DBRS Takes Rating Actions on VCL Master Netherlands B.V.

DBRS Ratings Limited (DBRS) has today assigned a new rating to VCL Master Netherlands B.V. (the Issuer) as follows:

-- Series 2016-6, Class A Notes: AAA (sf).

DBRS has also confirmed ratings previously assigned to the Issuer as follows:

-- Series 2016-1, Class A Notes: AAA (sf);
-- Series 2016-2, Class A Notes: AAA (sf);
-- Series 2016-3, Class A Notes: AAA (sf);
-- Series 2016-4, Class A Notes: AAA (sf);
-- Series 2016-5, Class A Notes: AAA (sf);
-- Series 2016-1, Class B Notes: A (high) (sf);
-- Series 2016-2, Class B Notes: A (high) (sf).

DBRS initially assigned the aforementioned ratings on 4 May 2016 and subsequently finalised them on 31 May 2016.

The rating actions follow the execution of an amendment agreement on 21 July 2016 that envisages:

-- the issuance of new notes under Series 2016-6;
-- the set-up of hedging agreements related to the Series 2016-6 notes;
-- the Tap-Up issuance of the notes issued under Series 2016-1, 2016-2, 2016-3, 2016-4 and 2016-5;
-- the extension of the hedging agreement in place under Series 2016-1, 2016-2, 2016-3, 2016-4 and 2016-5.

The program features and provisions remain substantially unchanged.

The notes are backed by a EUR 346 million pool of receivables related to motor vehicle lease contracts 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.
-- 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 series of 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.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable is:
“Rating 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.

In DBRS’s opinion, the changes under consideration do not require the application of the entire principal methodology. Given the Master Trust structure of the transaction, the asset portfolio complying with the composition limits set forth in the transaction legal documents and current transaction performances, no asset or cash flow analysis was conducted for this 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 commentary “The Effect of Sovereign Risk on Securitisations in the Euro Area” 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 Volkswagen Financial Services AG, their agent. DBRS received detailed portfolio stratification tables and an amortisation schedule for the portfolio selected by VWL and DL as at 30 June 2016. 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 updated 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 rating includes a newly issued financial instrument: Series 2016-6, Class A Notes. The last rating action on this transaction took place on 31 May 2016, when DBRS finalised the Provisional ratings assigned to the outstanding series of Class A and Class B Notes.

The lead responsibilities for this transaction have been transferred to Matthew Nyong.

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 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: Paolo Conti
Initial Rating Date: 31 May 2016
Initial Rating Committee Chair: Chuck Weilamann

Lead Analyst: Matthew Nyong, Financial Analyst
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)
-- 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