DBRS Upgrades and Confirms Ratings on VCL 22

DBRS Ratings Limited (DBRS) took the following rating actions on the Class A Notes and Class B Notes (together, the Notes) issued by VCL Multi-Compartment S.A. acting for and on behalf of its Compartment VCL 22 (the Issuer or VCL 22):

-- Class A Notes confirmed at AAA (sf)
-- Class B Notes upgraded to AAA (sf) from AA (sf)

The rating actions reflect an annual review of the transaction and are based on the following analytical considerations:

-- The overall portfolio performance as of the October 2017 payment date, with particular regard to the low levels of cumulative net loss and delinquencies.
-- The increased levels of credit enhancement (CE) available to the Notes to cover expected losses assumed in line with AAA (sf) rating level.

The ratings address the timely payment of interest and the ultimate payment of principal on or before the final maturity date in August 2021.

VCL 22 is a securitisation of German auto leases originated by Volkswagen Leasing GmbH (VWL). As of the October 2017 payment date, the EUR 216.0 million portfolio (including only performing and delinquent leases) comprised leases for the purchase of new (95.5% of the portfolio by outstanding discounted balance), used (1.9%) and demonstration (2.6%) vehicles, granted to both retail (73.4%) and corporate (26.6%) customers.

PORTFOLIO PERFORMANCE
As of the October 2017 payment date, 30-day to 60-day delinquencies were 0.8% of the outstanding discounted balance; 60-day to 90-day delinquencies were 0.3%; and delinquencies greater than 90 days were 0.8% of the outstanding discounted balance. Cumulative net losses, as defined in the transaction documents, were 0.1% of the original outstanding discounted balance.

CREDIT ENHANCEMENT
CE for the Notes is provided by overcollateralisation, subordination of the respective junior obligations and the general reserve fund. CE for the Class A Notes increased to 15.8% in October 2017, from 7.9% at closing in November 2015, while the CE for the Class B Notes increased to 11.1% from 5.5%.

The transaction benefits from a general reserve fund available to cover senior fees and the interest due on the Notes, funded at closing with part of the proceeds of a subordinated loan. In the event of Issuer default, it can also be used to cover principal payments on the rated Notes. At closing, the reserve was funded with an amount equal to 1.2% of the original portfolio discounted balance and can be amortised down to the minimum between EUR 8.6 million and the aggregate outstanding principal amount of the Notes. Since the closing date, the general reserve fund has always been at least at its target level and is currently at EUR 8.6 million.

A swap structure is in place to hedge the interest rate mismatch between the Class A and Class B Notes, indexed to one-month Euribor and the fixed interest rate payments from the collateral portfolio. DZ BANK AG Deutsche Zentral-Genossenschaftsbank (DZ BANK) is the counterparty of the swap agreements. The DBRS Long Term Critical Obligations Rating of DZ BANK at AA complies with the First Rating Threshold defined in DBRS’s “Derivative Criteria for European Structured Finance Transactions” methodology.

The Bank of New York Mellon, Frankfurt Branch acts as the Account Bank for the transaction, holding both the collections and the reserve fund. DBRS’s private rating of The Bank of New York Mellon, Frankfurt Branch complies with the minimum institution rating, given the ratings assigned to the Notes, as described in DBRS’s “Legal Criteria for European Structured Finance Transactions” methodology.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the ratings is: “Master European Structured Finance Surveillance Methodology”.

DBRS has applied the principal methodology consistently and conducted a review of the transaction in accordance with the principal methodology.

A review of the transaction legal documents was not conducted as the legal documents have remained unchanged since the most recent rating action.

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” at: http://www.dbrs.com/industries/bucket/id/10036/name/commentaries/

The sources of data and information used for these ratings include monthly investor reports provided by VWL.

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

At the time of the initial rating DBRS was supplied with third-party assessments. However, this did not impact the rating analysis.

DBRS considers the data and information available to it for the purposes of providing this rating to be of satisfactory quality.

DBRS does not audit or independently verify the data or information it receives in connection with the rating process.

The last rating action on this transaction took place on 21 November 2016, when DBRS confirmed the rating of the Class A Notes at AAA (sf) and upgraded the rating of the Class B Notes to AA (sf) from A (high) (sf).

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”):

-- DBRS expected a Base Case PD and LGD for the portfolio based on a review of the current assets. Adverse changes to asset performance may cause stresses to base case assumptions and, therefore, have a negative effect on credit ratings.

-- The Base Case PD of the current pool of assets of receivables is 1.7%; while the LGD is 58.0% at the AAA (sf) rating levels.

For example, if the LGD increases by 50%, the rating of the Class A Notes would be expected to remain at AAA (sf) while the rating of the Class B Notes would be expected to decrease to AA (high) (sf), ceteris paribus. If the PD increases by 50%, the rating of the Class A Notes would be expected to remain at AAA (sf) while the rating of the Class B Notes would be expected to decrease to AA (high) (sf), ceteris paribus. Furthermore, if both the PD and LGD increase by 50%, the rating of the Class A Notes would be expected to decrease to AA (sf) while the rating of the Class B Notes would be expected to decrease to AA (low) (sf), ceteris paribus.

Class A Notes risk sensitivity:
-- 25% increase in LGD, expected rating of AAA (sf)
-- 50% increase in LGD, expected rating of AAA (sf)
-- 25% increase in PD, expected rating of AAA (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of AAA (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of AAA (sf)
-- 50% increase in PD, expected rating of AAA (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of AAA (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of AA (high) (sf)

Class B Notes risk sensitivity:
-- 25% increase in LGD, expected rating of AAA (sf)
-- 50% increase in LGD, expected rating of AA (high) (sf)
-- 25% increase in PD, expected rating of AAA (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of AA (high) (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of AA (sf)
-- 50% increase in PD, expected rating of AA (high) (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of AA (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of AA (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 and US regulations only.

Lead Analyst: Joana Seara da Costa, Senior Financial Analyst
Rating Committee Chair: Vito Natale, Senior Vice President
Initial Rating Date: 20 October 2015

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

-- Master European Structured Finance Surveillance Methodology
-- Legal Criteria for European Structured Finance Transactions
-- Operational Risk Assessment for European Structured Finance Servicers
-- Rating European Consumer and Commercial Asset-Backed Securitisations
-- Unified Interest Rate Model for European Securitisations
-- Derivative Criteria for European Structured Finance Transactions

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