DBRS Upgrades and Confirms Ratings on VCL 21

DBRS Ratings Limited (DBRS) has today taken the following rating actions on the following notes issued by VCL Multi-Compartment S.A., acting for and on behalf of its Compartment VCL 21 (the Issuer):
-- EUR 554,144,800.00 Class A Notes: Confirmed at AAA (sf)
-- EUR 28,800,000.00 Class B Notes: Upgraded to AA (sf) from A (high) (sf)

The rating actions are based upon the following analytical considerations:
-- Portfolio Performance, in terms of delinquencies and cumulative net losses, as of the May 2016 payment date.
-- The ability of the transaction to withstand stressed cash flow assumptions and repay investors according to the terms on which they have invested.
-- The current available credit enhancement to the notes to cover expected losses assumed in line with a AAA (sf) rating level for the Class A Notes and a AA (sf) rating level for the 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 26 May 2015 and uses a securitisation structure utilising the Luxembourg-based VCL Multi-Compartment S.A.

On 26 April 2016, DBRS downgraded the long-term debt rating of Volkswagen AG (VW) to BBB (high) from A (low) and removed the Under Review with Negative Implications status. The downgrade reflects continuing and consequential headwinds associated with VW’s (diesel) vehicle emissions controversy.

Based upon based upon data, information and securitisation performance, the structural protections in the VW-sponsored securitisations would likely be sufficient to insulate investors from any potential loss. For additional information, please refer to: http://www.dbrs.com/research/285127/dbrs-comments-on-potential-impact-of-volkswagen-negative-review-on-european-structured-finance-transactions.html?v=1455880527136.
To date, none of the warranty mechanisms in place have been activated and no negative impact on VWL servicing activities has been noticed.

As of the May 2016 payment date, 30-60 day delinquencies were 0.46% of the outstanding discounted balance and 60-90 day delinquencies were 0.15%, while delinquencies greater than 90 days were 0.27%. Cumulative net losses, as defined in the transaction documents, were 0.03% of the original outstanding discounted balance.

Credit Enhancement for the Class A Notes (11.94%) is provided by overcollateralisation, the subordination of the Class B Notes and the Cash Collateral Account. Credit Enhancement for the Class B Notes (7.28%) is provided by overcollateralisation 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 10,650,103.74 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. Royal Bank of Canada is the Counterparty of the Swap Agreements and the DBRS rating of Royal Bank of Canada at AA complies with the First Rating Threshold defined in DBRS’s “Derivative Criteria for European Structured Finance Transactions” methodology.

Elavon Financial Services Limited, U.K. Branch acts as Account 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.

This is the first rating action since the Initial Rating Date.

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 1.74% and 50.00%, 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 expected to decrease to AA (sf) and A (sf), respectively, all else being equal. If the PD increases by 50% the rating for the Class A and Class B Notes would be expected to decrease to AA (sf) and A (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 both be expected to decrease to A (low) (sf) and BBB (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 AA (sf)
-- 25% increase in PD, expected rating of AAA (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 A (high) (sf)
-- 50% increase in PD, expected rating of AA (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of A (high) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of A (low) (sf)

Class B Notes risk sensitivity:
-- 25% increase in LGD, expected rating of A (high) (sf)
-- 50% increase in LGD, expected rating of A (sf)
-- 25% increase in PD, expected rating of A (high) (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of A (low) (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of BBB (high) (sf)
-- 50% increase in PD, expected rating of A (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of BBB (high) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of BBB (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: Eric Levassor
Initial Rating Date: 22 April 2015
Initial Rating Committee Chair: Chuck Weilamann

Lead Surveillance Analyst: Vito Natale, Senior Vice President
Rating Committee Chair: Diana Turner, Senior Vice President

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 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.