DBRS Takes Rating Actions on VCL Master Netherlands B.V.

DBRS Ratings Limited (DBRS) confirmed the following ratings on the notes of VCL Master Netherlands B.V. (the Issuer):

-- Series 2016-2 Class A at AAA (sf)
-- Series 2016-3 Class A at AAA (sf)
-- Series 2016-4 Class A at AAA (sf)
-- Series 2016-5 Class A at AAA (sf)
-- Series 2016-6 Class A at AAA (sf)
-- Series 2016-1 Class B at A (high) (sf)
-- Series 2016-2 Class B at A (high) (sf)

DBRS had previously assigned, finalised and confirmed, as the case may be, the aforementioned ratings on 4 May 2016, 31 May 2016, 25 July 2016 and 26 May 2017. The rating actions follow the execution of some amendments, including:

-- Extension of the revolving period of some of the existing series of notes for a further nine months (new expiry date in November 2018);
-- Repricing of the Class A margin to 1-month EURIBOR + 0.40%
-- Repricing of the Class B margin to 1-month EURIBOR + 0.80%;
-- Repricing of the subordinated loan margin to 1-month EURIBOR + 1.80%

Following the extension of the revolving period, the spread payable under the notes and the swap fixed costs were confirmed as follows:

-- Class A margin: 1-month EURIBOR + 0.40%
-- Class B margin: 1-month LIBOR + 0.80%
-- Class A swap fixed rate: 0.2676%;
-- Class B swap fixed rate: 0.7093%

The notes are backed by approximately EUR 519.6 million of auto lease receivables (including interest, principal and residual value) originated by Volkswagen Leasing B.V. (VWL) and Dutchlease B.V. (DL, and together with VWL, the originators and the sellers).

The ratings are based upon review by DBRS of the following analytical considerations:
-- The transaction’s capital structure, including form and sufficiency of available credit enhancement.
-- Credit enhancement in the form of subordination, overcollateralisation and a fully funded liquidity reserve.
-- Credit enhancement levels are sufficient to support the expected cumulative net loss assumption projected under various stress scenarios at a AAA (sf) and A (high) (sf) standard for the series of 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.
-- VWL and DL’s experience as an originator, underwriter and servicer and the financial strength of the multinational motor company they are a part of.
-- The credit quality of the underlying collateral and the ability of VWL and DL 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 Transactions” methodology.

The transaction was analysed 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 “Appendix C: The Impact of Sovereign Ratings on Other DBRS Credit Ratings” of the “Rating Sovereign Governments” methodology at: http://dbrs.com/research/319564/rating-sovereign-governments.pdf.

The sources of data and information used for these ratings include performance data relating to receivables sourced by VWL and Dutchlease directly or through their agents Volkswagen Financial Services AG and ING Bank N.V. DBRS received historical gross loss and net loss data relating to VW’s originations by monthly vintages on a cumulative basis dating back to January 2009. Data was also provided relating to delinquencies, prepayments and loan-by-loan residual value realisation data that allowed DBRS to further assess the collateral. DBRS considers the information available to it for the purposes of providing these ratings was of satisfactory quality.

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 these ratings 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 was taken on 26 May 2017.

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 Default Rate of 2.75% with a 25% and 50% increase on the base case PD.
-- Recovery Rate Used: Recovery Rate of 60%.
-- Loss Given Default (LGD) Used: 40% with a 25% and 50% increase in the LGD.
-- Residual Value (RV): 49.3% and 38.5% for the AAA (sf) and A (high) scenarios, respectively. Both scenarios with a 25% and 50% increase in the RV Loss.

DBRS concludes that for the Class A notes:
-- 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 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 RV haircut by 25%, ceteris paribus, would lead to a downgrade of the Class A notes to AA (sf).
-- A hypothetical increase of the base case RV Haircut 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 and LGD by 25% and a hypothetical increase of the RV haircut 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 and LGD by 50% and a hypothetical increase of the RV haircut 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 and LGD by 25% and a hypothetical increase of the RV haircut by 50%, ceteris paribus, would lead to a downgrade of the Class A notes to A (low) (sf).
-- A hypothetical increase of the base case PD and LGD by 50% and a hypothetical increase of the RV haircut by 50%, ceteris paribus, would lead to a downgrade of the Class A notes to BBB (sf).

DBRS concludes that for the Class B notes:
-- A hypothetical increase of the base case PD and 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 and LGD by 50%, ceteris paribus, would lead to a downgrade of the Class B notes to BBB (high) (sf).
-- A hypothetical increase of the base case RV haircut by 25%, ceteris paribus, would lead to a downgrade of the Class B notes to BBB (low) (sf).
-- A hypothetical increase of the base case RV haircut by 50%, ceteris paribus, would lead to a downgrade of the Class B notes to BB (low) (sf).
-- A hypothetical increase of the base case PD and LGD by 25% and a hypothetical increase of the RV haircut by 25%, ceteris paribus, would lead to a downgrade of the Class B notes to BBB (low) (sf).
-- A hypothetical increase of the base case PD and LGD by 50% and a hypothetical increase of the RV haircut by 25%, ceteris paribus, would lead to a downgrade of the Class B notes to BB (high) (sf).
-- A hypothetical increase of the base case PD and LGD by 25% and a hypothetical increase of the RV haircut by 50%, ceteris paribus, would lead to a downgrade of the Class B notes to B (sf).
-- A hypothetical increase of the base case PD and LGD by 50% and a hypothetical increase of the RV haircut by 50%, ceteris paribus, would lead to a downgrade of the Class B notes to below B (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: Matthew Nyong – Senior Financial Analyst, Global Structured Finance
Rating Committee Chair: Chuck Weilamann – Managing Director
Initial Rating Date: 4 May 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
-- Interest Rate Stresses 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.

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