DBRS Takes Rating Actions and Discontinues Ratings on Driver UK Master S.A. acting for and on behalf of Compartment 2 and Driver UK Master S.A. acting for and on behalf of its Compartment 3

DBRS Ratings Limited (DBRS) has taken the following rating actions:

Driver UK Master S.A. acting for and on behalf of its Compartment 2 (DUKMC2):
-- Downgraded the rating on the Class A Notes to AA (high) (sf) and discontinued the rating;
-- Confirmed the rating on the Class B Notes at A (high) (sf) and discontinued the rating.

Driver UK Master S.A. acting for and on behalf of its Compartment 3 (DUKMC3):
-- Downgraded the rating on the Class A Notes to AA (high) (sf) and discontinued the rating;
-- Downgraded the rating on the Class B Notes to A (sf) and discontinued the rating.

The rating actions follow DBRS’s review of the transactions and the Issuer’s request to discontinue-withdraw the ratings. The credit performance of the Volkswagen Financial Services (UK) plc (VWFS) portfolio in the U.K. continues to be strong with low levels of hostile terminations (HT) and related losses. However, DBRS has observed a change in the mix of personal contract purchase (PCP) agreements, specifically in relation to a shift from three- to four-year contract terms. In DBRS’s view, the increase in the weighted-average original term of these agreements increases the likelihood of voluntary terminations (VT) as permitted in the U.K. under Sections 99 and 100 of the Consumer Credit Act. DBRS has recently observed consistently higher levels of VTs exercised by customers prior to scheduled maturity, coinciding with VT thresholds being reached for four-year PCP agreements originated from 2014 onward. For more details on the topic please refer to DBRS commentary “U.K. Autos: Elongated PCP Terms Increase the Risk of Voluntary Terminations”.

After conducting an analysis of the updated historical data provided by VWFS in conjunction with each transaction’s mix of PCP agreements, DBRS updated its expected gross loss assumptions to 7% (inclusive of VT and HT rates) to reflect the new trends.

DBRS concluded that the ratings of the Class A Notes issued under DUKMC2 and the Class A Notes and Class B Notes issued under DUKMC3 are affected by the updated base case assumptions incorporating this deterioration. The ratings of the Class B Notes issued under DUKMC2 are not affected by the additional losses incorporated in DBRS’s revised assumptions.

The transaction structure 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”.

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. DBRS received historical gross loss and net loss data for both VTs and HTs 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 did not rely upon third-party due diligence in order to conduct its analysis.

At the time of the ratings, 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 the 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.

For DUKMC2, the last rating action on this transaction took place on 26 February 2018, when DBRS assigned new ratings to the new series of notes, and confirmed its ratings on the outstanding series of notes following a tap-issuance. This rating action was conducted following the acknowledgement of the tap issuance, and DBRS was not provided data for this action.

For DUKMC3, the last rating action on this transaction took place on 26 May 2017, when DBRS confirmed its outstanding ratings on the notes following the renewal of the programme.

Information regarding DBRS ratings, including definitions, policies and methodologies, is available on www.dbrs.com.

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
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: 23 October 2013 (DUKMC2); 25 May 2016 (DUKMC3)

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 Originators
--Operational Risk Assessment for European Structured Finance Servicers
--Interest Stresses for European Structured Finance

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.