DBRS Morningstar Confirms Ratings on Driver Master SA - Compartment 2

DBRS Ratings GmbH (DBRS Morningstar) confirmed the ratings of the Class A and Class B notes (collectively, the Notes) issued by Driver Master SA - Compartment 2 (the Issuer) as follows:

-- Series 2015-1, Class A Notes rated AAA (sf)
-- Series 2015-1, Class B Notes rated A (high) (sf)

DBRS Morningstar had previously assigned and confirmed, as the case may be, the aforementioned ratings on 27 July 2015, 27 June 2016, 28 March 2017, 28 April 2017, 26 June 2017, 25 June 2018, and 25 June 2019. This rating action follows the execution of amendments to the transaction documents that include, amongst others:

-- An extension of the revolving period of the existing series of notes for a further 12 months (a new expiry date of June 2021);
-- An extension of the scheduled repayment date to May 2028;
-- An extension of the final maturity date to May 2029;
-- An increase in concentration limits in relation to used vehicles from 50% to 70%; and
-- An increase of the programme amount to EUR 20 billion from EUR 15 billion.

The coupons on the Notes have been amended as follows:
-- Class A Notes fixed rate: 0.19%
-- Class B Notes fixed rate: 1.30%

As per the latest reporting period, the Notes are backed by a EUR 14.6 billion pool of receivables related to auto loan contracts granted by Volkswagen Bank GmbH (VWB) to predominantly private as well as commercial customers in Germany.

DBRS Morningstar based its ratings on a review of the following analytical considerations:

-- The transaction’s capital structure and form and sufficiency of available credit enhancement.
-- Credit enhancement in the form of subordination, overcollateralisation, and a fully funded liquidity reserve from the issuance date.
-- Credit enhancement levels are sufficient to support the expected net loss assumption projected under various stress scenarios at a AAA (sf) and A (high) (sf) rating level for the Class A Notes and Class B Notes, respectively.
-- The ability of the transaction to withstand stressed cash flow assumptions and repay investors according to the terms under which they have invested.
-- VWB’s experience as an originator, underwriter, and servicer and the financial strength of the multinational motor company it is a part of.
-- The credit quality of the underlying collateral and VWB’s ability to perform collection activities on the collateral.
-- The consistency of the legal structure with DBRS Morningstar’s “Legal Criteria for European Structured Finance Transactions” methodology and presence of legal opinions addressing the assignment of the assets to the Issuer.

The Coronavirus Disease (COVID-19) and the resulting isolation measures have caused an economic contraction, leading to sharp increases in unemployment rates and income reductions for many borrowers. DBRS Morningstar anticipates that delinquencies may arise in the coming months for many ABS transactions, some meaningfully. The ratings are based on additional analysis and adjustments to expected performance as a result of the global efforts to contain the spread of the coronavirus.

On 16 April 2020, the DBRS Morningstar Sovereign group published its outlook on the impact to key economic indicators for the 2020-22 time frame. These scenarios were updated on 1 June 2020. For details see the following commentaries: https://www.dbrsmorningstar.com/research/359679/global-macroeconomic-scenarios-implications-for-credit-ratings and https://www.dbrsmorningstar.com/research/359903/global-macroeconomic-scenarios-application-to-credit-ratings. DBRS Morningstar analysis considered impacts consistent with the moderate scenario in the referenced reports.

For more information on DBRS Morningstar considerations for European ABS transactions and Coronavirus Disease (COVID-19), please see the following commentary: https://www.dbrsmorningstar.com/research/360734.

For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.

For more information regarding structured finance rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/358308.

ESG CONSIDERATIONS
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework and its methodologies can be found at: https://www.dbrsmorningstar.com/research/357792.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the ratings is “Rating European Consumer and Commercial Asset-Backed Securitisations” (13 January 2020).

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

An asset and a cash flow analysis were both conducted. 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 at: http://www.dbrsmorningstar.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 “Global Methodology for Rating Sovereign Governments” at: https://www.dbrsmorningstar.com/research/350410/global-methodology-for-rating-sovereign-governments.

The sources of data and information used for these ratings include Volkswagen Bank GmbH and its agents. DBRS Morningstar has received monthly net loss data covering January 2004 to March 2020, broken down into product type (Auto Credit and Classic Credit) and new and used vehicles. DBRS Morningstar further received data relating to delinquencies, prepayments, and early settlements that allowed DBRS Morningstar to further assess the collateral. All information was made available through the monthly investor report.

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

DBRS Morningstar was supplied with third-party assessments. However, this did not impact the rating analysis.

DBRS Morningstar considers the data and information available to it for the purposes of providing this rating to be of satisfactory quality.

DBRS Morningstar 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 25 June 2019, when DBRS Morningstar confirmed the ratings on the Class A and Class B Notes.

The lead analyst responsibilities for this transaction have been transferred to Anna Dingillo.

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

To assess the impact of changing the transaction parameters on the rating, DBRS Morningstar considered the following stress scenarios, as compared to the parameters used to determine the rating (the Base Case):

-- Expected Default: 2.3%, a 25% and 50% increase on expected probability of default (PD).
-- Recovery rate: expected recovery rate of 60%, with 36% and 44% recovery rates applied to the AAA (sf) and A (high) (sf) scenarios, respectively.
-- Loss Given Default (LGD): expected LGD of 40%, with 64% and 56% applied to the AAA (sf) and A (high) (sf) scenarios, respectively, both with a 25% and 50% increase on the expected LGD.

Scenario 1: A 25% increase in the expected default rate.
Scenario 2: A 50% increase in the expected default rate.
Scenario 3: A 25% increase in the LGD.
Scenario 4: A 25% increase in the expected default rate and a 25% increase in the LGD.
Scenario 5: A 50% increase in the expected default rate and a 25% increase in the LGD.
Scenario 6: A 50% increase in the LGD.
Scenario 7: A 25% increase in the expected default rate and a 50% increase in the LGD.
Scenario 8: A 50% increase in the expected default rate and a 50% increase in the LGD.

DBRS Morningstar concludes that the expected ratings under the eight stress scenarios will be:

-- Class A Notes: AA (high) (sf), AA (sf), AA (high) (sf), AA (sf), AA (low) (sf), AA (sf), AA (low) (sf), A (sf)
-- Class B Notes: A (sf), BBB (high) (sf), A (sf), BBB (high) (sf), BBB (sf), A (low) (sf), BBB (sf), BBB (low) (sf)

For further information on DBRS Morningstar 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 GmbH are subject to EU and U.S. regulations only.

Lead Analyst: Anna Dingillo, Senior Analyst
Rating Committee Chair: David Lautier, Senior Vice President
Initial Rating Date: 27 July 2015

DBRS Ratings GmbH
Neue Mainzer Straße 75
60311 Frankfurt am Main Deutschland
Tel. +49 (69) 8088 3500
Geschäftsführer: Detlef Scholz
Amtsgericht Frankfurt am Main, HRB 110259

The rating methodologies used in the analysis of this transaction can be found at: http://www.dbrsmorningstar.com/about/methodologies.

-- Rating European Structured Finance Transactions Methodology (28 February 2020),
https://www.dbrsmorningstar.com/research/357428/rating-european-structured-finance-transactions-methodology.
-- Legal Criteria for European Structured Finance Transactions (11 September 2019),
https://www.dbrsmorningstar.com/research/350234/legal-criteria-for-european-structured-finance-transactions.
-- Operational Risk Assessment for European Structured Finance Originators (28 February 2020), https://www.dbrsmorningstar.com/research/357430/operational-risk-assessment-for-european-structured-finance-originators.
-- Operational Risk Assessment for European Structured Finance Servicers (28 February 2020), https://www.dbrsmorningstar.com/research/357429/operational-risk-assessment-for-european-structured-finance-servicers.

A description of how DBRS Morningstar analyses structured finance transactions and how the methodologies are collectively applied can be found at: http://www.dbrsmorningstar.com/research/278375

For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at [email protected].