DBRS Takes Rating Actions on Driver UK Master S.A., Compartment 2

DBRS Ratings Limited (DBRS) assigned ratings to the following notes issued by Driver UK Master S.A. acting for and on behalf of its Compartment 2 (the Issuer):

-- Series 2018-1 Class A at AAA (sf)
-- Series 2018-1 Class B at A (high) (sf)

DBRS also confirmed the ratings of the other outstanding notes of the Issuer as follows:

-- Series 2013-1 Class A at AAA (sf)
-- Series 2013-2 Class A at AAA (sf)
-- Series 2013-3 Class A at AAA (sf)
-- Series 2013-4 Class A at AAA (sf)
-- Series 2013-5 Class A at AAA (sf)
-- Series 2013-8 Class A at AAA (sf)
-- Series 2013-10 Class A at AAA (sf)
-- Series 2014-1 Class A at AAA (sf)
-- Series 2014-2 Class A at AAA (sf)
-- Series 2014-3 Class A at AAA (sf)
-- Series 2015-1 Class A at AAA (sf)
-- Series 2016-1 Class A at AAA (sf)
-- Series 2016-2 Class A at AAA (sf)
-- Series 2016-3 Class A at AAA (sf)
-- Series 2017-1 Class A at AAA (sf)
-- Series 2013-1 Class B at A (high) (sf)
-- Series 2013-2 Class B at A (high) (sf)
-- Series 2013-3 Class B at A (high) (sf)
-- Series 2015-1 Class B at A (high) (sf)
-- Series 2016-1 Class B at A (high) (sf)
-- Series 2016-2 Class B at A (high) (sf)
-- Series 2016-3 Class B at A (high) (sf)
-- Series 2017-1 Class B at A (high) (sf)

DBRS previously took rating action on the transaction on 26 May 2017, following the annual renewal of the programme and the issuance of the Class A and Class B Notes of the Series 2017-1.
The notes are backed by a GBP 5.2 billion pool of receivables related to auto loan contracts granted by Volkswagen Financial Services (UK) Limited (VWFS) to private and commercial customers in England, Scotland and Wales. The notes benefit from a reserve fund (the Cash Collateral Account) of about GBP 54.4 million.
The ratings are based upon review by DBRS of the following analytical considerations:
-- The transaction’s capital structure including the form and sufficiency of available credit enhancement.
-- Credit enhancement in the form of subordination, overcollateralisation and a fully funded liquidity reserve from the issuance date.
-- 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 Class A Notes 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.
-- VW’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 VWFS 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 its consistency with DBRS’s “Legal Criteria for European Structured Finance Transactions” methodology.
The transaction was analysed in Intex DealMaker.

Notes:
All figures are in British pound sterling unless otherwise noted.

The principal methodology applicable to the ratings 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.

Due to the inclusion of a revolving period in the transaction, the analysis continues to be based on the worst-case replenishment criteria set forth in the transaction legal documents. The assumptions have not changed and updated cash flow analysis was not conducted.

A full 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 “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 VWFS directly or through their agents, including Volkswagen Financial Services AG. DBRS received historical gross loss and net loss data relating to VW’s originations by monthly vintages on a cumulative basis dating back to July 2002. Data was also provided relating to delinquencies, prepayments and early settlements and loan-by-loan realisation from sale of turned-in vehicles 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 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.

The last rating action was taken on 26 May 2017 when DBRS confirmed all classes of outstanding notes and assigned ratings to the Class A and Class B Notes of the Series 2017-1.

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 (PD) Rates Used: Expected Default Rate of 4.2% with a 25% and 50% increase on the base case PD.
-- Recovery Rate Used: Expected Recovery Rate of 70%, with 60% and 50% Recovery Rates applied to the A (high) (sf) and AAA (sf) scenarios, respectively.
-- Loss Given Default (LGD) Used: Expected LGD of 30%, with a 40% and 50% LGD applied to the A (high) (sf) and AAA (sf) scenarios, respectively. Both scenarios with a 25% and 50% increase in the LGD.
-- Residual Value (RV): 45.2% and 35.7% 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 (high) (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 AA (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 (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 (low) (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 AA (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 A (high) (sf).

DBRS concludes that for the Class B Notes:
-- A hypothetical increase of the base case PD and LGD by 25%, ceteris paribus, would not lead to a downgrade of the Class B Notes.
-- 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 A (sf).
-- A hypothetical increase of the base case RV haircut by 25%, ceteris paribus, would not lead to a downgrade of the Class B Notes.
-- A hypothetical increase of the base case RV haircut by 50%, ceteris paribus, would lead to a downgrade of the Class B Notes to A (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 A (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 A (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 A (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 A (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: Paolo Conti, Senior Vice President
Rating Committee Chair: Christian Aufsatz, Managing Director, EU Structured Finance
Initial Rating Date: 26 February 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.