DBRS Finalises Provisional Rating Assigned to Red & Black Auto Germany 4 UG (haftungsbeschränkt)

DBRS Ratings Limited (DBRS) has today finalised the provisional rating previously assigned to the Class A Notes issued by Red & Black Auto Germany 4 UG (haftungsbeschränkt) as follows:

-- Class A Notes: AAA (sf)

The transaction represents the issuance of Class A and Class B (unrated) Notes backed by approximately EUR 1,000,000,000 of receivables relating to auto loans originated in the Federal Republic of Germany by Bank Deutsches Kraftfahrzeuggewerbe GmbH (BDK). The receivables are serviced by BDK.

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, excess spread and a cash reserve.
-- Credit enhancement levels are sufficient to support expected cumulative net loss assumptions projected under various stress scenarios at AAA (sf) for the Class A Notes, respectively, issued by Red & Black Auto Germany 4 UG (haftungsbeschränkt).
-- The ability of the transaction to withstand stressed cash flow assumptions and repay investors according to the terms under which they have invested.
-- BDK’s capabilities with respect to originations, underwriting, servicing and financial strength.
-- The credit quality of the collateral and ability of the servicer to perform collection activities on the collateral. DBRS conducted an operational review of BDK and deems it to be an acceptable servicer.
-- 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 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 this rating include performance and portfolio data relating to the receivables sourced by BDK provided through their arranger, Société Générale S.A.

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

DBRS has been supplied with third party assessments. However, this did not impact the rating analysis.

DBRS received the following sets of data sourced by BDK provided through their arranger, Société Générale S.A.:

-- Static origination, default and recoveries data going back to January 2004 and up to June 2016; data was provided separately for private and commercial clients.
-- Dynamic portfolio origination, outstanding balance, prepayment and arrears data from January 2004 and up to June 2016.
-- Summarised stratification tables as at September 2016.
-- A theoretical amortisation of the portfolio.

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 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 Rates Used: Base case PD of 2.9%, a 25% and 50% increase on the base case PD.
-- Recovery Rates Used: Base case Recovery Rate of 53.4%.
-- Loss given default (LGD): Base case LGD of 46.6%, 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 or LGD by 25%, ceteris paribus, would not lead to a downgrade of the Class A Notes.
-- A hypothetical increase of the base case PD or LGD by 50%, ceteris paribus, would each lead to a downgrade of the Class A Notes to AA (high) (sf).
-- A hypothetical increase of the base case PD and LGD by 25%, ceteris paribus, would lead to a downgrade of the Class A Notes to AA (high) (sf).
-- A hypothetical increase of the base case PD by 50% and LGD by 25%, ceteris paribus, would lead to a downgrade of the Class A Notes to AA (sf).
-- A hypothetical increase of the base case PD by 25% and LGD by 50%, ceteris paribus, would lead to a downgrade of the Class A Notes to AA (sf).
-- A hypothetical increase of the base case PD and LGD by 50%, ceteris paribus, would lead to a downgrade of the Class A Notes to A (high) (sf), respectively.

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: Alex Garrod, Senior Vice President
Initial Rating Date: 26 September 2016
Initial 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 can be found at: http://www.dbrs.com/about/methodologies.

• Rating European Consumer and Commercial Asset-Backed 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 analyses structured finance transactions and how the methodologies are collectively applied can be found at: http://www.dbrs.com/research/278375.

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