DBRS Morningstar Confirms AAA (sf) Ratings on BMW Canada Auto Trust’s Series 2021-1 Notes

DBRS Limited (DBRS Morningstar) confirmed its ratings on the following notes issued by BMW Canada Auto Trust (the Trust) as part of DBRS Morningstar’s continued effort to provide market participants with annual updates:

-- Class A-2 Notes, Series 2021-1 at AAA (sf) (the Class A-2 Notes)
-- Class A-3 Notes, Series 2021-1 at AAA (sf) (the Class A-3 Notes; collectively with the Class A-2 Notes, the Notes)

The Notes are supported by a portfolio of retail closed-end lease contracts and related rights secured by new BMW-branded passenger cars and sport-activity vehicles (the Portfolio of Assets). The lease contracts were originated by authorized BMW dealers in Canada.

Repayment of the Notes is being 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.

The Notes are being repaid in sequential order. The Class A-1 Notes have already been fully repaid and the Class A-2 Notes are currently being repaid. The ratings are based on the full repayment of the Notes by their respective Final Scheduled Payment Dates, in addition to the factors noted below.

(1) High levels of credit enhancement (CE) are available to protect all the Notes. Credit protection to the Notes is provided by a non-amortizing cash account and overcollateralization equivalent to 0.6% and 38.6%, respectively, of the balance of the Notes as of July 2022. Total CE available represents 39.2% of the balance of the Notes as of July 2022.

(2) As the initial pool balances were sold to the Trust at discounted values, there is excess spread above the cost of funds and potential monthly replacement servicer fees of approximately 5.5% (annualized), which is available to offset any collection shortfall on a monthly basis.

(3) The collateral for the Notes has been performing well. To date, cumulative losses are below DBRS Morningstar’s expectations set at the time of the initial ratings, amounting to 6 basis points of the initial securitization value. The pool has benefitted from cumulative residual value gains equivalent to 7.9% of the initial securitization value.

(4) As a subsidiary of BMW AG (BMW; rated A (high) with a Stable trend by DBRS Morningstar), BMW Canada Inc. (the Seller; rated A (high) with a Stable trend by DBRS Morningstar) benefits from the experience and expertise of BMW’s other financial services companies worldwide to ensure sound and consistent underwriting standards and efficient servicing operations.

DBRS Morningstar monitors the performance of each transaction to identify any deviation from its expectation at issuance and to ensure the ratings remain appropriate. The review is predicated upon the timely receipt of performance information from the related providers.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factors that had a significant or relevant effect on the credit analysis.

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/396929 (May 17, 2022).

Notes:
The principal methodology is Master Canadian Structured Finance Surveillance Methodology (June 7, 2022), which can be found on dbrsmorningstar.com under Methodologies & Criteria.

The DBRS Morningstar Sovereign group releases baseline macroeconomic scenarios for rated sovereigns. DBRS Morningstar analysis considered impacts consistent with the baseline scenarios as set forth in the following report: https://www.dbrsmorningstar.com/research/384482/baseline-macroeconomic-scenarios-application-to-credit-ratings.

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 [email protected].

The rated entity or its related entities did participate in the rating process for this rating action. DBRS Morningstar had access to the accounts and other 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.

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

DBRS Limited
DBRS Tower, 181 University Avenue, Suite 700
Toronto, ON M5H 3M7 Canada
Tel. +1 416 593-5577