DBRS Upgrades the Rating of the Class A Notes Issued by SC Germany Vehicles 2013-1 UG (haftungsbeschränkt)

DBRS Ratings Limited (DBRS) upgraded its rating of the Class A notes issued by SC Germany Vehicles 2013-1 UG (haftungsbeschränkt) (the Issuer) to AA (high) (sf) from AA (sf).

The upgrade follows an annual review of the transaction and is based on the following analytical considerations:
-- The overall portfolio performance as of the August 2018 payment date, particularly with regard to low levels of cumulative net loss and delinquencies;
-- The probability of default (PD), loss given default (LGD) and expected loss assumptions for the remaining collateral pool.
-- The increased levels of credit enhancement (CE) available to the Class A notes to cover expected losses are in line with the AA (high) (sf) rating level.

The rating of the Class A notes addresses the timely payment of interest and the ultimate payment of principal on or before the Final Maturity Date in October 2027.

The Issuer is a securitisation of German auto loans originated by Santander Consumer Bank AG (SCB), a subsidiary of Santander Consumer Finance SA (SCF). The EUR 233.0 million portfolio, as at the August 2018 payment date, consisted of loans for the purpose of purchasing new (47.4%) and used (52.6%) vehicles, granted entirely to commercial customers. Of these receivables, 60.8% make regular payments while the remaining 39.2% have a balloon instalment.

PORTFOLIO PERFORMANCE
The gross cumulative default ratio (as a percentage of the original portfolio plus all subsequent portfolios) was 1.2% as of August 2018 (slightly up from 0.9% last year), of which 18.4% has been recovered. The 90+ delinquency ratio remains low at 0.4%, compared with 0.3% last year.

PORTFOLIO ASSUMPTIONS
The transaction structure allowed for additional portfolios to be purchased during a revolving period of three years, which ended in October 2016. The Class A notes have since deleveraged and are now 25.9% of their original size. Since the pool is now static, analysis is performed on the current composition of products instead of the worst case defined by the concentration limits. As such, the PD and LGD assumptions have been updated.

CREDIT ENHANCEMENT
CE is provided by the subordination of the unrated EUR 70.0 million Class B notes and the cash reserve. CE for the Class A notes increased to 33.1% from 11.0% at closing.

The transaction benefits from a cash reserve available to cover senior fees and the interest due on the Class A notes. It is also available to cover the interest shortfall on the Class B notes, provided a Principal Deficiency Trigger Event has not occurred. It has remained at its non-amortising target level of EUR 7.0 million since closing, equal to 1.0% of the initial balance of the Class A and B notes.

The deal is exposed to potential commingling and set-off risks as debtors may open accounts with the Originator and collections are swept to the Account Bank on each monthly payment date. As a mitigant, SCB in its capacities as Servicer and Originator undertakes to fund separate Commingling and Set-Off Reserves, if the DBRS rating of SCB’s parent company, SCF, falls below specific thresholds as defined in the legal documentation. These reserves continue to be unfunded as no rating threshold triggers have been breached to date.

Since the portfolio receivables and the notes pay a fixed coupon, there is a natural hedge to the transaction structure.

The Bank of New York Mellon, Frankfurt Branch (BNY Mellon, Frankfurt Branch) serves as Account Bank for the transaction. DBRS’s private rating of BNY Mellon, Frankfurt Branch is consistent 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.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the rating is: “Master European Structured Finance Surveillance Methodology”.

DBRS has applied the principal methodology consistently and conducted a review of the transaction in accordance with the principal methodology.

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

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 this rating include monthly investor reports provided by SCB.

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

At the time of the initial rating 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 this rating 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 1 September 2017, when DBRS upgraded the rating of the Class A notes to AA (sf) from A (sf).

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”):

-- DBRS expected a base case PD and LGD for the portfolio 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 assumptions for the remaining pool of receivables are 6.3% and 80.0%, respectively.

-- The Risk Sensitivity overview below illustrates the ratings expected for the Class A notes if the PD and LGD increase by a certain percentage over the base case assumptions. For example, if the LGD increases by 50%, the rating for the Class A notes would be expected to remain at AA (high) (sf), ceteris paribus. If the PD increases by 50%, the rating for the Class A notes would be expected to decrease to AA (sf), ceteris paribus. Furthermore, if both the PD and LGD increase by 50%, the rating for the rating for the Class A notes would be expected to decrease to AA (low) (sf), ceteris paribus.

Class A notes risk sensitivity:
-- 25% increase in LGD, expected rating of AA (high) (sf)
-- 50% increase in LGD, expected rating of AA (high) (sf)
-- 25% increase in PD, expected rating of AA (high) (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of AA (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of AA (sf)
-- 50% increase in PD, expected rating of AA (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of AA (low) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of AA (low) (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: Christian Aufsatz, Managing Director
Initial Rating Date: 23 October 2013

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

-- Master European Structured Finance Surveillance Methodology
-- Legal Criteria for European Structured Finance Transactions
-- Operational Risk Assessment for European Structured Finance Servicers
-- Rating European Consumer and Commercial Asset-Backed Securitisations

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.