DBRS Morningstar Assigns Ratings to VCL Master Sweden S.A., acting for and on behalf of its Compartment 1

DBRS Ratings GmbH (DBRS Morningstar) assigned ratings to the following notes (the Rated Notes) issued by VCL Master Sweden S.A., acting for and on behalf of its Compartment 1 (the Issuer) in the context of the securitisation programme established on 27 March 2023:

-- Class A1 Notes at AAA (sf)
-- Class A2 Notes at AAA (sf)
-- Class A3 Notes at AAA (sf)
-- Class A4 Notes at AAA (sf)
-- Class A5 Notes at AAA (sf)
-- Class A6 Notes at AAA (sf)
-- Class B1 Notes at AA (low) (sf)
-- Class B2 Notes at AA (low) (sf)
-- Class B4 Notes at AA (low) (sf)

DBRS Morningstar did not assign a rating to the Class B3 Notes (together, with the Rated Notes, the Notes) at the Issuer’s request.

The ratings on the Rated Notes address the timely payment of interest and the ultimate repayment of principal by the legal maturity date.

The Issuer is a public limited company incorporated under the laws of Luxembourg and is governed by Luxembourg securitisation law, acting as a special-purpose entity specifically for the purpose of the programme. The Notes are backed by lease contracts comprising instalments and residual values (RVs) and granted by Volkswagen Finans Sverige AB (publ) (VFS; the originator or the grantor) to commercial or private lessees in Sweden. VFS also services the portfolio (the servicer). VFS is a subsidiary of Volkswagen AG (VW).

DBRS Morningstar based its ratings 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, a reserve fund, and overcollateralisation (OC);
-- Credit enhancement levels that are sufficient to support DBRS Morningstar's projected expected cumulative net losses and RV losses under various stress scenarios;
-- The ability of the transaction to withstand stressed cash flow assumptions and repay investors according to the terms under which they have invested;
-- VFS’ 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 grantor’s portfolio;
-- The sovereign rating on the Kingdom of Sweden, currently at AAA with a Stable trend; 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 that address the isolation of the assets and the enforceability the Issuer's rights.

TRANSACTION STRUCTURE
The Issuer's security interest in the lease contracts arises from a sub-participation agreement between itself and the grantor, in which the Issuer pays a fee to the grantor in exchange for the sub-participation in the sub-participated assets. The Issuer's sub-participation includes: (1) the principal and interest components of the lease contracts (both financial and operational), (2) the final instalment of financial leases, and (3) any vehicle realisation proceeds of operational leases.

During the 12-month revolving period, the grantor may offer additional vehicles and the associated leases in which the Issuer will sub-participate subject to eligibility criteria, concentration limits, performance triggers, and other conditions set out in the transaction documents.

The transaction incorporates a single waterfall and a mixed sequential/pro rata amortisation structure. After the revolving period, collections arising from the lease receivables are available to pay down the Class A Notes (in accordance with the relevant priority of payments). Once the Class A OC percentage reaches and maintains its target of 31.95% after the revolving period, collections can also be used to redeem the Class B Notes. Once the Class B OC percentage reaches its target of 21.9% after the revolving period, the available distribution amounts are then allocated on a pro rata basis to the Notes unless specified triggers are breached, as outlined in the transaction documents.

The transaction benefits from liquidity support provided by a cash collateral account equal to 1.2% of the Notes during the revolving period and, after the revolving period, equal to the lower of: (1) the cash collateral account balance at the end of the revolving period and (2) the aggregate outstanding principal balance of the Notes at the preceding payment date. The reserve is available to cover the payment of senior expenses, swap payments, and interest on the Notes prior to replenishment. The reserve also provides credit enhancement to the Notes and it is available to repay principal on the Notes on the legal maturity date or when the portfolio’s aggregate receivables balance reaches zero.

COUNTERPARTIES
Skandinaviska Enskilda Banken AB (publ) (SEB) has been appointed as the Issuer’s account bank for the transaction. DBRS Morningstar's Long-Term Issuer Rating on SEB is A (high) with a Stable trend. The transaction documents contain downgrade provisions relating to the account bank consistent with DBRS Morningstar’s criteria.

ESG 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: 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/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 these ratings include the originator and its agents. DBRS Morningstar received the following data and information:
-- Static monthly cumulative gross loss data from January 2015 to December 2022;
-- Static monthly cumulative net loss data from January 2015 to December 2022;
-- Delinquency data from January 2015 to December 2022;
-- Portfolio stratification tables as at 28 February 2023;
-- Quarterly data on vehicle realisation proceed from Q1 2018 to Q4 2022; and
-- A theoretical amortisation of the selected pool.

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.

These ratings concern newly issued financial instruments. These are the first DBRS Morningstar ratings on these financial instruments.

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: 2.9%.
-- Expected recovery rate: 70.0%.
-- Loss given default (LGD): 61.5% for the AAA (sf) scenario and 55.2% for the AA (low) (sf) scenario
-- RV loss: 38.6% for the AAA (sf) scenario and 29.3% for the AA (low) (sf) scenario

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

DBRS Morningstar concludes that the expected ratings under the eight stress scenarios are:
-- Class A Notes: AA (sf), AA (low) (sf), AA (high) (sf), AA (low) (sf), A (high) (sf), AA (sf), A (high) (sf), A (sf)
-- Class B Notes: A (sf), A (low) (sf), A (high) (sf), A (low) (sf), BBB (high) (sf), A (low) (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: http://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
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: 27 March 2023

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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 (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.
-- 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: 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].