Morningstar DBRS Confirms Credit Ratings on Two Bavarian Sky German Auto Loans Transactions

DBRS Ratings GmbH (Morningstar DBRS) confirmed the following credit ratings on the bonds issued by two Bavarian Sky German Auto Loans Transactions (the Issuer):

Bavarian Sky S.A., acting in respect of its Compartment German Auto Loans 12 (Bavarian Sky 12)
-- Class A Notes confirmed at AAA (sf)

Bavarian Sky S.A., acting in respect of its Compartment German Auto Loans 13 (Bavarian Sky 13)
-- Class A Notes confirmed at AAA (sf)

The credit ratings on both Class A Notes address the timely payment of interest and ultimate payment of principal on or before the legal final maturity date in March 2030 and March 2032 for the Bavarian Sky 12 and Bavarian Sky 13, respectively.

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 January 2025 payment date;
-- Probability of default (PD) and loss given default (LGD) assumptions on the remaining receivables;
-- Current available credit enhancement to the respective Class A Notes to cover the expected losses at the AAA (sf) credit rating level; and
-- For Bavarian Sky 13, no revolving termination events have occurred.

The transactions are securitisations of German auto loan receivables originated by BMW Banh GmbH (BMW Bank).
Bavarian Sky 12 closed in March 2023, with no revolving period. 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 customers (30.0%).
Bavarian Sky 13 closed in March 2024, and included an initial 12-month revolving period which is scheduled to end on the March 2025 payment date. The initial EUR 750.2 million portfolio consisted of new (48.5% of the pool balance) and used (51.5%) auto loans, granted to both private individuals (70.0%) and commercial customers (30.0%).

PORTFOLIO PERFORMANCE
-- For Bavarian Sky 12, as of the January 2025 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 0.3%. Gross cumulative defaults amounted to 0.7% of the original portfolio balance, with cumulative recoveries of 44.6% to date.
-- For Bavarian Sky 13, as of the January 2025 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 0.2%. Gross cumulative defaults amounted to 0.11% of the original portfolio balance, with cumulative recoveries of 44.7% to date.

PORTFOLIO ASSUMPTIONS AND KEY DRIVERS
Morningstar DBRS conducted a loan-by-loan analysis on both transactions remaining pool of receivables and updated its base case PD assumptions to 1.5% and maintained its LGD assumptions at 35.0%.

CREDIT ENHANCEMENT
The subordination of the respective Class B Notes and overcollateralisation resulting from the trapping of excess spread in the structure provide credit enhancement to the two Class A Notes.
-- For Bavarian Sky 12, as of the January 2025 payment date, credit enhancement to the Class A Notes increased to 18.4% from 12.0% at the time of Morningstar DBRS' last annual review.
-- For Bavarian Sky 13, as of the January 2025 payment date, credit enhancement to the Class A Notes remained stable since closing at 6.7%, due to the revolving period.

Both transactions benefit from nonamortising cash reserves available to cover senior fees, senior swap payments, and interest due on the respective Class A Notes, funded at closing 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.
-- Bavarian Sky 12, initial cash reserve funded at closing at EUR 9.75 million (equal to 1.0% of the initial portfolio balance); as of the January 2025 payment date, the reserve was at its target of EUR 9.75 million.
-- Bavarian Sky 13, initial cash reserve funded at closing at EUR 8.25 million (equal to 1.1% of the initial portfolio balance); as of the January 2025 payment date, the reserve was at its target of EUR 8.25 million.

The Bank of New York Mellon, Frankfurt Branch (BNYM Frankfurt) acts as the account bank for the two transactions. 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 structures, Morningstar DBRS considers the risk arising from the exposure to the account bank to be consistent with the credit ratings assigned to the respective Class A Notes, as described in Morningstar DBRS' "Legal and Derivative Criteria for European Structured Finance Transactions" methodology.

Skandinaviska Enskilda Banken AB (SEB) acts as the swap counterparty for Bavarian Sky 12. Morningstar DBRS' Long Term Critical Obligations Rating (COR) of AA (high) on SEB is consistent with the First Rating Threshold as described in Morningstar DBRS' " Legal and Derivative Criteria for European Structured Finance Transactions" methodology.

ING Bank N.V. (ING) acts as the swap counterparty for Bavarian Sky 13. Morningstar DBRS' Long Term COR of AA (high) on ING is consistent with the First Rating Threshold as described in Morningstar DBRS' "Legal and 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 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" (4 February 2025) https://dbrs.morningstar.com/research/447080.

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.

An asset and a cash flow analysis were both conducted. Due to the inclusion of a revolving period in Bavarian Sky 13, the analysis continues to consider potential portfolio migration based on replenishment criteria set forth in the transaction legal documents.

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 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 ratings, 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 20 March 2024, when Morningstar DBRS confirmed its AAA (sf) rating on the Class A Notes of Bavarian Sky 12 and finalised its provisional credit rating of AAA (sf) on the Class A Notes of Bavarian Sky 13.

The lead analyst responsibilities for these transactions have been transferred to Preben Cornelius Overas.

Information regarding Morningstar DBRS credit ratings, including definitions, policies, and methodologies, is available on 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 and LGD for the pool based on a review of the 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 on both the transactions are 1.5% and 35.0%, respectively.

For Bavarian Sky 12:
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 AAA (sf)

For Bavarian Sky 13:
Class A Notes Risk Sensitivity:
-- 25% increase in LGD, expected credit rating of AAA (sf)
-- 50% increase in LGD, expected credit rating of AA (high) (sf)
-- 25% increase in PD, expected credit rating of AA (high) (sf)
-- 50% increase in PD, expected credit rating of AA (sf)
-- 25% increase in PD and 25% increase in LGD, expected credit rating of AA (sf)
-- 25% increase in PD and 50% increase in LGD, expected credit rating of AA (sf)
-- 50% increase in PD and 25% increase in LGD, expected credit rating of AA (sf)
-- 50% increase in PD and 50% increase in LGD, expected credit rating of A (high) (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: Preben Cornelius Overas, Assistant Vice President
Rating Committee Chair: Alfonso Candelas, Associate Managing Director
Bavarian Sky 12 Initial Rating Date: 16 February 2023
Bavarian Sky 13 Initial Rating Date: 19 February 2024

DBRS Ratings GmbH
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The credit rating methodologies used in the analysis of these transactions can be found at: https://dbrs.morningstar.com/about/methodologies.

-- Master European Structured Finance Surveillance Methodology (4 February 2025),
https://dbrs.morningstar.com/research/447080
-- Legal and Derivative Criteria for European Structured Finance Transactions (19 November 2024),
https://dbrs.morningstar.com/research/443196
-- 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
-- Rating European Structured Finance Transactions Methodology (19 November 2024),
https://dbrs.morningstar.com/research/443199
-- 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.