DBRS Morningstar Assigns Provisional Rating to Bavarian Sky S.A., acting in respect of its Compartment German Auto Loans 12

DBRS Ratings GmbH (DBRS Morningstar) assigned a provisional rating of AAA (sf) to the Class A Notes to be issued by Bavarian Sky S.A., acting in respect of its Compartment German Auto Loans 12 (the Issuer).

DBRS Morningstar did not assign a provisional rating to the Class B Notes (collectively with the Class A Notes, the Notes) also expected to be issued in this transaction.

The provisional rating is based on information provided to DBRS Morningstar by the Issuer and its agents as of the date of this press release. This rating will be finalised upon a review of the final version of the transaction documents and of the relevant opinions. If the information therein were substantially different, DBRS Morningstar may assign a different final rating to the Class A Notes.

The rating assigned to the Class A Notes addresses the timely payment of scheduled interest and the ultimate repayment of principal by the legal final maturity date.

The transaction represents the issuance of Notes backed by approximately EUR [•] million of receivables related to both amortising loans and amortising loans with mandatory, final balloon payment contracts granted by BMW Bank GmbH (BMW Bank, the Originator, the Seller or the Servicer) to private and commercial borrowers in the Federal Republic of Germany. The underlying receivables relate to the financing of new and used passenger vehicles and motorbikes. BMW Bank will also act as the Servicer for the transaction.

DBRS Morningstar based its rating on a review of the following analytical considerations:
-- The transaction's capital structure, including form and sufficiency of available credit enhancement;
-- Relevant credit enhancement in the form of subordination, cash reserve account, and excess spread.
-- Credit-enhancement levels are sufficient to support DBRS Morningstar’s projected cumulative net loss assumption under various stressed cash flow assumptions for the Class A Notes;
-- The ability of the transaction to withstand stressed cash flow assumptions and repay investors according to the terms under which they have invested;
-- BMW Bank’s capabilities with regard to originations, underwriting, servicing, and its financial strength;
-- The transaction parties’ financial strength with regard to their respective roles;
-- The credit quality of the collateral and historical and projected performance of the Seller’s portfolio;
-- DBRS Morningstar's sovereign rating on the Federal Republic of Germany, currently at AAA with a Stable trend; and
-- The expected 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 that are expected to address the true sale of the assets to the Issuer.

TRANSACTION STRUCTURE
The transaction is static, and the Class A Notes will begin to amortise from the first interest payment date. The transaction incorporates a single waterfall that outlines the allocation of the available distribution amount consisting of, inter alia, collections representing interest, principal, and recoveries. The Notes will amortise sequentially, and there will be no payment of principal on the Class B Notes until the Class A Notes have been repaid in full.

The transaction benefits from a cash reserve that will be funded on the closing date. The cash reserve is available to cover senior fees, senior net interest rate swap payments, and interest on the Class A Notes. The cash reserve is set at 1.0% of the current aggregate outstanding principal balance, i.e., EUR [•] million.

COUNTERPARTIES
The Bank of New York Mellon, Frankfurt Branch (BONY-FB) has been appointed to act as the account bank for the transaction. DBRS Morningstar privately rates BONY-FB and concluded that the bank meets the criteria to act in this capacity. The Issuer account incorporates subaccounts and ledger that include the operating account, cash reserve account, the commingling reserve account, and the servicing reserve ledger. The transaction documents include downgrade provisions consistent with DBRS Morningstar’s criteria.

The transaction is exposed to interest rate risk due to the mismatch between the fixed-rate assets and the floating-rate liabilities. This risk is mitigated by an interest rate swap hedging the Class A Notes. Skandinaviska Enskilda Banken AB (publ) (SEB) has been appointed as the swap counterparty for the transaction. DBRS Morningstar has a Long-Term Issuer rating of A (high) with a Stable trend and a Long Term Critical Obligations Rating of AA with a Stable trend on SEB. The hedging documents include downgrade provisions consistent with DBRS Morningstar's criteria.

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/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings.

DBRS Morningstar analysed the transaction structure in Intex Dealmaker.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the rating is: “Rating European Consumer and Commercial Asset-Backed Securitisations” (19 October 2022); https://www.dbrsmorningstar.com/research/404212/rating-european-consumer-and-commercial-asset-backed-securitisations.

Other methodologies referenced in this transaction are listed at the end of this press release. These may be found at: https://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.

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/401817/global-methodology-for-rating-sovereign-governments.

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 sources of data and information used for this rating include the Originator and its agents. DBRS Morningstar received the following data and information:
-- Quarterly static default and net loss data from January 2009 to September 2022, split into total, amortising, and balloon loans, and commercial and private subsets;
-- Monthly dynamic delinquency data from January 2009 to September 2022;
-- Monthly dynamic prepayments, originations and outstanding balances data from January 2014 to September 2022;
-- Annual portfolio distribution by models from January 2014 to September 2022.
-- Preliminary pool stratification tables as at 31 December 2022 and its related theoretical amortisation schedule.

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

DBRS Morningstar was supplied with one or more 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.

This rating concerns an expected-to-be issued new financial instrument. This is the first DBRS Morningstar rating on this financial instrument.

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

Sensitivity Analysis: To assess the impact of changing the transaction parameters on the rating, DBRS Morningstar considered the following stress scenarios as compared with the parameters used to determine the rating (the base case):

-- Expected default: 1.6%.
-- Expected recovery rate: 65.0%.
-- Loss given default (LGD): 57.8% for the AAA (sf) scenario.

DBRS Morningstar concludes that the expected ratings under the eight stress scenarios will be:
Scenario 1: A 25% increase in the expected default.
Scenario 2: A 50% increase in the expected default.
Scenario 3: A 25% increase in LGD.
Scenario 4: A 50% increase in LGD.
Scenario 5: A 25% increase in both the expected default and LGD.
Scenario 6: A 25% increase in the expected default and 50% increase in LGD.
Scenario 7: A 50% increase in the expected default and 25% increase in LGD.
Scenario 8: A 50% increase in both the expected default and 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 (sf), AA (low) (sf), AA (low) (sf), A (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.

This rating is endorsed by DBRS Ratings Limited for use in the United Kingdom.

Lead Analyst: Guglielmo Panizza, Vice President, Credit Ratings
Rating Committee Chair: David Lautier, Senior Vice President, Credit Ratings
Initial Rating Date: 16 February 2023

DBRS Ratings GmbH
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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: https://www.dbrsmorningstar.com/about/methodologies.

-- Rating European Consumer and Commercial Asset-Backed Securitisations (19 October 2022)
https://www.dbrsmorningstar.com/research/404212/rating-european-consumer-and-commercial-asset-backed-securitisations.
-- Legal Criteria for European Structured Finance Transactions (22 July 2022),
https://www.dbrsmorningstar.com/research/400166/legal-criteria-for-european-structured-finance-transactions.
-- Rating European Structured Finance Transactions Methodology (15 July 2022),
https://www.dbrsmorningstar.com/research/399899/rating-european-structured-finance-transactions-methodology.
-- Operational Risk Assessment for European Structured Finance Servicers (15 September 2022), https://www.dbrsmorningstar.com/research/402774/operational-risk-assessment-for-european-structured-finance-Servicers.
-- Operational Risk Assessment for European Structured Finance Originators (15 September 2022), https://www.dbrsmorningstar.com/research/402773/operational-risk-assessment-for-european-structured-finance-Originators.
-- Derivative Criteria for European Structured Finance Transactions (20 September 2021), https://www.dbrsmorningstar.com/research/384624/derivative-criteria-for-european-structured-finance-transactions.
-- Interest Rate Stresses for European Structured Finance Transactions (22 September 2022),
https://www.dbrsmorningstar.com/research/402943/interest-rate-stresses-for-european-structured-finance-transactions.
-- DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (17 May 2022), https://www.dbrsmorningstar.com/research/396929/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: https://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].