DBRS Morningstar Confirms Ratings on Driver Master S.A. - Compartment 2

DBRS Ratings GmbH (DBRS Morningstar) confirmed the ratings on the Class A and Class B Notes (the Notes) issued by Driver Master S.A. - 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)

The ratings address the timely payment of interest and the ultimate payment of principal on or before the legal final maturity date of the Notes.

DBRS Morningstar 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, 25 June 2019, and 25 June 2020. These confirmations follow the execution of amendments to the transaction documents that include, among others:
-- An extension of the revolving period of the Notes for an additional 12 months through to June 2022;
-- An extension of the scheduled repayment date of the Notes to May 2029;
-- An extension of the final legal maturity date of the Notes to May 2030;
-- A decrease of the programme amount to EUR 15 billion from EUR 20 billion;
-- Change in the eligibility criteria of the transaction to allow for the purchase of receivables where the obligor holds deposits with the originator, and those granted to affiliates of Volkswagen AG (but not employees of the originator);
-- The inclusion of an additional product type, IndividualCredit;
-- The amendment of the portfolio concentration limits applicable during the revolving period, including Used Vehicles limit reduced to 65% from 70%, ClassicCredit Used limit reduced from 10% to 7%, IndividualCredit New limit: 5%, IndividualCredit Used limit: 10%, and maximum exposure to any single borrower reduced from EUR 10,000,000 to EUR 2,000,000; and
-- Updated Available Distribution Amount definition to include the retention of the Buffer Release Amount upon the occurrence of an Early Amortisation Event.

The coupons on the Notes have been repriced as follows:
-- Class A Notes fixed rate: 0.05%
-- Class B Notes fixed rate: 0.44%

The transaction is a securitisation of receivables related to auto loan contracts granted by Volkswagen Bank GmbH (VWB) to predominantly private customers in Germany. As of 31 May 2021, the aggregate outstanding discounted balance of the portfolio amounted to EUR 14.7 billion. The transaction benefits from liquidity support provided in the form of a cash collateral account, funded to its target amount of EUR 135.0 million, equal to 1.0% of the Notes outstanding balance.

The ratings are based on DBRS Morningstar’s review of the following analytical considerations:
-- Portfolio performance, in terms of delinquencies and losses;
-- The programme’s capital structure and form and sufficiency of available credit enhancement to the Notes;
-- Credit enhancement in the form of subordination, overcollateralisation, and a fully funded liquidity reserve;
-- Credit enhancement levels that are sufficient to support the expected net loss assumption projected under various stress scenarios at the AAA (sf) and A (high) (sf) rating levels 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;
-- The programme counterparties’ capabilities with regard to originations, underwriting, servicing, and their financial strength;
-- The credit quality and industry diversification of the collateral and historical and projected performance of the seller’s portfolio;
-- The sovereign rating of the Federal Republic of Germany, currently rated AAA with a Stable trend by DBRS Morningstar;
-- Current economic environment and an assessment of sustainable performance, as a result of the Coronavirus Disease (COVID-19) outbreak; and
-- The consistency of the transaction’s legal structure with DBRS Morningstar’s “Legal Criteria for European Structured Finance Transactions” methodology and the presence of legal opinions addressing the assignment of the assets to the Issuer.

DBRS Morningstar analysed the transaction structure in Intex DealMaker.

CORONAVIRUS DISEASE (COVID-19) CONSIDERATIONS
The coronavirus 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 continue to increase in the coming months for many ABS transactions, some meaningfully. The ratings are based on additional analysis and, where appropriate, adjustments to expected performance as a result of the global efforts to contain the spread of the coronavirus. For this transaction, DBRS Morningstar applied a moderate adjustment to its expected recovery rate and conducted additional sensitivity analysis to determine that the transaction benefits from sufficient liquidity support to withstand high levels of payment holidays in the portfolio.

On 16 April 2020, the DBRS Morningstar Sovereign group released a set of macroeconomic scenarios for the 2020–22 period in select economies. These scenarios were last updated on 18 June 2021. For details, see the following commentaries: https://www.dbrsmorningstar.com/research/380281/global-macroeconomic-scenarios-june-2021-update and https://www.dbrsmorningstar.com/research/359903/global-macroeconomic-scenarios-application-to-credit-ratings. The DBRS Morningstar analysis considered impacts consistent with the moderate scenario in the referenced reports.

On 8 May 2020, DBRS Morningstar published a commentary outlining how the coronavirus crisis is likely to affect the DBRS Morningstar-rated ABS transactions in Europe. For more details, please see: https://www.dbrsmorningstar.com/research/360734/european-abs-transactions-risk-exposure-to-coronavirus-covid-19-effect and https://www.dbrsmorningstar.com/research/362712/european-structured-finance-covid-19-credit-risk-exposure-roadmap.

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.

For more information regarding the structured finance rating approach and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/359905.

ESG CONSIDERATIONS
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at: https://www.dbrsmorningstar.com/research/373262.

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” (3 September 2020).

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.

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 considers potential portfolio migration based on replenishment criteria set forth in the transaction legal documents.

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 Morningstar Credit Ratings” of the “Global Methodology for Rating Sovereign Governments” at: https://www.dbrsmorningstar.com/research/364527/global-methodology-for-rating-sovereign-governments.

The sources of data and information used for these ratings include historical performance data relating to receivables provided by VWB directly or through the arranger, Commerzbank AG, monthly investor reports provided by VWB, and legal documentation and opinions provided by the Issuer’s legal counsel.

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

DBRS Morningstar was not 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 these ratings 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 2020, when DBRS Morningstar confirmed its ratings on the Class A and Class B Notes at AAA (sf) and A (high) (sf), respectively.

The lead analyst responsibilities for this transaction have been transferred to Daniel Rakhamimov.

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 ratings, DBRS Morningstar considered the following stress scenarios, as compared to the parameters used to determine the ratings (the base case):

-- Expected Default: 1.5%, a 25% and 50% increase on expected probability of default (PD).
-- Recovery rate: expected recovery rate of 57.0%, with recovery rates of 34.2% and 41.8% applied at
the AAA (sf) and A (high) (sf) rating levels, respectively.
-- Loss Given Default (LGD): expected LGD of 43.0%, with LGDs of 65.8% and 58.2% applied at the AAA (sf) and A (high) (sf) rating levels, 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: AAA (sf), AA (high) (sf), AAA (sf), AA (sf), AA (sf), AA (high) (sf), AA (sf), A (high) (sf)
-- Class B Notes: A (high) (sf), A (sf), A (high) (sf), A (low) (sf), BBB (high) (sf), A (sf), BBB (high) (sf), BBB (sf)

For further information on DBRS Morningstar historical default rates published by the European Securities and Markets Authority (ESMA) in a central repository, see: https://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml. DBRS Morningstar understands further information on DBRS Morningstar historical default rates may be published by the Financial Conduct Authority (FCA) on its webpage: https://www.fca.org.uk/firms/credit-rating-agencies.

These ratings are endorsed by DBRS Ratings Limited for use in the United Kingdom.

Lead Analyst: Daniel Rakhamimov, Assistant Vice President
Rating Committee Chair: Alfonso Candelas, Senior Vice President
Initial Rating Date: 27 July 2015

DBRS Ratings GmbH
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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 Consumer and Commercial Asset-Backed Securitisations (3 September 2020), https://www.dbrsmorningstar.com/research/366294/rating-european-consumer-and-commercial-asset-backed-securitisations.
-- Master European Structured Finance Surveillance Methodology (8 February 2021), https://www.dbrsmorningstar.com/research/373435/master-european-structured-finance-surveillance-methodology.
-- Rating European Structured Finance Transactions Methodology (21 July 2020), https://www.dbrsmorningstar.com/research/364305/rating-european-structured-finance-transactions-methodology.
-- Legal Criteria for European Structured Finance Transactions (6 April 2021), https://www.dbrsmorningstar.com/research/376314/legal-criteria-for-european-structured-finance-transactions.
-- Operational Risk Assessment for European Structured Finance Servicers (19 November 2020), https://www.dbrsmorningstar.com/research/370270/operational-risk-assessment-for-european-structured-finance-servicers.
-- Operational Risk Assessment for European Structured Finance Originators (30 September 2020), https://www.dbrsmorningstar.com/research/367603/operational-risk-assessment-for-european-structured-finance-originators
-- DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (3 February 2021), https://www.dbrsmorningstar.com/research/373262/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings.

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].