DBRS Assigns Provisional Ratings to Bavarian Sky France Auto Leases 3

DBRS Ratings Limited (DBRS) assigned provisional ratings on the Class A and Class B Notes (the Notes) to be issued by Bavarian Sky France, a French Fonds Commun de Titrisation (FCT) à compartiments, acting through its Compartment French Auto Leases 3 (the Issuer) in the context of a securitisation transaction that follows the standard structure under French securitisation law. The Notes are backed by a pool of lease receivables related to automotive vehicles and motorbikes where the contracts can have either a purchase or non-purchase option granted to private and commercial lessees by BMW Finance S.N.C. (BMW Finance or the Seller) in France. The transaction is managed by France Titrisation and the portfolio is serviced by BMW Finance (the Servicer).

Upon closing, the proceeds from the subscription of the Notes and the Subordinated Loan, provided by BMW Finance, will finance the purchase of the portfolio of lease receivables and residual value receivables and fund the reserve fund. The Class A Notes are expected to benefit from 23.5% credit enhancement that consists of subordination of the Class B Notes (10%) and of OC, funded through part of the proceeds from the Subordinated Loan (13.5%, excluding the 0.5% reserve fund).

The transaction is static and the amortisation of the Notes will start on the first payment date. The repayment of principal of the Class A Notes will be fully sequential with no payment of principal on the Class B Notes until the Class A Notes are redeemed in full. The Class B Notes benefit from 13.5% credit enhancement consisting of OC (corresponding to the Subordinated Loan, excluding the 0.5% reserve fund).

The Notes are supported by the reserve fund, which covers senior fees, net swap payments and interest payment shortfalls on the Notes. The reserve fund may also be used at the legal final maturity date or when the cash reserve amount equals or exceeds the outstanding balance of the Notes to pay principal on the Notes and therefore acts as credit enhancement.

The ratings will be finalised upon receipt of an execution version of the governing transaction documents. To the extent that the documents and information provided to DBRS as of today’s date differ from the executed version of the governing transaction documents, DBRS may assign different final ratings to the Rated Notes.

The ratings are 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 and RV losses under various stress scenarios.
-- The transaction’s ability to withstand stressed cash flow assumptions and repay investors according to the terms under which they have invested. For this transaction, the ratings address the payment of timely interest on a monthly basis and principal by the legal final maturity date.
-- BMW Finance’s financial strength as well as its capabilities with regard to originations, underwriting and servicing.
-- DBRS conducted an operational risk review of BMW Finance’s premises in Paris and deems it to be an acceptable servicer.
-- The transaction parties’ financial strength with regard to their respective roles.
-- The credit quality and concentration of the collateral and historical and projected performance of the Seller’s portfolio.
-- The sovereign rating of the Republic of France, currently rated AAA by DBRS.
-- The consistency of the transaction’s legal structure with the 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 (SPV) with the Seller.

The transaction structure was analysed in Intex DealMaker.

Notes:
All figures are in euros 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.

An asset and a cash flow analysis were both conducted. Due to the inclusion of a revolving period in the transaction, the analysis is based on the worst-case replenishment criteria set forth in the transaction legal documents.

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.

DBRS received the following sets of data sourced from BMW Finance and provided through the transaction Arranger, BMW Bank GmbH:

-- Static origination, default and recovery data going back to Q1 2009 and up to Q1 2017; data was provided separately for used/new vehicles and private/corporate customers;
-- Dynamic portfolio-level delinquency and prepayment data from January 2013 to September 2017;
-- Summarised stratification tables as at 28 February 2018;
-- Lease-level data detailing vehicle realisation proceeds from November 2009 to July 2017; and
-- A theoretical amortisation of the portfolio.

DBRS was also provided with detailed stratification tables and loan-level portfolio information as at 28 February 2018.

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

DBRS was not 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 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.

These ratings concern a newly issued financial instrument. These are the first DBRS ratings 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 (LGD) Used: LGD of 57% at the AAA (sf) stress level, a 25% and 50% increase.
-- RV Haircut: RV Haircut of 37% at the AAA (sf) level, a 25% and 50% increase in the RV Haircut.

DBRS concludes that for the Class A Notes:
-- A hypothetical increase of the expected default and LGD, or RV Haircut by 25%, ceteris paribus, would not lead to a downgrade of the Class A Notes
-- A hypothetical increase of the expected default and LGD, or RV Haircut by 50%, ceteris paribus, would lead to a downgrade of the Class A Notes to AA (high) (sf)
-- A hypothetical increase of the expected default, LGD and 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 expected default and LGD by 50%, with 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 expected default and LGD by 25%, with a hypothetical increase of the RV Haircut by 50%, ceteris paribus, would lead to a downgrade of the Class A Notes to AA (sf)
-- A hypothetical increase of the expected default, LGD and RV Haircut by 50%, ceteris paribus, would lead to a downgrade of the Class A Notes to AA (low) (sf)

DBRS concludes that for the Class B Notes:
-- A hypothetical increase of the expected default 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 expected default and LGD by 50%, ceteris paribus, would lead to a downgrade of the Class B Notes to BBB (sf)
-- A hypothetical increase of the RV Haircut by 25%, ceteris paribus, would lead to a downgrade of the Class B Notes to BBB (high) (sf)
-- A hypothetical increase of the RV Haircut by 50%, ceteris paribus, would lead to a downgrade of the Class B Notes to BB (high) (sf)
-- A hypothetical increase of the expected default, LGD and RV Haircut by 25%, ceteris paribus, would lead to a downgrade of the Class B Notes to BBB (sf)
-- A hypothetical increase of the expected default and LGD by 50%, with 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 expected default and LGD by 25%, with a hypothetical increase of the RV Haircut by 50%, ceteris paribus, would lead to a downgrade of the Class B Notes to BB (high) (sf)
-- A hypothetical increase of the expected default, LGD and RV Haircut by 50%, ceteris paribus, would lead to a downgrade of the Class B Notes to BB (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 Chuck Weilamann – Managing Director, Head of US ABS
Initial Rating Date: 12 March 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.