DBRS Confirms AAA (sf) Ratings on BMW Canada Auto Trust 2016-1 Class A-1, Class A-2 and Class A-3 Notes

DBRS Limited (DBRS) confirmed its rating on the following notes issued by BMW Canada Auto Trust (the Trust) as part of DBRS’s continued effort to provide market participants with updates on an annual basis:

-- Class A-1 Notes, Series 2016-1 at AAA (sf) (the Class A-1 Notes)
-- Class A-2 Notes, Series 2016-1 at AAA (sf) (the Class A-2 Notes)
-- Class A-3 Notes, Series 2016-1 at AAA (sf) (the Class A-3 Notes; collectively with the Class A-1 and Class A-2 Notes, the Notes)

The Notes are supported by a portfolio of retail closed-end lease contracts and related rights secured by new BMW-branded passenger cars and sport-activity vehicles (the Portfolio of Assets). The lease contracts were originated by authorized BMW dealers in Canada.

Repayment of the Notes is being 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.

The Notes are being repaid in sequential order, with the Class A-1 Notes currently being repaid. The ratings are based on the full repayment of the Notes by their respective Final Scheduled Payment Dates in addition to the following factors:

(1) High levels of credit enhancement are available to protect all the Notes. Credit protection to the Notes is provided by a non-amortizing cash account that was funded at closing in an amount equivalent to 0.25% of the initial securitization value. The cash amount represents 0.4% of the current securitization value as of September 2017. In addition, the Notes benefit from an overcollateralization (OC) amount that built from 16.0% of the initial securitization value to 18.3% and is required to be maintained at that target level. The OC represents 27.8% of the current securitization value as of September 2017.

(2) As the initial pool balances were sold to the Trust at discounted values, there is excess spread above the cost of funds and potential monthly replacement servicer fees of approximately 5.4% (annualized) as of September 2017, which is available to offset any collection shortfall on a monthly basis.

(3) To date, cumulative losses are below DBRS expectations set at the time of the initial rating, amounting to 14 basis points of the initial securitization value, while the transaction has benefited from cumulative residual value gains equivalent to 4.3% of the initial securitization value.

(4) BMW Canada (the Seller) and its parent, BMW AG (the Company), were upgraded to A (high) with a Stable trend by DBRS on July 14, 2017. The corporate rating upgrade was based on substantial increases in sales in emerging markets, along with strong earnings performance in the last six years, making the Company one of the world’s leading automotive manufacturer in the premium vehicle segment. As a subsidiary of BMW AG, BMW Canada benefits from its parent’s strong financial standing and global presence, allowing it to leverage the experience and expertise of BMW’s other financial services companies worldwide to ensure sound and consistent underwriting standards and efficient servicing operations.

DBRS monitors the performance of each transaction to identify any deviation from its expectation at issuance and to ensure the ratings remain appropriate. The review is predicated upon the timely receipt of performance information from the related providers.

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 principal methodologies are Master Canadian Structured Finance Surveillance Methodology (May 2017), Rating Canadian Auto Retail Loan and Lease Securitizations (October 2017) and Legal Criteria for Canadian Structured Finance (July 2017), which can be found on dbrs.com under Methodologies.

The rated entity or its related entities did participate initially in the rating process. DBRS had access to the accounts and other relevant internal documents of the rated entity or its related entities.