Press Release

DBRS Morningstar Finalises Provisional Credit Ratings on VCL Multi-Compartment S.A., acting for and on behalf of its Compartment VCL 40

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October 25, 2023

DBRS Ratings GmbH (DBRS Morningstar) finalised its provisional credit ratings on the following classes of notes issued by VCL Multi-Compartment S.A., acting for and on behalf of its Compartment VCL 40 (the Issuer):

-- Class A Notes at AAA (sf)
-- Class B Notes at AA (low) (sf)

The credit ratings on both the Class A Notes and Class B Notes (together, the Notes) address the timely payment of scheduled interest and the ultimate repayment of principal by the legal final maturity date.

CREDIT RATING RATIONALE
The transaction represents the issuance of Notes backed by a portfolio of approximately EUR 750 million of receivables related to auto leases granted by Volkswagen Leasing GmbH (VWL; the Originator, the Seller), a wholly owned, indirect subsidiary of Volkswagen AG, to lessees resident or incorporated in the Federal Republic of Germany. The underlying motor vehicles related to the auto leases consist of both new and used passenger and light-commercial vehicles. VWL also services the receivables.

DBRS Morningstar based its credit ratings on a review of the following analytical considerations:
-- The transaction’s capital structure, including form and sufficiency of available credit enhancement to withstand stressed cash flow assumptions and repay the Notes;
-- VWL’s capabilities with regard to originations, underwriting, and 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;
-- The sovereign credit rating on the Federal Republic of Germany, 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 true sale of the assets to the Issuer.

TRANSACTION STRUCTURE
The transaction incorporates a single waterfall that governs the allocation of the available distribution amount consisting of, inter alia, collections representing interest, principal, and recoveries. The transaction documents foresee a mixed sequential/pro rata amortisation structure. Initially, all collections from the lease receivables will pay down the Class A Notes. Once the Class A overcollateralisation (OC) percentage reaches 12.25% (or 14.00% if a level 1 credit enhancement increase condition is in effect), the Class B Notes will begin to amortise. Once the Class B OC percentage reaches 7.5% (or 8.25% if a level 1 credit enhancement increase condition is in effect), principal payments on the Notes will be allocated on a pro rata basis, unless prespecified performance triggers are breached as outlined in the transaction documents.

The transaction benefits from liquidity support provided by a cash reserve, with an initial balance of EUR 9.0 million (equal to 1.2% of the initial outstanding discounted receivables balance). The target balance of the reserve on subsequent payment dates is the higher of 1.2% of the aggregate discounted receivables balance and the lower of (1) EUR 7.5 million or (2) the aggregate outstanding principal amount of the Notes. The reserve is available to cover the payment of senior expenses, swap payments, and interest on the Notes. The reserve also provides credit enhancement to the Notes and is available to repay principal on the Notes when the portfolio’s aggregate discounted receivables balance reaches zero.

All underlying contracts are fixed rate while the Notes pay a floating rate. The Notes are indexed to one-month Euribor. Interest rate risk for the Notes is mitigated through an interest rate swap with Skandinaviska Enskilda Banken AB (publ) (SEB).

COUNTERPARTIES
The Bank of New York Mellon - Frankfurt Branch (BNYM Frankfurt) has been appointed to act as the account bank for the transaction. Based on DBRS Morningstar’s private credit rating on BNYM Frankfurt and the downgrade provisions outlined in the transaction documents, DBRS Morningstar considers the risk arising from the exposure to the account bank to be consistent with the credit ratings assigned, as described in DBRS Morningstar's legal criteria.

SEB has been appointed as the swap counterparty for the transaction. DBRS Morningstar’s public Long-Term Critical Obligations Rating on SEB is AA with a Stable trend, which meets the criteria to act in such capacity. The hedging documents contain downgrade provisions consistent with DBRS Morningstar’s criteria.

DBRS Morningstar’s credit ratings on the Notes address the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents. For the Notes listed in the table, the associated financial obligations are the Class A Notes interest rate, Class B Notes interest rate, Class A Notes principal payment amount, and Class B Notes principal payment amount.

DBRS Morningstar’s credit ratings do not address non-payment risk associated with contractual payment obligations contemplated in the applicable transaction document(s) that are not financial obligations.

DBRS Morningstar’s long-term credit ratings provide opinions on risk of default. DBRS Morningstar considers risk of default to be the risk that an issuer will fail to satisfy the financial obligations in accordance with the terms under which a long-term obligation has been issued.

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/416784/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 credit ratings 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.

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 credit 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/421590.

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.

The sources of data and information used for these credit ratings include the Originator and its agents:
-- Static cumulative net loss data going back to January 2013 and up to June 2023; data was provided on a total portfolio basis.
-- Total portfolio-level delinquency data from January 2010 to June 2023.
-- Summarised stratification tables for the final pool as at 30 September 2023.
-- 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 one or more third-party assessments. However, this did not impact the credit rating analysis.

DBRS Morningstar considers the data and information available to it for the purposes of providing these credit ratings to be of satisfactory quality.

DBRS Morningstar does not audit or independently verify the data or information it receives in connection with the credit rating process.

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

This is the first credit rating action since the Initial Rating Date.

Information regarding DBRS Morningstar credit 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 credit rating, DBRS Morningstar considered the following stress scenarios as compared with the parameters used to determine the credit rating (the Base Case):

-- Expected default rate: 1.3%
-- Expected recovery rate: 60.0%
-- Loss given default (LGD): 61.6% for the AAA (sf) scenario and 57.3% for the AA (low) (sf) scenario

Scenario 1: 25% increase in LGD
Scenario 2: 50% increase in LGD
Scenario 3: 25% increase in probability of default (PD)
Scenario 4: 50% increase in PD
Scenario 5: 25% increase in PD and 25% increase in LGD
Scenario 6: 25% increase in PD and 50% increase in LGD
Scenario 7: 50% increase in PD and 25% increase in LGD
Scenario 8: 50% increase in PD and 50% increase in LGD

DBRS Morningstar concludes that the expected credit ratings under the eight stress scenarios would be:
-- Class A Notes: AAA (sf), AA (high) (sf), AAA (sf), AA (high) (sf), AA (high) (sf), AA (sf), AA (sf), and AA (low) (sf)
-- Class B Notes: AA (low) (sf), A (high) (sf), AA (low) (sf), A (high) (sf), A (high) (sf), A (sf), A (sf), and A (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: https://registers.esma.europa.eu/cerep-publication. For further information on DBRS Morningstar historical default rates published by the Financial Conduct Authority (FCA) in a central repository, see https://data.fca.org.uk/#/ceres/craStats.

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

Lead Analyst: Guglielmo Panizza, Vice President
Rating Committee Chair: Gareth Levington, Managing Director
Initial Rating Date: 4 September 2023

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

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].

ALL MORNINGSTAR DBRS RATINGS ARE SUBJECT TO DISCLAIMERS AND CERTAIN LIMITATIONS. PLEASE READ THESE DISCLAIMERS AND LIMITATIONS AND ADDITIONAL INFORMATION REGARDING MORNINGSTAR DBRS RATINGS, INCLUDING DEFINITIONS, POLICIES, RATING SCALES AND METHODOLOGIES.

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