DBRS Confirms Class A Notes Issued by Silver Arrow S.A., Acting in Respect of Its Compartments 6, 7 and 8
AutoDBRS Ratings Limited (DBRS) confirmed its AAA (sf) rating on the three series of Class A Notes issued by Silver Arrow S.A., acting in respect of its Compartment 6, Compartment 7 and Compartment 8 (SA-6, SA-7 and SA-8, respectively).
The ratings on all three series of Class A Notes address the timely payment of interest and ultimate payment of principal on or before the legal final maturity date.
The rating actions follow an annual review of the transactions and are based on the following analytical considerations:
-- Portfolio performance, in terms of delinquencies and defaults.
-- Probability of default (PD), loss given default (LGD) and expected loss assumptions on the remaining receivables.
-- The credit enhancement (CE) available to the Class A Notes to cover the expected losses at the AAA (sf) rating level.
SA-6, SA-7 and SA-8 are each a securitisation of German auto loan receivables originated and serviced by Mercedes-Benz Bank AG. Silver Arrow is a public limited company incorporated under the law of Luxembourg. The receivables are loans granted to private and commercial borrowers residing in Germany to finance the purchase of new and used vehicles.
PORTFOLIO PERFORMANCE
As of the end of May 2018, loans more than 90 days delinquent represented 0.2% of the outstanding portfolio balance in SA-6 and 0.1% in both SA-7 and SA-8. The cumulative default rates were 0.8%, 0.7% and 0.3% of the original portfolio balances in SA-6, SA-7 and SA-8, respectively. Both arrears and defaults remained low and within DBRS’s expectations. The cumulative recovery rates were 69.0%, 55.2% and 39.8% in SA-6, SA-7 and SA-8, respectively.
PORTFOLIO ASSUMPTIONS
For this annual review, DBRS updated its base case default and recovery rates to 1.9% and 70.0%, respectively, for SA-6 and 1.8% and 70.0%, respectively, for SA-7. The base case default and recovery rates for SA-8 have been maintained at 1.8% and 70.0%, respectively.
CREDIT ENHANCEMENT
All three transactions are non-revolving. As a result, the CE available to each series of Class A Notes has increased. For the SA-6 Class A Notes, the CE increased to 38.1% from 19.0% at the last review. For the SA-7 Class A Notes, the CE increased to 19.5% from 12.0% at the last review. For the SA-8 Class A Notes, the CE increased to 10.7% from 7.0% at closing. The sources of CE in each transaction are the subordinated Class B Notes. All three transactions have a non-amortising General Reserve that provides liquidity support to the Class A Notes. The General Reserves are all at their respective target amounts of EUR 11.0 million for SA-6, EUR 5.5 million for SA-7 and EUR 6.0 million for SA-8.
Elavon Financial Services DAC, UK Branch (Elavon), is the Issuer Account Bank for all three transactions. The DBRS private rating of Elavon is consistent with the Minimum Institution Rating, given the ratings assigned to the Class A Notes, as described in DBRS’s “Legal Criteria for European Structured Finance Transactions” methodology.
Royal Bank of Canada (rated AA by DBRS) is the swap counterparty in SA-6 and DZ BANK AG Deutsche Zentral-Genossenschaftsbank (with DBRS Critical Obligations Ratings of AA) is the swap counterparty in SA-7 and SA-8. Both entities have ratings above the First Rating Threshold as described in DBRS’s “Derivative Criteria for European Structured Finance Transactions” methodology, given the ratings assigned to the Class A Notes.
Notes:
All figures are in euros unless otherwise noted.
The principal methodology applicable to the ratings is the “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 transactions’ legal documents was not conducted as the legal documents have remained unchanged since the most recent rating action.
Other methodologies referenced in these transactions 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 the Cash Manager, Citibank N.A., London Branch.
DBRS did not rely upon third-party due diligence in order to conduct its analysis.
At the time of the initial ratings, 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 all three transactions took place on 27 June 2017, when DBRS confirmed the rating on the Class A Notes of both SA-6 and SA-7 transactions at AAA (sf) and DBRS finalised the provisional AAA (sf) rating on the Class A Notes of SA-8.
The lead responsibilities for these transactions have been transferred to Andrew Lynch.
Information regarding DBRS ratings, including definitions, policies and methodologies is available at www.dbrs.com.
To assess the impact of changing the transaction parameters on the rating, DBRS considered the following stress scenarios as compared with the parameters used to determine the rating (the “Base Case”):
-- DBRS expected a lifetime base case PD and LGD for the pool based on a review of the current assets. Adverse changes to asset performance may cause stresses to base case assumptions and therefore have a negative effect on credit ratings.
The base case PD and LGD of the current pool of loans for the Issuers are:
--For SA-6, PD of 1.9% and LGD of 30%.
--For SA-7, PD of 1.8% and LGD of 30%.
--For SA-8, PD of 1.8% and LGD of 30%.
-- The Risk Sensitivity overview below illustrates the ratings expected if the PD and LGD increase by a certain percentage over the base case assumption. For example, if the LGD increases by 50%, the rating of the SA-6 Class A Notes would be expected to remain at AAA (sf), assuming no change in the PD. If the PD increases by 50%, the rating of the SA-6 Class A Notes would be expected to remain at AAA (sf), assuming no change in the PD. Furthermore, if both the PD and LGD increase by 50%, the rating of the SA-6 Class A Notes would be expected to remain at AAA (sf).
SA-6 Class A Notes Sensitivity:
-- 25% increase in LGD, expected rating of AAA (sf)
-- 50% increase in LGD, expected rating of AAA (sf)
-- 25% increase in PD, expected rating of AAA (sf)
-- 50% increase in PD, expected rating of AAA (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of AAA (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of AAA (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of AAA (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of AAA (sf)
SA-7 Class A Notes Sensitivity:
-- 25% increase in LGD, expected rating of AAA (sf)
-- 50% increase in LGD, expected rating of AAA (sf)
-- 25% increase in PD, expected rating of AAA (sf)
-- 50% increase in PD, expected rating of AAA (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of AAA (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of AAA (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of AAA (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of AAA (sf)
SA-8 Class A Notes Sensitivity:
-- 25% increase in LGD, expected rating of AAA (sf)
-- 50% increase in LGD, expected rating of AAA (sf)
-- 25% increase in PD, expected rating of AAA (sf)
-- 50% increase in PD, expected rating of AAA (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of AAA (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of AAA (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of AAA (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of AA (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: Andrew Lynch, Assistant Vice President
Rating Committee Chair: Vito Natale, Senior Vice President
Initial Rating Date of SA-6: 1 September 2015
Initial Rating Date of SA-7: 20 June 2016
Initial Rating Date of SA-8: 13 June 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 these transactions can be found at: http://www.dbrs.com/about/methodologies.
-- Legal Criteria for European Structured Finance Transactions
-- Master European Structured Finance Surveillance Methodology
-- Operational Risk Assessment for European Structured Finance Servicers
-- Rating European Consumer and Commercial Asset-Backed Securitisations
-- Interest Rate Stresses for European Structured Finance Transactions
-- Derivative Criteria 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.
Ratings
ALL MORNINGSTAR DBRS RATINGS ARE SUBJECT TO DISCLAIMERS AND CERTAIN LIMITATIONS. PLEASE READ THESE DISCLAIMERS AND LIMITATIONS AND ADDITIONAL INFORMATION REGARDING MORNINGSTAR DBRS RATINGS, INCLUDING DEFINITIONS, POLICIES, RATING SCALES AND METHODOLOGIES.