DBRS Finalises Provisional Ratings on Driver France three

DBRS Ratings Limited (DBRS) has today finalised the provisional ratings on the notes issued by Driver France FCT, acting exclusively through its Compartment Driver France three (the Issuer), as follows:

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

The transaction represents the issuance of notes backed by a pool of approximately EUR 500 million of receivables related to auto loan contracts (the receivables or collectively the portfolio) granted by Volkswagen Bank GmbH, acting through its French branch (VWB France, the seller or the originator) to borrowers in France. The securitised portfolio comprises receivables related to standard amortising loans only, granted to retail and commercial customers for the acquisition of either new or used motor vehicles. None of the receivables pose residual value risk to the transaction.
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 reserve fund.
-- Credit enhancement levels are sufficient to support the expected credit and residual value net loss assumptions 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.
-- VWB France’s financial strength and its 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.
-- The operational risk review conducted on VWB France by DBRS to conclude that it is an acceptable servicer.
-- The transaction parties’ financial strength with regard to their respective roles.
-- The credit quality and industry diversification of the collateral and historical and projected performance of the seller’s portfolio.
-- The sovereign rating of the Republic of France, currently at AAA.
-- 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”.

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 information used for these ratings include performance and portfolio data relating to the auto loans originated by VWB France. In particular, DBRS received quarterly gross loss, net loss, amortisation and prepayment static vintage analysis relating to originations from January 2010 to December 2016. DBRS also received static vintage recovery data on the aggregated portfolio only starting from 2010. Dynamic data was also provided relating to delinquencies, as well as a set of stratification tables detailing a portfolio selected by VWB France as at 31 March 2016. All data was sourced by VWB France directly or through the transaction arrangers, Volkswagen Financial Services AG and HSBC Bank plc.

DBRS did 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 changing the transaction parameters on the rating, DBRS considered the following stress scenarios, as compared to the parameters used to determine the rating:

-- Probability of Default (PD) Rates Used: Expected PD of 2.5%. A 25% and 50% increase on the base case PD.
-- Recovery Rate Used: Expected Recovery Rate of 46% whereas 40% Recovery Rates were applied to the A (high) (sf) and AAA (sf) scenarios.
-- Loss Given Default (LGD) Used: Expected LGD of 54% whereas 60% LGD were used at A (high) (sf) and AAA (sf) scenarios. Both scenarios with a 25% and 50% increase in the 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 AA (high) (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 AA (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 AA (low) (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 A (high) (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 A (high) (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 A (low) (sf).

DBRS concludes that for the Class B Notes:
-- A hypothetical increase of the base case PD by 25% or a hypothetical increase of the LGD by 25%, ceteris paribus, would not lead to change of the rating of the Class B Notes.
-- 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 B Notes to A(low) (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 B Notes to A (low) (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 B Notes to BBB (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 B Notes to BBB (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 B Notes to BBB (low) (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: 16 March 2017.
Initial Rating Committee Chair: Christian Aufsatz, Managing Director

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 analyses structured finance transactions and how the methodologies are collectively applied can be found at: http://www.dbrs.com/research/278375