Morningstar DBRS Confirms Credit Rating on Bavarian Sky S.A., acting in respect of its Compartment German Auto Loans 12

DBRS Ratings GmbH (Morningstar DBRS) confirmed its AAA (sf) credit rating on the Class A Notes issued by Bavarian Sky S.A., acting in respect of its Compartment German Auto Loans 12 (the Issuer).

The credit rating on the Class A Notes addresses the timely payment of interest and ultimate payment of principal on or before the legal final maturity date in March 2030.

The confirmation follows an annual review of the transaction and is based on the following analytical considerations:
-- Portfolio performance, in terms of delinquencies, defaults, and losses, as of the March 2024 payment date;
-- Probability of default (PD) and loss given default (LGD) assumptions on the remaining receivables; and
-- Current available credit enhancement to the Class A Notes to cover the expected losses at the AAA (sf) credit rating level.

The transaction is a static securitisation of German auto loan receivables originated by BMW Bank GmbH (BMW Bank), which closed in March 2023. The initial EUR 975.1 million portfolio consisted of new (40.0% of the pool balance) and used (60.0%) auto loans, granted to both private individuals (70.0%) and commercial borrowers (30.0%).

PORTFOLIO PERFORMANCE
As of the March 2024 payment date, loans that were 30 to 60 days and 60 to 90 days delinquent represented 0.2% and 0.1% of the outstanding portfolio balance, respectively, while loans more than 90 days delinquent amounted to 0.1%. Gross cumulative defaults amounted to 0.2% of the original portfolio balance, with cumulative recoveries of 67.7% to date.

PORTFOLIO ASSUMPTIONS AND KEY DRIVERS
Morningstar DBRS conducted a loan-by-loan analysis of the remaining pool of receivables and maintained its base case PD and LGD assumptions at 1.6% and 35.0%, respectively.

CREDIT ENHANCEMENT
The subordination of the Class B Notes and overcollateralisation resulting from the trapping of excess spread in the structure provide credit enhancement to the Class A Notes. As of the March 2024 payment date, credit enhancement to the Class A Notes increased to 12.0% from 7.7% at the time of Morningstar DBRS’ initial credit rating of the transaction 12 months ago.

The transaction benefits from a nonamortising cash reserve available to cover senior fees, senior swap payments, and interest due on the Class A Notes, funded at closing to EUR 9.75 million using the proceeds of a subordinated loan granted by BMW Bank. In the event of the Issuer’s default, as well as at the legal final maturity date, the cash reserve can also be used to cover principal payments on the notes. The reserve has been at its target balance of EUR 9.75 million since closing.

The Bank of New York Mellon, Frankfurt Branch (BNYM Frankfurt) acts as the account bank for the transaction. Based on the Morningstar DBRS private credit rating on BNYM Frankfurt, the downgrade provisions outlined in the transaction documents, and other mitigating factors inherent in the transaction structure, Morningstar DBRS considers the risk arising from the exposure to the account bank to be consistent with the credit rating assigned to the Class A Notes, as described in Morningstar DBRS’ “Legal Criteria for European Structured Finance Transactions” methodology.

Skandinaviska Enskilda Banken AB (SEB) acts as the swap counterparty for the transaction. Morningstar DBRS’ public Long Term Critical Obligations Rating of AA (high) on SEB is consistent with the First Rating Threshold as described in Morningstar DBRS’ "Derivative Criteria for European Structured Finance Transactions" methodology.

Morningstar DBRS’ credit rating on the Class A Notes addresses the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents.

Morningstar DBRS’ credit ratings do not address nonpayment risk associated with contractual payment obligations contemplated in the applicable transactions documents that are not financial obligations.

Morningstar DBRS’ long-term credit ratings provide opinions on risk of default. Morningstar DBRS considers risk of defaults to be the risk that an issuer will fail to satisfy the financial obligations in accordance with the term 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 Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at: https://dbrs.morningstar.com/research/427030.

Morningstar DBRS analysed the transaction structure in Intex DealMaker.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the credit rating is Master European Structured Finance Surveillance Methodology (7 March 2024), https://dbrs.morningstar.com/research/429051.

Other methodologies referenced in this transaction are listed at the end of this press release.

Morningstar DBRS has applied the principal methodology consistently and conducted a review of the transaction in accordance with the principal methodology.

A review of the transaction legal documents was not conducted as the legal documents have remained unchanged since the most recent credit rating action.

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 Morningstar DBRS Credit Ratings” of the “Global Methodology for Rating Sovereign Governments” at: https://dbrs.morningstar.com/research/421590.

The sources of data and information used for this credit rating include investor and servicer reports provided by BMW Bank.

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

At the time of the initial credit rating, Morningstar DBRS was supplied with third-party assessments. However, this did not impact the rating analysis.

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

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

The last credit rating action on this transaction took place on 20 March 2023, when Morningstar DBRS finalised its provisional credit rating on the Class A Notes at AAA (sf).

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

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

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

-- Morningstar DBRS expected a lifetime base-case PD and LGD for the pool based on a review of the current assets. Adverse changes to asset performance may cause stresses to base-case assumptions and therefore have a negative effect on credit ratings.
-- The base-case PD and LGD of the current pool of loans for the Issuer are 1.6% and 35.0%, respectively.

Class A Notes Risk Sensitivity:
-- 25% increase in LGD, expected credit rating of AAA (sf)
-- 50% increase in LGD, expected credit rating of AAA (sf)
-- 25% increase in PD, expected credit rating of AAA (sf)
-- 50% increase in PD, expected credit rating of AAA (sf)
-- 25% increase in PD and 25% increase in LGD, expected credit rating of AAA (sf)
-- 25% increase in PD and 50% increase in LGD, expected credit rating of AA (high) (sf)
-- 50% increase in PD and 25% increase in LGD, expected credit rating of AA (high) (sf)
-- 50% increase in PD and 50% increase in LGD, expected credit rating of AA (sf)

For further information on Morningstar DBRS 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 Morningstar DBRS historical default rates published by the Financial Conduct Authority (FCA) in a central repository, see https://data.fca.org.uk/#/ceres/craStats.

This credit rating is 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: 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 credit rating methodologies used in the analysis of this transaction can be found at: https://dbrs.morningstar.com/about/methodologies.

-- Master European Structured Finance Surveillance Methodology (7 March 2024),
https://dbrs.morningstar.com/research/429051.
-- Rating European Structured Finance Transactions Methodology (11 December 2023),
https://dbrs.morningstar.com/research/425149.
-- Rating European Consumer and Commercial Asset-Backed Securitisations (8 January 2024),
https://dbrs.morningstar.com/research/426219.
-- Legal Criteria for European Structured Finance Transactions (30 June 2023),
https://dbrs.morningstar.com/research/416730.
-- Operational Risk Assessment for European Structured Finance Servicers (15 September 2023),
https://dbrs.morningstar.com/research/420572.
-- Derivative Criteria for European Structured Finance Transactions (18 September 2023), https://www.dbrsmorningstar.com/research/420754.
-- Interest Rate Stresses for European Structured Finance Transactions (15 September 2023),
https://dbrs.morningstar.com/research/420602.
-- Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (23 January 2024), https://dbrs.morningstar.com/research/427030.

A description of how Morningstar DBRS analyses structured finance transactions and how the methodologies are collectively applied can be found at: https://dbrs.morningstar.com/research/278375.

For more information on this credit or on this industry, visit dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.