Morningstar DBRS Confirms AAA (sf) Credit Ratings on BMW Canada Auto Trust 2023-1

DBRS Limited (Morningstar DBRS) DBRS Limited (Morningstar DBRS) confirmed its credit ratings on the following notes issued by BMW Canada Auto Trust 2023-1 (the Trust) as part of Morningstar DBRS' continued effort to provide market participants with annual updates:

-- Class A-1 Notes, Series 2023-1 at AAA (sf) (the Class A-1 Notes)
-- Class A-2 Notes, Series 2023-1 at AAA (sf) (the Class A-2 Notes)
-- Class A-3 Notes, Series 2023-1 at AAA (sf) (collectively with the Class A-1 Notes and 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, with the Class A-1 Notes currently being repaid. The credit 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 0.5% and 35.3%, respectively, of the balance of the Notes as of the July 2024 collection period. Total CE available represents 35.8% of the balance of the Notes as of the July 2024 collection period.

(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 5.1% (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 Morningstar DBRS' expectations set at the time of the initial credit ratings and was reported at 11 basis point as of the July 2024 collection period. The pool has benefitted from cumulative residual value gains equivalent to 6.3% of the initial securitization value.

(4) As a subsidiary of BMW AG (BMW; rated A (high) with a Stable trend by Morningstar DBRS), BMW Canada Inc. (rated A (high) with a Stable trend by Morningstar DBRS) 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.

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

Morningstar DBRS' credit ratings on the applicable classes address the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents. Where applicable, a description of these financial obligations can be found in the transactions' respective press releases at issuance.

Morningstar DBRS' long-term credit ratings provide opinions on risk of default. Morningstar DBRS 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, AND GOVERNANCE CONSIDERATIONS

There were no Environmental/Social/Governance factor(s) 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 Factors in Credit Ratings (13 August 2024) https://dbrs.morningstar.com/research/437781.

Notes:
All figures are in Canadian Dollars unless otherwise noted.

The principal methodology applicable to the credit ratings is Master Canadian Structured Finance Surveillance Methodology (06 August 2024) https://dbrs.morningstar.com/research/437538

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

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 info-DBRS@morningstar.com.

The credit rating was initiated at the request of the rated entity.

The rated entity or its related entities did participate in the credit rating process for this credit rating action.

Morningstar DBRS had access to the accounts, management and other relevant internal documents of the rated entity or its related entities in connection with this credit rating action.

This is a solicited credit rating.

Please see the related appendix for additional information regarding the sensitivity of assumptions used in the credit rating process.

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

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

Legal and Derivatives Criteria for Canadian Structured Finance (12 August 2024)
https://dbrs.morningstar.com/research/437761
Operational Risk Assessments for Canadian Structured Finance (06 August 2024)
https://dbrs.morningstar.com/research/437547
Rating Canadian Auto Retail Loan and Lease Securitizations (27 August 2024)
https://dbrs.morningstar.com/research/438382

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/410863.

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