DBRS Finalises Provisional Rating Assigned to Red & Black Auto Germany 5 UG (haftungsbeschränkt)

DBRS Ratings Limited (DBRS) finalised its provisional rating of AAA (sf) assigned to the Class A Notes issued by Red & Black Auto Germany 5 UG (haftungsbeschränkt) (the Issuer).

The Issuer was established on 16 November 2017 and registered as a special-purpose vehicle for asset-backed securities transactions in the form of a limited liability company (Unternehmergesellschaft haftungsbeschränkt) under the laws of the Federal Republic of Germany. The Issuer has three shareholders, each a Stichting (a foundation) established under the laws of the Netherlands.

The transaction represents the issuance of Notes backed by approximately EUR 1 billion of receivables related to auto loan contracts granted by Bank Deutsches Kraftfahrzeuggewerbe GmbH (BDK) to borrowers in Germany.

The rating is based on a review by DBRS of the following analytical considerations:

--Transaction capital structure, including form and sufficiency of available credit enhancement.
--Credit enhancement levels are sufficient to support DBRS-projected expected cumulative net losses under various stress scenarios.
--The ability of the transaction to withstand stressed cash flow assumptions and repay investors according to the terms under which they have invested. For this transaction, the rating addresses the payment of timely interest on a monthly basis and principal by the legal final maturity date.
--BDK’s capabilities with regard to originations, underwriting, servicing and its financial strength.
--DBRS conducted an operational risk review of BDK’s premises in Hamburg, Germany and deems it to be an acceptable Servicer.
--The transaction parties’ financial strength with regard to their respective roles.
--The credit quality, diversification of the collateral and historical and projected performance of the Seller’s portfolio.
--The sovereign rating of the Federal Republic of Germany, currently rated at AAA by DBRS.
--The consistency of the transaction’s legal structure with DBRS’s “Legal Criteria for European Structured Finance Transactions” methodology and the presence of legal opinions that address the true sale of the assets to the Issuer and non-consolidation of the special-purpose vehicle with the Seller.

The transaction cash flow structure was analysed in Intex DealMaker.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the rating 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 on: http://dbrs.com/research/319564/rating-sovereign-governments.pdf.

The sources of data and information used for this rating include data sourced from BDK and provided through the transaction Arranger, Société Générale SA:

--Static origination, default and recoveries data going back to January 2004 and up to September 2017; data was provided separately for private and commercial clients.
--Dynamic portfolio origination, outstanding balance, prepayment and arrears data from January 2004 and up to September 2017.
--A theoretical amortisation of the selected pool.

DBRS was also provided with detailed stratification tables and the portfolio at the loan-level as at 31 January 2018.

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

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.

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 (the Base Case):

--Expected Default Rate Used: Expected default of 2.1%, a 25% and 50% increase on the expected default.
--Loss Given Default Rate (LGD) Used: LGD of 56.5% at the AAA (sf) stress level, a 25% and 50% increase.

DBRS concludes that for the Class A Notes:
-- A hypothetical increase in the expected default or LGD by 25%, ceteris paribus, would not lead to a downgrade of the Class A Notes;
-- A hypothetical increase in the expected default or LGD by 50%, ceteris paribus, would lead to a downgrade of the Class A Notes to AA (high) (sf);
-- A hypothetical increase in the expected default and LGD by 25%, ceteris paribus, would lead to a downgrade of the Class A Notes to AA (high) (sf);
-- A hypothetical increase in the expected default by 50%, and a hypothetical increase in the LGD by 25%, ceteris paribus, would lead to a downgrade of the Class A Notes to AA (high) (sf);
-- A hypothetical increase in the expected default by 25%, and a hypothetical increase in the LGD by 50%, ceteris paribus, would lead to a downgrade of the Class A Notes to AA (high) (sf);
-- A hypothetical increase in the expected default and LGD by 50%, ceteris paribus, would lead to a downgrade of the Class A Notes to AA (high) (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: Christian Aufsatz – Managing Director, Head of European Structured Finance
Initial Rating Date: 14 February 2018

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
--Operational Risk Assessment for European Structured Finance Servicers
--Operational Risk Assessment for European Structured Finance Originators
--Derivative Criteria for European Structured Finance Transactions
--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.