DBRS Finalises Provisional Ratings on Bavarian Sky France, Compartment French Auto Leases 2

DBRS Ratings Limited (DBRS) has today finalised provisional ratings on the Notes issued by Bavarian Sky France, Compartment French Auto Leases 2 (the Issuer) as follows:

-- Class A Notes at AAA (sf)
-- Class B Notes at A (sf)

The transaction represents the issuance of Notes backed by approximately EUR 519.5 million of receivables relating to auto leases originated in the Republic of France by BMW Finance S.N.C. (BMW Finance) to private and commercial customers. Upon closing, the proceeds from the subscription of the Notes and the Subordinated Loan, provided by BMW Finance, finance the purchase of the portfolio of lease receivables and also fund the EUR 2.6 million reserve fund.

The ratings are based on DBRS’s review of the following analytical considerations:
-- The transaction capital structure and the form and sufficiency of available credit enhancement.
-- Credit enhancement levels are sufficient to support the expected cumulative net loss and residual value loss assumptions under various stress scenarios at a AAA (sf) standard for Class A Notes and an A (sf) scenario for the Class B Notes.
-- The ability of the transaction to withstand stressed cash flow assumptions and repay investors according to the terms under which they have invested.
-- The transaction parties’ capabilities with respect to originations, underwriting, servicing and financial strength.
-- The credit quality of the collateral and ability of the BMW Finance 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” 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 portfolio performance data, including:
-- Static origination, default and recovery data going back to the first quarter of 2009 and up to the first quarter of 2016; data was provided separately for used/new vehicles and private/corporate customers.
-- Dynamic portfolio level delinquency and prepayment data from January 2013 to June 2016.
-- Summarised stratification tables as at 30 November 2016.
-- Lease-level data detailing vehicle realisation proceeds from November 2009 to April 2016.
-- A theoretical amortisation of the selected pool.

All data was sourced by BMW Finance.

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

DBRS was 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 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 3.75%, a 25% and 50% increase on the base case PD.
-- Recovery Rates Used: Base Case Recovery Rate of 63.50%, a 25% and 50% decrease in the base case Recovery Rate.
-- Loss Given Default Rates Used: Base Case LGD of 36.50%, a 25% and 50% increase in the base case LGD.
-- Residual Value (RV) Loss: Base Case of 36% at the AAA (sf) rating level, and 26% at the A (sf) rating level. Both scenarios have a 25% and 50% increase in the RV Loss

DBRS concluded that for the Class A Notes:
-- A hypothetical increase in the Base Case PD and LGD by 25%, ceteris paribus, would lead to a downgrade of the Class A Notes to a AA (high) (sf) rating.
-- A hypothetical increase in the Base Case PD and LGD by 50%, ceteris paribus, would lead to a downgrade of the Class A Notes to a AA (sf) rating.
-- A hypothetical increase in the Base Case RV Loss by 25%, ceteris paribus, would lead to a downgrade of the Class A Notes to a AA (high) (sf) rating.
-- A hypothetical increase in the Base Case RV Loss by 50%, ceteris paribus, would lead to a downgrade of the Class A Notes to a AA (sf) rating.
-- A hypothetical increase in the Base Case PD and LGD by 25%, and a hypothetical increase in the Base Case RV Loss by 25%, ceteris paribus, would lead to a downgrade of the Class A Notes to a AA (sf) rating.
-- A hypothetical increase in the Base Case PD and LGD by 50%, and a hypothetical increase in the Base Case RV Loss by 25%, ceteris paribus, would lead to a downgrade of the Class A Notes to a AA (low) (sf) rating.
-- A hypothetical increase in the Base Case PD and LGD by 25%, and a hypothetical increase in the Base Case RV Loss by 50%, ceteris paribus, would lead to a downgrade of the Class A Notes to a A (high) (sf) rating.
-- A hypothetical increase in the Base Case PD and LGD by 50%, and a hypothetical increase in the Base Case RV Loss by 50%, ceteris paribus, would lead to a downgrade of the Class A Notes to a A (low) (sf) rating.

DBRS concluded that for the Class B Notes:
-- A hypothetical increase in the Base Case PD and LGD by 25%, ceteris paribus, would lead to a downgrade of the Class B Notes to a A (low) (sf) rating.
-- A hypothetical increase in the Base Case PD and LGD by 50%, ceteris paribus, would lead to a downgrade of the Class B Notes to a BBB (high) (sf) rating.
-- A hypothetical increase in the Base Case RV Loss by 25%, ceteris paribus, would lead to a downgrade of the Class B Notes to a BBB (sf) rating.
-- A hypothetical increase in the Base Case RV Loss by 50%, ceteris paribus, would lead to a downgrade of the Class B Notes to a BBB (low) (sf) rating.
-- A hypothetical increase in the Base Case PD and LGD by 25%, and a hypothetical increase in the Base Case RV Loss by 25%, ceteris paribus, would lead to a downgrade of the Class B Notes to a BBB (sf) rating.
-- A hypothetical increase in the Base Case PD and LGD by 50%, and a hypothetical increase in the Base Case RV Loss by 25%, ceteris paribus, would lead to a downgrade of the Class B Notes to a BBB (low) (sf) rating.
-- A hypothetical increase in the Base Case PD and LGD by 25%, and a hypothetical increase in the Base Case RV Loss by 50%, ceteris paribus, would lead to a downgrade of the Class B Notes to a BB (high) (sf) rating.
-- A hypothetical increase in the Base Case PD and LGD by 50%, and a hypothetical increase in the Base Case RV Loss by 50%, ceteris paribus, would lead to a downgrade of the Class B Notes to a BB (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.

Lead Analyst: Alexander Garrod: Senior Vice President - EU ABS, Global Structured Finance
Rating Committee Chair: Chuck Weilamann: Managing Director, Head of US ABS - Global Structured Finance

Initial Rating Date: 14 November 2016

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 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