DBRS Confirms Ratings of Driver Master SA – Compartment 3

DBRS Ratings Limited (DBRS) has today confirmed the ratings of Driver Master SA - Compartment 3 (the Issuer) as follows:

-- Series 2015-1, Class A Notes at AAA (sf);
-- Series 2015-1, Class B Notes at A (high) (sf).

The ratings were initially assigned on 27 July 2015.

The current rating action follows the execution of some amendments that included:

-- The extension of the revolving period of the outstanding series of notes for 12 additional months, moving the revolving period end date to 25 June 2017 from 27 June 2016;
-- The reduction of the General Cash Collateral Account target from 1.2% down to 1.0% of the outstanding notes;
-- The reset of some triggers: the Class A and Class B Early Amortisation Triggers were increased to 9.6% and 5.4% respectively from 9.4% and 5.25%; and the thresholds for cumulative net loss ratio were decreased to 0.45%, 1%, 1.35% and 1.75% (from 0.45%, 1.20%, 1.75% and 2.25% respectively).
-- The increase of the discount rate to be used for the additional receivables up to 0.95%.
-- The subordination (following issuance of further notes or amortisation) will be redistributed for between sub-loan and overcollateralisation.
-- The rest of the features remain substantially unchanged.

The extension of the revolving period has also resulted in an increase of the spread payable under the notes and the subordinated loan and an increase of the swap fixed costs:

-- Class A fixed rate: 0.1600%;
-- Class B fixed rate: 0.9700%.

The notes are backed by approximately EUR 1 billion pool of receivables related to auto loan contracts granted by Volkswagen Bank GmbH (VWB) to private and commercial customers in Germany.

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

-- The 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 AAA (sf) and A (sf) standards 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.
-- VWB’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 VWB 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 modelled 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.

DBRS reviewed the amended documents finalised on 27 June 2016. A review of the rest of the transaction legal documents was not conducted, as they 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 performance data relating to receivables sourced by VWB directly or through their agents Commerzbank AG and Volkswagen Financial Services AG. DBRS received historical gross loss and net loss data relating to VWB’s originations by monthly vintages on a cumulative basis dating back to 2004. Data was also provided relating to delinquencies, prepayments and early settlements 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 VWB, Volkswagen Financial Services AG and Commerzbank AG.

The last rating action on this transaction took place on 27 July 2015, when all the ratings were assigned.

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 2.11%, a 25% and 50% increase on Base Case PD.
-- Recovery Rate Used: Base Case Recovery Rate of 50%
-- Loss Given Default (LGD): Base Case LGD of 50%, a 25% and 50% increase on the Base Case LGD

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 lead to a downgrade of the Class A Notes to AA (high) (sf).
-- A hypothetical increase of the Base Case PD by 50% or a hypothetical increase of the LGD by 50%, ceteris paribus, would lead to a downgrade of the Class A Notes to AA (sf).
-- A hypothetical increase of the Base Case PD by 25% and a hypothetical increase of the LGD by 25%, ceteris paribus, would lead to a downgrade of the Class A Notes to AA (low) (sf).
-- A hypothetical increase of the Base Case PD by 50% and a hypothetical increase of the LGD by 25%, ceteris paribus, would lead to a downgrade of the Class A Notes to A (high) (sf).
-- A hypothetical increase of the Base Case PD by 25% and a hypothetical increase of the LGD by 50%, ceteris paribus, would lead to a downgrade of the Class A Notes to A (high) (sf).
-- A hypothetical increase of the Base Case PD by 50% and a hypothetical increase of the LGD by 50%, ceteris paribus, would lead to a downgrade of the Class A Notes to A (low) (sf).

DBRS concludes that for the Class B Notes:
-- A hypothetical increase of the Base Case PD by 25% or a hypothetical increase of the LGD by 25%, ceteris paribus, would lead to a downgrade of the Class B Notes to A (low) (sf).
-- A hypothetical increase of the Base Case PD by 50% or a hypothetical increase of the LGD by 50%, ceteris paribus, would lead to a downgrade of the Class B Notes to BBB (high) (sf).
-- A hypothetical increase of the Base Case PD by 25% and a hypothetical increase of the LGD by 25%, ceteris paribus, would lead to a downgrade of the Class B Notes to BBB (high) (sf).
-- A hypothetical increase of the Base Case PD by 50% and a hypothetical increase of the LGD by 25%, ceteris paribus, would lead to a downgrade of the Class B Notes to BBB (sf).
-- A hypothetical increase of the Base Case PD by 25% and a hypothetical increase of the LGD by 50%, ceteris paribus, would lead to a downgrade of the Class B Notes to BBB (sf).
-- A hypothetical increase of the Base Case PD by 50% and a hypothetical increase of the LGD by 50%, ceteris paribus, would lead to a downgrade of the Class B Notes to BBB (low) (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: Paolo Conti, Senior Vice President
Initial Rating Date: 27 July 2015
Initial Rating Committee Chair: Chuck Weilamann, Managing Director

DBRS Ratings Limited
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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)
-- 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)
-- Rating CLOs and CDOs of Large Corporate Credit (9 February 2016)
-- Master European Structured Finance Surveillance Methodology (6 April 2016)

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