Morningstar DBRS Confirms Credit Ratings on Driver UK Multi-Compartment S.A. acting for and on behalf of its Compartment Driver UK seven

DBRS Ratings Limited (Morningstar DBRS) confirmed its AAA (sf) and A (high) (sf) credit ratings on the Class A and Class B Notes (the rated notes), respectively, issued by Driver UK Multi-Compartment S.A. acting for and on behalf of its Compartment Driver UK seven (the Issuer).

The credit ratings address the timely payment of scheduled interest and the ultimate repayment of principal by the legal final maturity date in April 2031.

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

The transaction represents the issuance of rated notes backed by a portfolio of receivables related to hire purchase (HP), personal contract purchase (PCP), and lease purchase (LP) auto loans granted by Volkswagen Financial Services (UK) Limited (VWFSUK; the originator or the seller) to borrowers in England, Wales, Northern Ireland, and Scotland. The underlying motor vehicles related to the finance contracts consist of new and used passenger and light-commercial vehicles. VWFSUK also services the receivables.

The transaction included an initial 6-month revolving period, which ended in April 2024.

PORTFOLIO PERFORMANCE
As of the September 2024 payment date, two- to three-month arrears represented 0.2% of the outstanding portfolio balance and the 90+-day delinquency ratio was 0.3%. The gross cumulative default ratio was 0.1%, as a proportion of the aggregate initial and additional portfolio balances.

PORTFOLIO ASSUMPTIONS AND KEY DRIVERS
Morningstar DBRS conducted an analysis of the current pool of receivables and updated its expected PD, LGD, and RV haircut assumptions at the B (low) credit rating level to the following:
-- Expected PD of 4.2%;
-- Expected LGD of 24.6%; and
-- RV haircut of 8.5%.

CREDIT ENHANCEMENT
The transaction has a sequential/pro-rata amortization structure whereby collections from the receivables initially paid down the Class A Notes until the Class A overcollateralisation (OC) reached its target of 33.1%, followed by the Class B Notes until the Class B OC reached its target of 22.3%. The OC targets were reached on the August 2024 payment date, and the rated notes have been paying on a pro-rata basis since.

The transaction benefits from liquidity support provided by a cash reserve, available to cover senior expenses, swap payments and interest on the rated notes. The reserve has a target balance equal to 1.6% of the outstanding balance of the rated notes, subject to a floor of 1.0% of the initial balance of the rated notes. As of the September 2024 Payment date, the cash reserve was at its target balance of GBP 6.5 million.

The Bank of New York Mellon, London branch (BNYM London) acts as the issuer account bank for the transaction. Based on Morningstar DBRS' public Long-Term Credit Rating on BNYM London of AA (high), 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 issuer account bank to be consistent with the credit ratings assigned to the rated notes, as described in Morningstar DBRS' "Legal Criteria for European Structured Finance Transactions" methodology.

Royal Bank of Canada (RBC) acts as the hedging counterparty in the transaction. Morningstar DBRS' public Long Term-Term Issuer Rating of AA (high) on RBC is consistent with the first 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 (13 August 2024) https://dbrs.morningstar.com/research/437781.

Morningstar DBRS analysed the transaction structure in Intex Dealmaker.

Notes:
All figures are in British pound sterling unless otherwise noted.

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

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 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 monthly investor reports provided by VWFSUK and loan-level data provided by the European DataWarehouse GmbH.

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 affect 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 this issuer took place on 25 October 2023, when Morningstar DBRS finalised its provisional credit ratings on the Class A and Class B Notes at AAA (sf) and A (high) (sf), respectively.

The lead analyst responsibilities for this transaction have been transferred to Petter Wettestad.

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 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, LGD, and RV haircut 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, LGD, and RV haircut of the current pool of loans for the Issuer at the B (low) (sf) credit rating level are as follows:
-- PD of 4.2%
-- LGD of 24.6%; and
-- RV haircut: 8.5%

The risk sensitivity overview below illustrates the credit ratings expected if the PD, LGD, and RV haircut increase by a certain percentage over the base-case assumption.

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

Class B Notes Risk Sensitivity:
-- 25% increase in RV haircut, expected credit rating of BBB (high) (sf)
-- 50% increase in RV haircut, expected credit rating of BBB (sf)
-- 25% increase in both PD and LGD, expected credit rating of A (sf)
-- 50% increase in both PD and LGD, expected credit rating of A (low) (sf)
-- 25% increase in both PD and LGD, and 25% increase in RV haircut, expected credit rating of BBB (high) (sf)
-- 25% increase in both PD and LGD, and 50% increase in RV haircut, expected credit rating of BBB (sf)
-- 50% increase in both PD and LGD, and 25% increase in RV haircut, expected credit rating of BBB (high) (sf)
-- 50% increase in both PD and LGD, and 50% increase in RV haircut, expected credit rating of BBB (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 GmbH for use in the European Union.

Lead Analyst: Petter Wettestad, Assistant Vice President
Rating Committee Chair: Alfonso Candelas, Associate Managing Director
Initial Rating date: 11 September 2023

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

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.