings of VW to A (low) from “A.” Ratings remain Under Review with Negative Implications.

On 6 October 2015, DBRS issued a commentary stating that, based on data, information and securitisation performance, the structural protections in the VW-sponsored securitisations would likely be sufficient to insulate investors from any potential loss. To date, none of the warranty mechanisms in place has been activated.

As of the February 2016 payment date, 30- to 60-day delinquencies were 0.93% of the outstanding discounted balance and 60- to 90-day delinquencies were 0.19% while delinquencies greater than 90 days were 0.91%. CNLs, as defined in the transaction documents, were 0.14% of the original outstanding discounted balance.

Credit enhancement for the Class A notes (16.27%) is provided by overcollateralisation (OC), the subordination of Class B notes and the Cash Collateral Account. Credit enhancement for the Class B notes (11.49%) is provided by OC and the Cash Collateral Account.

A Cash Collateral Account is available to cover senior expenses and missed interest payments on the Class A and Class B notes. The Cash Collateral Account has been funded at closing with an amount equal to 1.20% of the original portfolio discounted balance and can be amortised down to the minimum between EUR 7,500,000 and the aggregate outstanding principal amount of the Class A and Class B notes. Since the closing date, the Cash Collateral Account has always been at its target level.

A swap structure is in place to hedge the interest rate mismatch between the Class A and Class B notes, indexed to one-month Euribor, and the fixed interest-rate payments from the collateral portfolio. Bank of Nova Scotia is the Counterparty of the Swap Agreements; DBRS’s rating of Bank of Nova Scotia at AA complies with the First Rating Threshold defined in DBRS’s “Derivative Criteria for European Structured Finance Transactions” methodology.

Bank of New York Mellon – Frankfurt Branch acts as Accounts Bank for the transaction. The DBRS private rating complies with the Minimum Institution Rating given the rating assigned to the notes as described in DBRS’s “Legal Criteria for European Structured Finance Transactions” methodology.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable 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 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. This 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 DBRS’s ‘The Effect of Sovereign Risk on Securitisations in the Euro Area’ commentary on
http://www.dbrs.com/industries/bucket/id/10036/name/commentaries/.

The sources of information used for these ratings include information provided by Volkswagen Leasing GmbH (the Servicer).

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 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 24 February 2015, when DBRS confirmed the rating on the Class A notes at AAA (sf) and the rating on the Class B notes at A (high) (sf).

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

To assess the impact of the changing transaction parameters on the rating, DBRS considered the following stress scenarios compared with 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 2.33% and 40.00%, respectively.

-- The Risk Sensitivity overview below illustrates the ratings expected for the Class A and Class B notes if the PD and LGD increase by a certain percentage over the base-case assumptions. For example, if the LGD increases by 50%, the rating for the Class A and Class B notes would be maintained at AAA (sf) and AA (sf), respectively, all else being equal. If the PD increases by 50%, the rating for the Class A and Class B notes would be maintained at AAA (sf) and AA (sf), respectively, all else being equal. Furthermore, if both the PD and LGD increase by 50%, the rating for the Class A and Class B notes would be maintained at AAA (sf) and AA (sf), respectively, 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)
-- 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)

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)
-- 25% increase in PD and 25% increase in LGD, expected rating of AA (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of AA (sf)
-- 50% increase in PD, expected rating of AA (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of AA (sf)
-- 50% increase in PD and 50% increase in LGD, 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: Alexander Garrod
Initial Rating Date: 22 January 2014
Initial Rating Committee Chair: Chuck Weilamann

Lead Surveillance Analyst: Vito Natale
Rating Committee Chair: Chuck Weilamann

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The rating methodologies 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
-- Rating European Consumer and Commercial Asset-Backed Securitisations
-- Unified Interest Rate Model for European Securitisations
-- Derivative Criteria 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.