DBRS Assigns Provisional Ratings to Driver UK Multi-Compartment S.A., acting for and on behalf of its Compartment Driver UK four

DBRS Ratings Limited (DBRS) has today assigned provisional ratings to the notes to be issued by Driver UK Multi-Compartment S.A., acting for and on behalf of its Compartment Driver UK four (the Issuer) as follows:

-- Class A Notes: AAA (sf)
-- Class B Notes: A (high) (sf)

The transaction represents the issuance of notes backed by receivables relating to auto loan contracts originated by Volkswagen Financial Services (UK) Limted (VWFS) to retail and commercial customers in England, Wales and Scotland. The receivables are serviced by VWFS.

The ratings are based on a review by DBRS of the following analytical considerations:
-- Transaction capital structure and form and sufficiency of available credit enhancement.
-- Relevant credit enhancement in the form of subordination and a cash reserve.
-- 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 and Class B Notes, respectively.
-- The ability of the transaction to withstand stressed cash flow assumptions and repay investors according to the terms under which they have invested.
-- VWFS’s financial strength and their capabilities with respect to originations, underwriting and servicing.
-- The credit quality of the collateral and ability of the servicer to perform collection activities on the collateral. DBRS conducted an operational risk review of VWFS and deems it to be an acceptable servicer.
-- The legal structure and presence of legal opinions addressing the assignment of 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 GBP 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 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 information used for this rating include performance and portfolio data relating to the receivables and loan-by-loan residual value realization upon PCP turn-in sourced by VWFS directly and through the transaction arrangers Volkswagen Financial Services AG and RBC Capital Markets.

DBRS received quarterly gross loss, net loss, and recovery data relating to VWFS originations on a cumulative basis from Q3 2002 to Q2 2016. Dynamic data was also provided relating to delinquencies and early settlement rates, as well as contractual characteristics of the proposed portfolio to be securitised.

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 impact the rating analysis.

DBRS considers the information available to it for the purposes of providing this rating to be 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 concerns 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 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) Rates Used: Base Case PD of 7.02%, a 25% and 50% increase on the base case PD.
-- Loss Given Default (LGD) Used: Base case LGD of 30%, a 25% and 50% increase in the base case LGD
-- Recovery Rate Used: Base Case Recovery Rate of 70%
-- Residual Value (RV) Loss: Base Case of 45.2% for the Class A Notes, and 35.7% for the Class B Notes. Both scenarios with a 25% and 50% increase in the RV Loss.

DBRS concludes that for the Class A Notes:
-- A hypothetical increase of the PD and LGD rates by 25%, ceteris paribus, would lead to a downgrade of the Class A Notes to a AA (high) (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 not lead to a change of the Class A Notes 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 (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 AA (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 AA (low) (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 A (high) (sf) rating

DBRS concludes that for the Class B Notes:
-- A hypothetical increase of the PD and LGD rates by 25%, ceteris paribus, would not lead to a change of the Class B Notes 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 A (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 A (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 BBB (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 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 to a downgrade of the Class B Notes to a BBB (low) (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 BBB (low) (sf) rating

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: Matthew Nyong, Senior Financial Analyst - Global Structured Finance
Initial Rating Date: 14 October 2016
Initial Rating Committee Chair: Chuck Weilamann, Managing Director, Head of US ABS - Global Structured Finance

DBRS Ratings Limited
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Registered in England and Wales: No. 7139960

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 Backet Securitisations
-- Legal Criteria for European Structured Finance Transactions
-- Derivative Criteria for European Structured Finance Transactions
-- Operational Risk Assessment for European Structured Finance Servicers
-- Operational Risk Assessment for European Structured Finance Originators
-- Unified Interest Rate Model for European Securitisations

A description of how DBRS analysis structured finance transactions and how the methodologies are collectively applied can be found at: http://www.dbrs.com/research/278375