DBRS Takes Rating Actions on Driver UK Master S.A., Compartment 2

DBRS Ratings Limited (DBRS) has today assigned new ratings to Driver UK Master S.A. acting for and on behalf of its Compartment 2 (the Issuer) as follows:

-- Series 2016-1, Class A Notes at AAA (sf)
-- Series 2016-2, Class A Notes at AAA (sf)
-- Series 2016-1, Class B Notes at A (high) (sf)
-- Series 2016-2, Class B Notes at A (high) (sf)

DBRS has also confirmed the ratings of the Issuer as follows:

-- Series 2013-1, Class A Notes at AAA (sf)
-- Series 2013-2, Class A Notes at AAA (sf)
-- Series 2013-3, Class A Notes at AAA (sf)
-- Series 2013-4, Class A Notes at AAA (sf)
-- Series 2013-5, Class A Notes at AAA (sf)
-- Series 2013-6, Class A Notes at AAA (sf)
-- Series 2013-7, Class A Notes at AAA (sf)
-- Series 2013-8, Class A Notes at AAA (sf)
-- Series 2013-10, Class A Notes at AAA (sf)
-- Series 2014-1, Class A Notes at AAA (sf)
-- Series 2014-2, Class A Notes at AAA (sf)
-- Series 2014-3, Class A Notes at AAA (sf)
-- Series 2015-1, Class A Notes at AAA (sf)
-- Series 2013-1, Class B Notes at A (high) (sf)
-- Series 2013-2, Class B Notes at A (high) (sf)
-- Series 2013-3, Class B Notes at A (high) (sf)
-- Series 2014-1, Class B Notes at A (high) (sf)
-- Series 2015-1, Class B Notes at A (high) (sf)

DBRS had previously assigned, finalised and confirmed, as the case may be, the aforementioned ratings on 23 October 2013, 20 November 2013, 21 August 2014, 25 November 2014 and 25 November 2015.

The current rating action follows the issuance of the Class A and Class B Notes of the Series 2016-1 and Series 2016-2 and the execution of some amendments that included:

-- The extension of the revolving period of the Class A and Class B Notes Series 2013-1, Series 2013-2, Series 2013-3, Class A Notes, Series 2013-4, Series 2013-5, Series 2013-8, Series 2013-10, Series 2014-1, Class A Notes, Series 2014-2, Series 2014-3 and Series 2015-1 Class A and Class B Notes for 11 additional months, moving the revolving period end date to 25 May 2017 from 27 June 2016.
-- Tap-up issuance under Series 2014-3, Class A Notes and Series 2013-3, Class B Notes.
-- The General Cash Collateral Account target remains at 1.2% of the outstanding notes.
-- The rest of the features remain substantially unchanged.

The extension of the revolving period has not resulted in the repricing of the spread payable under the notes and the subordinated loan or repricing of the swap fixed costs:

-- Class A Notes margin: 0.70%;
-- Class B Notes margin: 1.25%;
-- Class A swap fixed rate: 1.1700%;
-- Class B swap fixed rate: 1.7200%.

The notes are backed by about EUR 4.8 billion pool of receivables related to auto loan contracts granted by Volkswagen Financial Services (UK) Limited (VWFS) to private and commercial customers in England, Wales and Scotland.

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 (high) (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.
-- VWFS’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 VWFS 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 British pounds sterling 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 sourced by VWFS directly or through their agents Volkswagen Financial Services AG and HSBC Bank plc. DBRS received historical gross loss and net loss data relating to VW’s originations by monthly vintages on a cumulative basis dating back to July 2002. Data was also provided relating to delinquencies, prepayments and early settlements and loan-by-loan realization from sale of turned-in vehicles 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 VW, Volkswagen Financial Services AG and HSBC Bank plc.

The last rating action on this transaction took place on 25 November 2015, when existing ratings were discontinued or confirmed as the case may be and new ratings were assigned to Series 2015-1. The lead responsibilities for this transaction have been transferred to Paolo Conti.

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 7.1%, a 25% and 50% increase on Base Case PD.
-- Recovery Rate Used: Base Case Recovery Rate of 70%
-- Loss Given Default (LGD): Base Case LGD of 30%, a 25% and 50% increase on the Base Case LGD

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 an 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 an 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 an A (low) (sf) rating
-- A hypothetical increase of the RV Loss Rate 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 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: Alexander Garrod, Senior Vice President
Initial Rating Date: 23 October 2013
Initial Rating Committee Chair: Chuck Weilamann, Managing Director

Lead Analyst: Paolo Conti, Senior Vice President
Rating Committee Chair: Chuck Weilamann, Managing Director

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)

-- 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 20160

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