DBRS Assigns Provisional Ratings to MBARC Credit Canada Inc. 2019-A Notes

DBRS Limited (DBRS) assigned the following provisional ratings to the notes (collectively, the Notes) to be issued by MBARC Credit Canada Inc.:

-- 2019-A Class A-1 Asset Backed Notes (the Class A-1 Notes) provisionally rated AAA (sf)
-- 2019-A Class A-2 Asset Backed Notes (the Class A-2 Notes) provisionally rated AAA (sf)
-- 2019-A Class A-3 Asset Backed Notes (the Class A-3 Notes) provisionally rated AAA (sf)

The Notes will be supported by a portfolio of retail closed-end lease contracts of primarily new passenger cars, crossovers and sport-utility vehicles (the Portfolio of Assets). The lease contracts were originated by authorized Mercedes-Benz dealers in Canada.

Repayment of the Notes will be made from collections from the Portfolio of Assets, which generally include scheduled monthly lease payments (including residual value payments in the case of customer-retained vehicles) as well as proceeds from vehicle sales either at the end of the lease term or earlier in the case of prepayments and defaults. Proceeds from excess mileage and wear-and-tear charges, if any, also form part of the collections used to repay the Notes.

Monthly payments of interest and principal will be made with the amortization schedule of the Notes based on the amortization of the Portfolio of Assets. The Notes will be repaid in sequential order with the Class A-1 Notes being repaid first, followed by repayment of the Class A-2 Notes and then repayment of the Class A-3 Notes. The provisional ratings are based on the full repayment of the Notes by their respective Final Scheduled Payment Dates.

The provisional ratings incorporate the following considerations:

(1) High Level of Credit Enhancement
-- Initially, 15.50% overcollateralization (building to 17.0%), 0.25% cash and approximately 4.08% (annualized) estimated excess spread.
-- Non-amortizing enhancement provides a deleveraging structure.

(2) Operational and Brand Strength of Seller
-- Daimler AG and its related Canadian entities have been confirmed at “A” with Stable trends on November 29, 2018, by DBRS because of very strong brand awareness and sales performance.

(3) Strong Demand in Luxury Vehicle Segment
-- Increasing demand for luxury vehicles continues to support strong residual values in Canada. Mercedes-Benz Canada Inc. remained the market share leader with 2.5% of new vehicle sales as at the end of 2018.

(4) Conservative Advance Rate on Residual Values
-- The Base Residual Value is determined by using the lowest of the contract residual value and a third-party-estimated value by Automotive Lease Guide (ALG) at lease inception and updated ALG value as of December 2018, eliminating funding of embedded residual value losses.

(5) Strong Obligor Profile
-- The obligors of the underlying lease contracts represent high-credit-quality customers with a weighted-average FICO score of 798.

(6) Efficient Remarketing Strategy
-- Mercedes-Benz Financial Services Canada Corporation established an efficient vehicle remarketing strategy to maximize the disposition proceeds and minimize the time to remarket the vehicles when returned.

Notes:
The principal methodology is Rating Canadian Auto Retail Loan and Lease Securitizations, which can be found on dbrs.com under Methodologies & Criteria.

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link under Related Documents or by contacting us at info@dbrs.com.

The rated entity or its related entities did participate in the rating process for this rating action. DBRS had access to relevant internal documents of the rated entity or its related entities in connection with this rating action.

Please see the related appendix for additional information regarding the sensitivity of assumptions used in the rating process.

The full report providing additional analytical detail is available by clicking on the link under Related Documents below or by contacting us at info@dbrs.com.

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