DBRS Assigns Provisional Ratings to VCL Master Netherlands

DBRS Ratings Limited (DBRS) has today assigned provisional ratings to VCL Master Netherlands (the issuer) as follows:

-- Class A Notes: AAA (sf);
-- Class B Notes: A (high) (sf).

The notes are backed by a €260 million initial pool of receivables related to motor vehicle lease contracts (with a maximum pool balance of €650 million) originated by Volkswagen Leasing BV (VWL) and Dutchlease BV (DL).

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

-- Transaction’s capital structure and form and sufficiency of available credit enhancement.
-- Credit enhancement in the form of subordination, overcollateralisation and a fully funded liquidity reserve from the issuance date.
-- Credit enhancement levels are sufficient to support the expected cumulative net loss assumption projected under various stress scenarios at a AAA (sf) and A (high) (sf) standard for the Class A Notes and Class B Notes respectively.
-- The ability of the transaction to withstand stressed cash flow assumptions and repay investors according to the terms in which they have invested.
-- VWL and DL’s experience as an originator, underwriter and servicer and the financial strength of the multinational motor company they are a part of.
-- The credit quality of the underlying collateral and the ability of VWL and DL to perform collection 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.

The transaction was modeled in Intex DealMaker.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable is: “Rating European Consumer and Commercial Asset-Backed Securitisations”.

DBRS has applied the principal methodology consistently and conducted a review of the transaction in accordance with the principal methodology.

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 performance data relating to receivables provided by VWL and DL directly or through their agents, Volkswagen Financial Services AG and HSBC Bank plc. DBRS received historical gross loss and net loss data relating to VWL and DL originations by monthly vintages on a cumulative basis dating back to 2009. Data was also provided relating to delinquencies, prepayments other than aggregated residual value realisation upon turn-in at maturity. A detailed summary and an amortisation schedule were provided for the portfolio selected by VWL and DL as at 31 March 2016 that allowed DBRS to further assess the collateral. 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 has not been 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.

DBRS considers the information available to it for the purposes of providing this rating was of satisfactory quality.

These ratings were disclosed to VWL, DL, Volkswagen Financial Services AG and HSBC Bank plc.

These ratings concern 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):

-- Probability of Default (PD): Base Case of 2.50%, a 25% and 50% increase on Base Case PD
-- Residual Value (RV) Loss: Base Case of 49.3% for the Class A Notes, and 38.5% for the Class B Notes. In both scenarios a 25% and 50% increase in RV Loss was applied

DBRS concludes that for the Class A Notes:

-- A hypothetical increase of the PD and LGD rates by 25%, ceteris paribus, would lead to the Class A Notes maintaining a AAA (sf) rating
-- A hypothetical increase of the PD and LGD rates by 50%, ceteris paribus, would lead to a downgrade of the Class A Notes to a AA (low) (sf) rating
-- A hypothetical increase of the RV Loss Rate by 25%, ceteris paribus, would lead to a downgrade of the Class A Notes to a AA (low) (sf) rating
-- A hypothetical increase of the RV Loss Rate by 25%, and a hypothetical increase of the PD and LGD Rates by 25%, ceteris paribus, would lead a downgrade of the Class A Notes to a AA (low) (sf) rating
-- A hypothetical increase of the RV Loss Rate by 25%, and a hypothetical increase of the PD and LGD Rates by 50%, ceteris paribus, would lead to a downgrade of the Class A Notes to a A (high) (sf) rating
-- A hypothetical increase of the RV Loss Rate by 50%, ceteris paribus, would lead to a downgrade of the Class A Notes to a BBB (high) (sf) rating
-- A hypothetical increase of the RV Loss Rate by 50%, and a hypothetical increase of the PD and LGD Rates by 25%, ceteris paribus, would lead a downgrade of the Class A Notes to a BBB (high) (sf) rating
-- A hypothetical increase of the RV Loss Rate by 50% and a hypothetical increase of the PD and LGD Rates by 50%, ceteris paribus, would lead to a downgrade of the Class A Notes to a BBB (sf) rating

DBRS concludes that for the Class B Notes:

-- A hypothetical increase of the PD and LGD rates by 25%, ceteris paribus, would lead to a downgrade of the Class B Notes to a A (sf) rating
-- A hypothetical increase of the PD and LGD rates by 50%, ceteris paribus, would lead to a downgrade of the Class B Notes to a A (low) (sf) rating
-- A hypothetical increase of the RV Loss Rate by 25%, ceteris paribus, would lead toa downgrade of the Class B Notes to a BBB (low) (sf) rating
-- A hypothetical increase of the RV Loss Rate by 25%, and a hypothetical increase of the PD and LGD Rates by 25%, ceteris paribus, would lead to a downgrade of the Class B Notes to a BBB (low) (sf) rating
-- A hypothetical increase of the RV Loss Rate by 25%, and a hypothetical increase of the PD and LGD Rates by 50%, ceteris paribus, would lead to a downgrade of the Class B Notes to a BB (high) (sf) rating
-- A hypothetical increase of the RV Loss Rate by 50%, ceteris paribus, would lead to a downgrade of the Class B Notes to a BB (low) (sf) rating
-- A hypothetical increase of the RV Loss Rate by 50%, and a hypothetical increase of the PD and LGD Rates by 25%, ceteris paribus, would lead to a downgrade of the Class B Notes to a B (sf) rating
-- A hypothetical increase of the RV Loss Rate by 50% and a hypothetical increase of the PD and LGD Rates by 50%, ceteris paribus, would lead to a downgrade of the Class B Notes to a B (sf) rating

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: Paolo Conti
Initial Rating Date: 4 May 2016
Initial Rating Committee Chair: Chuck Weilamann

DBRS Ratings Limited
20 Fenchurch Street, 31st Floor, London EC3M 3BY
United Kingdom
Registered in England and Wales: No. 7139960

The rating methodologies used in the analysis of this transaction are listed below:

--Rating European Consumer and Commercial Asset-Backed Securitisations (30 September 2015)
--Legal Criteria for European Structured Finance Transactions (19 February 2016)
--Derivative Criteria for European Structured Finance Transactions (19 February 2016)
--Operational Risk Assessment for European Structured Finance Servicers (31 December 2015)
--Operational Risk Assessment for European Structured Finance Originators (15 December 2015)
-- Unified Interest Rate Model for European Securitisations (12 October 2015)

The rating methodologies used in the analysis of this transaction can be found at:
http://www.dbrs.com/about/methodologies

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