DBRS Assigns Ratings to VCL Master S.A., acting through its Compartment 1, Series 2018-1, Class A and Series 2018-1, Class B Notes

DBRS Ratings Limited (DBRS) assigned the following ratings to the notes issued by VCL Master S.A., acting through its Compartment 1 (the Issuer):

-- Series 2018-1, Class A Notes at AAA (sf)
-- Series 2018-1, Class B Notes at AA (sf)

The ratings were assigned following the issuance of the above-mentioned notes on the 25 October 2018 payment date.

Additionally, DBRS acknowledged the tap issuance on the same payment date under the following notes issued by the Issuer:

-- Series 2010-2, Class A Notes
-- Series 2011-2, Class A Notes
-- Series 2012-1, Class A Notes
-- Series 2012-2, Class A Notes
-- Series 2012-3, Class A Notes
-- Series 2012-4, Class A Notes
-- Series 2013-1, Class A Notes
-- Series 2015-1, Class A Notes
-- Series 2017-1, Class A Notes
-- Series 2017-2, Class A Notes
-- Series 2017-3, Class A Notes
-- Series 2014-1, Class B Notes
-- Series 2014-3, Class B Notes

The Series 2010-4, Class A Notes and Series 2014-4, Class B Notes are also rated by DBRS under this Issuer but were not included as part of the tap issuance.

The ratings address the timely payment of interest and the ultimate repayment of principal by the legal maturity date in September 2025.

The Issuer is a master trust programme established in December 2009, backed by a revolving pool of receivables related to motor vehicle lease contracts originated by Volkswagen Leasing GmbH (VWL) to retail and commercial customers in Germany, secured by new and used vehicles. All series of notes are currently in their revolving period. The programme allows for the tap-up issuance as well as the issuance of further series of notes, subject to collateralisation levels and performance requirements being met as specified in the transaction documents, up to the programme maximum.

The notes are backed by EUR 2.0 billion of lease instalments relating to motor vehicle lease contracts originated by VWL as well as an amount of EUR 51 million standing to the credit of the accumulation account.

PORTFOLIO PERFORMANCE
As at the October 2018 payment date, loans that were 30- to 60-days delinquent and 60- to 90-days delinquent represented 0.7% and 0.2% of the portfolio net discounted balance, respectively, while loans delinquent by more than 90 days represented 0.3%. The cumulative net loss ratio was 0.1% of the aggregate original and subsequently purchased portfolios.

CREDIT ENHANCEMENT
As of the October 2018 payment date, the Class A Notes benefitted from overcollateralisation of 11.3%, while the Class B Notes benefitted from overcollateralisation of 8.9%.

The transaction benefits from an amortising cash reserve account, currently funded to EUR 23.4 million, reflecting its target level of 1.24% of the aggregate outstanding notes balance. The cash reserve account is available to cover senior expenses and interest payments on the notes.

The Bank of New York Mellon, Frankfurt Branch (BNY Mellon Frankfurt) is the Account Bank for this transaction. Based on the DBRS private rating of BNY Mellon Frankfurt, the downgrade provisions outlined in the transaction documents, and the transaction structural mitigants, DBRS considers the risk arising from the exposure to BNY Mellon Frankfurt to be consistent with the rating assigned to the Class A Notes, as described in DBRS's "Legal Criteria for European Structured Finance Transactions" methodology.

ING Bank N.V. (ING) acts as the Swap Counterparty for the transaction. On the basis of ING’s Long-Term Critical Obligations Rating of AA (high) and the mitigants outlined in the transaction documents, DBRS considers the risk arising from the exposure to ING to be consistent with the ratings assigned to the notes.

Notes:
All figures are in euros unless otherwise noted.

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

In DBRS’s opinion, the changes under consideration do not warrant the application of the entire principal methodology. Given the master trust structure, no asset or cash flow analysis was conducted as the asset portfolio complies with the composition limits set forth in the transaction legal documents and current transaction performance is within expectations.

Due to the inclusion of a revolving period in the transaction, the analysis continues to be based on the worst-case replenishment criteria set forth in the transaction legal documents.

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 the ratings include monthly investor reports provided by Volkswagen Leasing GmbH (the Originator, Seller and Servicer) and legal documentation provided by the Issuer’s legal counsel.

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.

These ratings concern newly issued financial instruments. This is the first DBRS rating on these financial instruments.

The last rating action on this transaction took place on 25 September 2018, when DBRS confirmed the ratings of the Class A Notes at AAA (sf) and Class B Notes at AA (sf).

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 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 probability of default (PD) and loss given default (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 of the current pool of receivables are 1.75% and 30%, respectively.

For example, if the LGD increases by 50%, the rating of the Class A Notes would be expected to decrease to AA (sf) while the rating of the Class A Notes would be expected to remain at AA (sf), ceteris paribus. If the PD increases by 50%, the rating of the Class A Notes would be expected to decrease to AA (sf) while the rating of the Class B Notes would be expected to remain at AA (sf), ceteris paribus. Furthermore, if both the PD and LGD increase by 50%, the ratings of both the Class A and Class B notes would be expected to decrease to A (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 (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 (low) (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 A (sf)

Class B Notes risk sensitivity:
-- 25% increase in LGD, expected rating of AA (sf)
-- 50% increase in LGD, expected rating of AA (sf)
-- 25% increase in PD, expected rating of AA (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 A (high) (sf)
-- 50% increase in PD, expected rating of AA (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of A (high) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of A (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: Alfonso Candelas, Senior Vice President
Initial Rating Date: 26 September 2016

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The rating methodologies used in the analysis of this transaction 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
-- Operational Risk Assessment for European Structured Finance Originators
-- Rating European Consumer and Commercial Asset-Backed Securitisations
-- 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.