DBRS Finalizes Provisional Ratings on MBARC Credit Canada Inc. 2016-A Notes

DBRS Limited (DBRS) has today finalized the following provisional ratings on the 2016-A Class A-1, Class A-2 and Class A-3 Asset Backed Notes (collectively, the Notes) issued by MBARC Credit Canada Inc.:

-- 2016-A Class A-1 Asset Backed Notes (the Class A-1 Notes) rated AAA (sf)
-- 2016-A Class A-2 Asset Backed Notes (the Class A-2 Notes) rated AAA (sf)
-- 2016-A Class A-3 Asset Backed Notes (the Class A-3 Notes) rated AAA (sf)

The Notes are supported by a portfolio of retail closed-end lease contracts of primarily new passenger cars, cross-over and sport-utility vehicles (the Portfolio of Assets). The lease contracts were originated by authorized Mercedes-Benz dealers in Canada.

Repayment of the Notes will be made from collections from the Portfolio of Assets, which generally include scheduled monthly lease payments (including residual value payments in the case of customer-retained vehicles) as well as proceeds from vehicle sales either at the end of the lease term or earlier in the case of prepayments and defaults. Proceeds from excess mileage and wear and tear charges, if any, also form part of the collections used to repay the Notes.

Monthly payment of interest and principal will be made with the amortization schedule of the Notes based on the amortization of the Portfolio of Assets. The Notes will be repaid in sequential order with the Class A-1 Notes being repaid first, followed by the repayment of the Class A-2 Notes and, finally, the repayment of the Class A-3 Notes. The ratings assigned are based on the full repayment of the Notes by their respective Final Scheduled Payment Dates.

The ratings incorporate the following considerations:

(1) High Level of Credit Enhancement
-- Initially, 15.5% overcollateralization (building to 17.0%), 0.50% cash and 4.22% (annualized) excess spread.
-- Non-amortizing enhancement provides a deleveraging structure.

(2) Operational and Brand Strength of Seller
-- Daimler AG and its related Canadian entities rated A (low) by DBRS with very strong brand awareness and sales performance.

(3) Conservative Advance Rate on Residual Values
-- The Base Residual Value is determined by using the lowest of the contract residual value and a third party-estimated value by Canadian Black Book (CBB) at lease inception and up¬dated CBB value as of July 2016, eliminating funding of em¬bedded residual value losses.

(4) Strong Obligor Profile
-- The obligors of the underlying lease contracts represent high credit quality customers with a weighted-average FICO score of 796.

(5) Efficient Remarketing Strategy
-- MBFSC has established an efficient vehicle remarketing strategy to maximize the disposition proceeds and minimize the time to remarket the vehicles when returned.

DBRS cash flow analysis included stresses on credit and residual value loss exposures, vehicle turn-in rates and prepayments, which indicate that the credit enhancement available provides sufficient protection to the Notes to warrant the ratings assigned.

Notes:
All figures are in Canadian dollars unless otherwise noted.

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link to the right under Related Research or by contacting us at info@dbrs.com.

The applicable methodologies are Rating Canadian Auto Retail Loan and Lease Securitizations and Legal Criteria for Canadian Structured Finance, which can be found on our website under Methodologies.

The full report providing additional analytical detail is available by clicking on the link under Related Research at the right of the screen or by contacting us at info@dbrs.com.

For more information on this credit or on this industry, visit www.dbrs.com or contact us at info@dbrs.com.