DBRS Assigns A (sf) Rating to SC Germany Auto 2016-2

DBRS Ratings Limited (DBRS) has today assigned a rating of A (sf) to the Class A Notes issued by SC Germany Auto 2016-2 UG (haftungsbeschränkt; the Issuer).

The Class A Notes are backed by a EUR 1.5 billion pool of receivables related to vehicle loan contracts originated by Santander Consumer Bank AG (SCB) in Germany.

The rating is based on a 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 reserve from the issuance date.
-- Credit enhancement levels are sufficient to support the expected cumulative net loss assumption projected under various stress scenarios at an A (sf) standard for the Class A Notes.
-- The ability of the transaction to withstand stressed cash flow assumptions and repay investors according to the terms in which they have invested.
-- SCB’s experience as an originator, underwriter and servicer and the financial strength of the multinational banking group it is part of.
-- The credit quality of the underlying collateral and the ability of SCB 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.

Other methodologies referenced in this transaction are listed at the end of this press release. These may be found 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” on http://www.dbrs.com/industries/bucket/id/10036/name/commentaries/.

The sources of information used for this rating include performance data relating to receivables provided by SCB directly or through its agent, Raiffeisen Bank International AG. DBRS received historical gross loss and recovery data relating to SCB originations by quarterly vintages on a cumulative basis dating back to 2004 and 2006 for recoveries. Data was also provided relating to delinquencies and prepayments. A detailed summary and amortisation schedule were provided for the portfolio selected by SCB as at 30 June 2016, which allowed DBRS to further assess the collateral.

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

DBRS does not rely upon third-party due diligence in order to conduct its analysis.

DBRS has not yet been supplied with third-party assessments. However, this did not affect 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.

These ratings were disclosed to SCB and Raiffeisen Bank International AG.

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, is available on www.dbrs.com.

To assess the impact of 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) rate used: Base Case PD of 2.71%, a 25% and 50% increase on the Base Case PD.
-- Recovery rate used: Base Case recovery rate of 38%.
-- Loss given default (LGD): Base Case LGD of 62%, 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 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 A 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 A Notes to BBB (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 BBB (low) (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 BBB (low) (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 BB (sf).

For further information on DBRS historical default rates published by the European Securities and Markets Authority (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: 25 July 2016
Initial Rating Committee Chair: Charles Weilamann, Managing Director

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

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.