DBRS Assigns Provisional Ratings to Driver Italia one

DBRS Ratings Limited (DBRS) assigned provisional ratings of AAA (sf) and A (high) (sf), respectively, to the Class A notes and to the Class B notes (together, the Notes) expected to be issued by Driver Italia one S.r.l. (the Issuer).

The Issuer is a special-purpose vehicle incorporated as a public company with limited liability (società a responsabilità limitata) incorporated under the laws of the Republic of Italy, and established for the purpose of issuing asset-backed securities as permitted under Italian securitisation law.

The transaction represents the issuance of Notes to be backed by a pool of approximately EUR 500 million of receivables related to auto loan contracts granted by Volkswagen Bank GmbH, Italian Branch (VWB) mostly to private individuals resident in Italy and the remaining portion granted to small businesses and individual enterprises with registered offices in Italy (over 99% of the portfolio are loan contracts to private borrowers).

The proceeds of subscription of the Notes, together with the subordinated notes that are expected to be subscribed by an affiliate of Volkswagen AG, will be used to fund the purchase of the pool of receivables. The receivables will be serviced by VWB.

The securitised auto loan contracts envisage either an amortisation schedule with equal instalments or equal instalments and final mandatory balloon payment. The loans with a balloon payment belong to two different families: (1) standard balloon loans and (2) Auto Credit loans, known as Più Credito. Like standard balloon loans, PCP loans envisage a final balloon payment (maxi rata) that represent a pecuniary obligation for borrowers. However, borrowers can discharge their obligation by different means (obbligazione pecuniaria con "facoltà alternative"): (1) payment of the balloon instalment or (2) return the vehicle to the dealer. In the latter case, the borrower is fully discharged by any further pecuniary obligation in respect of the old loan upon acceptance of the old vehicle by the dealer and the dealer assumes the obligation to pay the final balloon payment to VWB (or the receivable assignee). The dealer is required to pay the final balloon instalment within ten days.

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 Notes.

The ratings are based on a review by DBRS of the following analytical considerations:

-- Transaction capital structure and form and sufficiency of available credit enhancement in form of (1) subordination, (2) reserve funds and (3) excess spread.
-- Credit enhancement levels are sufficient to support DBRS’s projected expected credit and net loss assumptions projected under various stress scenarios at AAA (sf) and A (high) (sf) standards for the 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.
-- VWB’s financial strength and its capabilities with respect to originations, underwriting and servicing.
-- The operational risk review conducted on VWB by DBRS to conclude that it is an acceptable servicer.
-- The credit quality of the collateral and ability of the servicer to perform collection activities on the collateral.
-- The transaction parties’ financial strength with regard to their respective roles.
-- The credit quality and diversification of the collateral and historical and projected performance of the seller’s portfolio.
-- The sovereign rating of the Republic of Italy, currently at BBB (high).
-- The legal structure and presence of legal opinions addressing the assignment of assets to the Issuer and the consistency with DBRS’s “Legal Criteria for European Structured Finance Transactions” methodology and the presence of legal opinions that address the assignment of the assets.

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.

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 these ratings were sourced by VWB directly or through the transaction Arranger, Citigroup Global Markets Limited, and include:

-- Static monthly origination and cumulative gross and net loss data from January 2008 up to December 2017;
-- Full and partial prepayment data from February 2011 up to December 2017;
-- Monthly dynamic delinquencies data from December 2007 up to December 2017, and;
-- Static data relating to recovery timings.

DBRS was also provided with detailed Stratification tables related to the portfolio provisionally selected by VWB 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 these financial instruments.

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 2.3%, a 25% and 50% increase on the expected default.
-- Loss Given Default Rate (LGD) Used of 89%, a 25% and 50% increase.

DBRS concludes that for the Class A notes:
-- An increase in the expected default or LGD by 25%, ceteris paribus, would lead to a downgrade of the Class A notes to AA (sf);
-- An increase in the expected default or LGD by 50%, ceteris paribus, would lead to a downgrade of the Class A notes to AA (low) (sf);
-- An increase in the expected default and LGD by 25%, ceteris paribus, would lead to a downgrade of the Class A notes to AA (low) (sf);
-- An increase in the expected default by 50%, and an increase in the LGD by 25%, ceteris paribus, would lead to a downgrade of the Class A notes to A (sf);
-- An increase in the expected default by 25%, and an increase in the LGD by 50%, ceteris paribus, would lead to a downgrade of the Class A notes to A (sf);
-- An increase in the expected default and LGD by 50%, ceteris paribus, would lead to a downgrade of the Class A notes to A (low) (sf).

DBRS concludes that for the Class B notes:
-- An increase in the expected default or LGD by 25%, ceteris paribus, would lead to a downgrade of the Class B notes to A (sf);
-- An increase in the expected default or LGD by 50%, ceteris paribus, would lead to a downgrade of the Class B notes to A (low) (sf);
-- An increase in the expected default and LGD by 25%, ceteris paribus, would lead to a downgrade of the Class B notes to BBB (high) (sf);
-- An increase in the expected default by 50%, and an increase in the LGD by 25%, ceteris paribus, would lead to a downgrade of the Class B notes to BBB (sf);
-- An increase in the expected default by 25%, and an increase in the LGD by 50%, ceteris paribus, would lead to a downgrade of the Class B notes to BBB (sf);
-- An increase in the expected default and LGD by 50%, ceteris paribus, would lead to a downgrade of the Class B notes to BB (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: Paolo Conti – Senior Vice President
Rating Committee Chair: Christian Aufsatz – Managing Director
Initial Rating Date: 11 April 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.