Morningstar DBRS Confirms Credit Ratings on Two VCL Multi-Compartment S.A. Transactions

DBRS Ratings GmbH (Morningstar DBRS) confirmed the credit ratings on the notes issued by VCL Multi-Compartment S.A., acting for and on behalf of its Compartment VCL 37 (VCL 37) and VCL Multi-Compartment S.A., acting for and on behalf of its Compartment VCL 40 (VCL 40), as follows:

VCL 37:
-- Class A Notes confirmed at AAA (sf)
-- Class B Notes confirmed at AA (sf)

The credit ratings on the Class A Notes and Class B Notes address the timely payment of interest and the ultimate payment of principal on or before the legal final maturity date in September 2028.

VCL 40:
-- Class A Notes confirmed at AAA (sf)
-- Class B Notes confirmed at AA (low) (sf)

The credit ratings on the Class A Notes and Class B Notes address the timely payment of interest and the ultimate payment of principal on or before the legal final maturity date in August 2029.

CREDIT RATING RATIONALE
The confirmations follow an annual review of the transactions and are based on the following analytical considerations:
-- Portfolio performance, in terms of delinquencies, defaults, and losses, as of the October 2024 payment date;
-- Probability of default (PD), loss given default (LGD), and expected loss assumptions on the remaining receivables; and
-- Current available credit enhancement to the notes to cover the expected losses at their respective credit rating levels.

The transactions are static securitisations of German auto lease receivables originated and serviced by Volkswagen Leasing GmbH (VWL). VCL 37 and VCL 40 closed in November 2022 and October 2023 with an initial EUR 1.0 billion and EUR 750.0 million collateral portfolio, respectively, that consisted of auto lease receivables (excluding residual value claims relating to the final balloon instalment) granted to both retail and commercial customers.

PORTFOLIO PERFORMANCE
As of the October 2024 payment date, in VCL 37, loans that were 30 to 60 and 60 to 90 days delinquent represented 0.5% and 0.3% of the outstanding portfolio balance, respectively, while loans more than 90 days delinquent amounted to 1.2%. Cumulative net losses amounted to 0.09% of the original portfolio balance to date.

In VCL 40, loans that were 30 to 60 and 60 to 90 days delinquent represented 0.3% and 0.2% of the outstanding portfolio balance, respectively, while loans more than 90 days delinquent amounted to 0.2%. Cumulative net losses amounted to 0.02% of the original portfolio balance to date.

PORTFOLIO ASSUMPTIONS AND KEY DRIVERS
Morningstar DBRS received updated historical vintage data from the originator and conducted a loan-by-loan analysis of the remaining pool of receivables. Morningstar DBRS updated its base case PD assumption to 1.1% and maintained its base case LGD assumption at 40.0%.

CREDIT ENHANCEMENT
The subordination of the junior obligations provides credit enhancement to the rated notes in the transactions.

As of the October 2024 payment date, in VCL 37, credit enhancement to the Class A and Class B Notes remained unchanged at 12.2% and 7.4% compared to 12 months ago.

In VCL 40, credit enhancement to the Class A and Class B Notes increased to 8.4% and 4.8% from 5.4% and 3.2%, respectively, at the time of Morningstar DBRS' initial credit ratings 12 months ago.

The transactions benefit from liquidity support provided by a cash reserve. The reserve is available to cover the payment of senior expenses, swap payments, and interest payments on the notes.

In VCL 37, the reserve was funded to EUR 11.0 million at closing with a target amount equal to the lesser of EUR 11.0 million and the aggregate outstanding principal balance of the rated notes at the end of the collection period. As of the October 2024 payment date, the reserve was at its floor level of EUR 11.0 million.

In VCL 40, the reserve was funded to EUR 9.0 million at closing with a target amount equal to greater of (a) 1.2% of the outstanding discounted principal balance of the pool, and (b) the lesser of EUR 7.5mn and the aggregate outstanding principal balance of notes. As of the October 2024 payment date, the reserve was at its target level of EUR 7.5 million.

The Bank of New York Mellon, Frankfurt Branch (BNYM Frankfurt) acts as the account bank for the transactions. Based on Morningstar DBRS' private credit rating on BNYM Frankfurt, the downgrade provisions outlined in the transactions' documents, and other mitigating factors inherent in the transactions structure, Morningstar DBRS considers the risk arising from the exposure to the account bank to be consistent with the credit ratings assigned to the 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 transactions. Morningstar DBRS' Long-Term Critical Obligations Rating of AA (high) on SEB is consistent with the first credit rating threshold as described in Morningstar DBRS' "Derivative Criteria for European Structured Finance Transactions" methodology.

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 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 Factors in Credit Ratings" at https://dbrs.morningstar.com/research/437781.

Morningstar DBRS analysed the transaction structures in Intex DealMaker.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the credit ratings is the "Master European Structured Finance Surveillance Methodology" (6 August 2024), https://dbrs.morningstar.com/research/437540.

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

Morningstar DBRS has applied the principal methodology consistently and conducted a review of the transactions 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 on each transaction.

For a more detailed discussion of the sovereign risk impact on Structured Finance credit ratings, please refer to "Appendix C: The Impact of Sovereign Credit Ratings on Other Morningstar DBRS Credit Ratings" of the "Global Methodology for Rating Sovereign Governments" at: https://dbrs.morningstar.com/research/436000.

The sources of data and information used for these credit ratings include investor reports provided by VWL and loan-level data provided by the European DataWarehouse GmbH. Additionally, Morningstar DBRS was provided with updated historical performance data from the originator as follows:
-- Static monthly cumulative net loss data from April 2014 to March 2024, provided on a total portfolio basis;
-- Dynamic monthly loss data from March 2006 to March 2024; and
-- Dynamic monthly delinquency data from January 2014 to June 2024.

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

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

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

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

The last credit rating action on VCL 37 took place on 1 November 2023, when Morningstar DBRS confirmed its credit rating of AAA (sf) on the Class A Notes and upgraded its credit rating on the Class B Notes to AA (sf) from AA (low) (sf).

The last credit rating action on VCL 40 took place on 25 October 2023, when Morningstar DBRS finalised its provisional credit ratings of AAA (sf) and AA (low) (sf) on the Class A and Class B Notes, respectively.

The lead analyst responsibilities for these transactions have been transferred to Stefano Pruni.

Information regarding Morningstar DBRS credit ratings, including definitions, policies, and methodologies, is available on https://dbrs.morningstar.com.

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

-- Morningstar DBRS expected a lifetime base case PD and LGD for the pools 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 pools of loans are 1.1% and 40.0%, respectively.

VCL 37:
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 AAA (sf)
-- 50% increase in PD and 25% increase in LGD, expected credit rating of AAA (sf)
-- 50% increase in PD and 50% increase in LGD, expected credit rating of AA (high) (sf)

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

VCL 40:
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 (high) (sf)

Class B Notes Risk Sensitivity:
-- 25% increase in LGD, expected credit rating of AA (low) (sf)
-- 50% increase in LGD, expected credit rating of AA (low) (sf)
-- 25% increase in PD, expected credit rating of AA (low) (sf)
-- 50% increase in PD, expected credit rating of AA (low) (sf)
-- 25% increase in PD and 25% increase in LGD, expected credit rating of AA (low) (sf)
-- 25% increase in PD and 50% increase in LGD, expected credit rating of AA (low) (sf)
-- 50% increase in PD and 25% increase in LGD, expected credit rating of AA (low) (sf)
-- 50% increase in PD and 50% increase in LGD, expected credit rating of AA (low) (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.

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

Lead Analyst: Stefano Pruni, Senior Analyst
Rating Committee Chair: Alfonso Candelas, Associate Managing Director
Initial Rating Date: 10 October 2022 (VCL 37), 4 September 2023 (VCL 40)

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://dbrs.morningstar.com/about/methodologies.

-- Rating European Structured Finance Transactions Methodology (18 September 2024),
https://dbrs.morningstar.com/research/439581.
-- Legal Criteria for European Structured Finance Transactions (28 June 2024),
https://dbrs.morningstar.com/research/435165.
-- Master European Structured Finance Surveillance Methodology (6 August 2024),
https://dbrs.morningstar.com/research/437540.
-- Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings (13 August 2024), https://dbrs.morningstar.com/research/437781.
-- Operational Risk Assessment for European Structured Finance Originators and Servicers (18 September 2024), https://dbrs.morningstar.com/research/439571.
-- Rating European Consumer and Commercial Asset-Backed Securitisations (18 September 2024), https://dbrs.morningstar.com/research/439583.
-- Interest Rate Stresses for European Structured Finance Transactions (24 September 2024), https://dbrs.morningstar.com/research/439913.
-- Derivative Criteria for European Structured Finance Transactions (6 September 2024),
https://dbrs.morningstar.com/research/439043.

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/439604.

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