Press Release

DBRS Confirms Ratings on Driver UK Multi-Compartment S.A. Acting for and on Behalf of its Compartment Driver UK Five

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March 27, 2018

DBRS Ratings Limited (DBRS) confirmed its ratings on Driver UK Multi-Compartment S.A. acting for and on behalf of its Compartment Driver UK five (the Issuer) as follows:

-- Class A Notes confirmed at AAA (sf)
-- Class B Notes confirmed at A (high) (sf)

The above-mentioned rating actions follow an annual review of the transaction and are based on the following analytical considerations:
-- The overall portfolio performance as of the March 2018 payment date, particularly with regard to low levels of delinquencies and cumulative net losses;
-- Updated default rate and expected loss assumptions for the remaining collateral pool;
-- The current available credit enhancement (CE) to the Notes to cover expected losses assumed in line with the AAA (sf) and A (high) (sf) rating levels, respectively.

The ratings on the notes address the timely payment of interest and ultimate payment of principal payable on or before the Final Maturity Date in July 2025.

The Issuer is a securitisation collateralised by a portfolio of auto loan receivables granted by Volkswagen Financial Services UK Limited (VWFS) to retail and commercial customers residing in Great Britain. The transaction includes both included Hire Purchase (HP; 4.5%) loans and Personal Contract (PCP; 95.5%) agreements secured by new and used vehicles.

Under HP contracts, the outstanding balance is typically amortised in equal monthly instalments, and at the end of the agreement, vehicle ownership is transferred to the Obligor after the payment of an additional fee. In the case of PCP agreements, equal monthly instalments are followed by an option to either take ownership by making the final balloon payment or returning the vehicle; this feature exposes the transactions to residual value risk.

PORTFOLIO PERFORMANCE
As of the March 2018 payment date, 31- to 60-day delinquencies and 61- to 90-day delinquencies represented 0.4% and 0.1% of the portfolio discounted balance, respectively, while delinquencies greater than 90 days were 0.1%. The Cumulative Net Loss Ratio was 0.1%.

PORTFOLIO ASSUMPTIONS
DBRS has conducted an analysis of the updated hostile and voluntary termination vintage data provided by VWFS. DBRS considers credit performance to be stable but has observed an increasing trend in voluntary termination rates primarily related to four-year PCP agreements. Given the transaction’s receivables composition, DBRS has updated its expected default assumption to 7.0% from 4.2% to reflect this specific underlying trend. DBRS assumed a recovery rate of 51.9% at the AAA (sf) scenario and 61.0% at the A (high) (sf) rating level.

DBRS’s Residual Value Haircuts have been kept constant at 42.8% for the AAA (sf) rating level and 25.8% for the A (high) (sf) rating level.

CREDIT ENHANCEMENT
The transaction has a sequential/pro rata amortisation structure whereby all principal payments from the receivables pay down the Class A Notes until Class A overcollateralisation (OC) reaches its target level of 30.0%. As of the March 2018 payment date, the Class A Notes’ OC was 26.8% and the Class B Notes’ OC was 22.4%.

The transaction structure includes a Cash Collateral Account with two separate ledgers:
-- The amounts standing on the Interest Compensation Ledger are available to pay a compensation to the relevant Issuer for interest shortfalls suffered as a result of Early Settlements of the receivables.
-- The General Cash Collateral Account is available to cover senior expenses, missed interest payments on the notes and, as soon as the portfolio balance is reduced to zero or on the relevant Final Maturity Date, to repay principal on the notes. This account was funded at closing with GBP 5.3 million and its target balance is equal to 1.2% of the Aggregate Discounted Receivables Balance, subject to a floor of GBP 4.4 million.

Citibank N.A./London Branch (Citibank London) is the Issuer’s Account Bank. The DBRS private rating for Citibank London complies with the Minimum Institution Rating, given the rating assigned to the Class A Notes, as described in DBRS’s “Legal Criteria for European Structured Finance Transactions” methodology.

The Issuer entered into two swap agreements with Credit Agricole Corporate & Investment Bank (CACIB) to mitigate the interest rate mismatch between the Class A and Class B Notes, indexed to one-month Libor, and the fixed interest rate payments on the securitised portfolio. The DBRS private rating of CACIB complies with the First Rating Threshold defined in DBRS’s “Derivative Criteria for European Structured Finance Transactions”.

Notes:
All figures are in British pound sterling 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 transactions in accordance with the principal methodology.

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

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 investor reports provided by VWFS.

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 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 on this transaction took place on 27 March 2017, when DBRS finalised the provisional ratings assigned to the Notes.

The lead analyst responsibilities for this transaction have been transferred to Joana Seara da Costa.

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 ratings, DBRS considered the following stress scenarios, as compared to the parameters used to determine the rating (the Base Case):

-- PD: Base Case of 7.0%, a 25% and 50% increase on the Base Case PD.
-- Loss Given Default (LGD): Base Case of 28.1%, whereas 39.0% and 48.1% LGD were used at A (high) (sf) and AAA (sf) scenarios, respectively. Both scenarios with a 25% and 50% increase in the LGD.
-- Residual Value (RV) Loss: 42.8% and 25.8% for the AAA (sf) and A (high) (sf) 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 PD and LGD rates by 25%, ceteris paribus, would lead to a downgrade of the Class A Notes to AA (sf).
-- A hypothetical increase of the PD and LGD rates by 50%, ceteris paribus, would lead to a downgrade of the Class A Notes to A (sf).
-- A hypothetical increase of the RV Loss Rate by 25%, ceteris paribus, would lead to a downgrade of the Class A Notes to AA (high) (sf).
-- A hypothetical increase of the RV Loss Rate by 25%, and a hypothetical increase of the PD and LGD Rates by 25%, ceteris paribus, would lead a downgrade of the Class A Notes to AA (sf).
-- A hypothetical increase of the RV Loss Rate by 25%, and a hypothetical increase of the PD and LGD Rates by 50%, ceteris paribus, would lead to a downgrade of the Class A Notes to A (sf).
-- A hypothetical increase of the RV Loss Rate by 50%, ceteris paribus, would lead to a downgrade of the Class A Notes to AA (high) (sf).
-- A hypothetical increase of the RV Loss Rate by 50%, and a hypothetical increase of the PD and LGD Rates by 25%, ceteris paribus, would lead a downgrade of the Class A Notes to AA (low) (sf).
-- A hypothetical increase of the RV Loss Rate by 50% and a hypothetical increase of the PD and LGD Rates by 50%, ceteris paribus, would lead to a downgrade of the Class A Notes to A (sf).

DBRS concludes that for the Class B Notes:
-- A hypothetical increase of the PD and LGD rates by 25%, ceteris paribus, would lead to a downgrade of the Class B Notes to A (low) (sf).
-- A hypothetical increase of the PD and LGD rates by 50%, ceteris paribus, would lead to a downgrade of the Class B Notes to BBB (high) (sf).
-- A hypothetical increase of the RV Loss Rate by 25%, ceteris paribus, would lead to a confirmation of the Class B Notes at A (high) (sf).
-- A hypothetical increase of the RV Loss Rate by 25%, and a hypothetical increase of the PD and LGD Rates by 25%, ceteris paribus, would lead a downgrade of the Class B Notes to A (low) (sf).
-- A hypothetical increase of the RV Loss Rate by 25%, and a hypothetical increase of the PD and LGD Rates by 50%, ceteris paribus, would lead to a downgrade of the Class B Notes to BBB (sf).
-- A hypothetical increase of the RV Loss Rate by 50%, ceteris paribus, would lead to a downgrade of the Class B Notes to A (sf).
-- A hypothetical increase of the RV Loss Rate by 50%, and a hypothetical increase of the PD and LGD Rates by 25%, ceteris paribus, would lead a downgrade of the Class B Notes to BBB (high) (sf).
-- A hypothetical increase of the RV Loss Rate by 50% and a hypothetical increase of the PD and LGD Rates by 50%, ceteris paribus, would lead to a downgrade of the Class B Notes to BBB (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, Assistant Vice President
Rating Committee Chair: Vito Natale, Senior Vice President
Initial Rating Dates: 22 February 2017

DBRS Ratings Limited
20 Fenchurch Street, 31st Floor, London EC3M 3BY United Kingdom
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
-- Rating European Consumer and Commercial Asset-Backed Securitisations
-- Legal Criteria for European Structured Finance Transactions
-- Derivative Criteria for European Structured Finance Transactions
-- Interest Rate Stresses for European Structured Finance Transactions
-- Operational Risk Assessment for European Structured Finance Servicers

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.

Ratings

  • US = Lead Analyst based in USA
  • CA = Lead Analyst based in Canada
  • EU = Lead Analyst based in EU
  • UK = Lead Analyst based in UK
  • E = EU endorsed
  • U = UK endorsed
  • Unsolicited Participating With Access
  • Unsolicited Participating Without Access
  • Unsolicited Non-participating