Morningstar DBRS Takes Credit Rating Actions on VCL Master Sweden S.A., acting for and on behalf of its Compartment 1

DBRS Ratings GmbH (Morningstar DBRS) took the following credit rating actions on the notes issued by VCL Master Sweden S.A., acting for and on behalf of its Compartment 1 (the Issuer):
-- Class A1 Notes confirmed at AAA (sf)
-- Class A2 Notes confirmed at AAA (sf)
-- Class A3 Notes confirmed at AAA (sf)
-- Class A4 Notes confirmed at AAA (sf)
-- Class A5 Notes confirmed at AAA (sf)
-- Class B1 Notes downgraded to A (high) (sf) from AA (low) (sf)
-- Class B2 Notes downgraded to A (high) (sf) from AA (low) (sf)
-- Class B4 Notes downgraded to A (high) (sf) from AA (low) (sf)

Additionally, Morningstar DBRS assigned AAA (sf) and A (high) (sf) credit ratings to the already outstanding Class A6 and Class B3 Notes of the Issuer.

The credit ratings address the timely payment of interest and the ultimate payment of principal on or before the legal final maturity date of the notes in September 2034.

CREDIT RATING RATIONALE
The credit rating actions are based on the following analytical considerations:
-- An amendment of the transaction executed on 25 March 2025 (the Amendment);
-- The portfolio performance, in terms of delinquencies and defaults, as of the March 2025 payment date;
-- Probability of defaults (PD), loss given defaults (LGD), and expected loss assumptions on the remaining receivables;
-- No Early Termination Event occurred; and
-- The current levels of credit enhancement available to the rated notes to cover expected losses at their respective rating levels.

AMENDMENT
-- Updated margins on all series of notes;
-- A 12-month extension of the revolving period for the notes through to March 2026; and
-- A 12-month extension of the legal maturity date the notes through to September 2034.

The transaction is a master securitisation of financial and operational lease contracts comprising instalments and residual values (RVs) originated and serviced by Volkswagen Finans Sverige AB (VFS) in Sweden, with a maximum notes issuance amount of SEK 15.0 billion. As of the March 2025 payment date, the receivables portfolio had an outstanding balance of SEK 8.9 billion.

PORTFOLIO PERFORMANCE
As of the March 2025 payment date, leases that were 0 to 30 days, 30 to 60 days, and 60 to 90 days delinquent represented 0.82%, 0.09% and 0.01% respectively, of the outstanding portfolio balance. Leases more than 90 days in arrears were 0.02%. There were no cumulative written off leases, which are defined as lease that have been reduced by recoveries and finally written off by VFS.

PORTFOLIO ASSUMPTIONS AND KEY DRIVERS
Morningstar DBRS updated its expected PD assumption to 3.2% from 2.9% and maintained its expected LGD assumption at 30.0%, based on updated historical gross and net loss data received from VFS. Morningstar DBRS additionally updated its residual value (RV) assumptions and applied RV haircuts of 35.1% and 27.2% at the AAA (sf) and A (high) (sf) credit rating levels, respectively.

The updated RV haircut assumptions consider the higher share of electric and hybrid vehicles compared to last year's renewal and the associated underperformance observed in VFS's RV realization data. The updated expected PD assumption reflects the deterioration in gross loss performance in VFS's total origination portfolio that started occurring between the second half of 2022 and 2023. The credit deterioration coincides with a peak in business bankruptcies in Sweden, coupled with interest rates pressures on private and commercial lessees, and an increase in cases of fraud.

While both the updated PD and the increased RV assumptions contribute to the worsening of the cash flow results for the Class B Notes, Morningstar DBRS considers the deterioration in gross losses to be the main driver of the downgrade of the credit ratings on the Class B Notes.

CREDIT ENHANCEMENT
Credit enhancement to the series of Class A and Class B Notes is provided by portfolio overcollateralisation (OC). As of the March 2025 payment date, OC to the Class A and Class B Notes was 26.0% and 15.7%, respectively.

The transaction benefits from liquidity support in the form of a cash reserve funded to its target amount of SEK 89.6 million, equal to 1.2% of the outstanding principal balance of the notes. The reserve is available to cover senior expenses and missed interest payments on the Class A and Class B Notes.

Skandinaviska Enskilda Banken AB (SEB) acts as the account bank for the transaction. Based on Morningstar DBRS' public Long Term Critical Obligations Rating of AA (high) on SEB, 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 SEB to be consistent with the credit ratings assigned to the notes, as described in Morningstar DBRS' "Legal and Derivative Criteria for European Structured Finance Transactions" methodology.

Morningstar DBRS' credit ratings on the rated notes address the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents.

Morningstar DBRS' credit ratings do not address non-payment risk associated with contractual payment obligations contemplated in the applicable transaction 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, AND GOVERNANCE CONSIDERATIONS
Environmental (E) Factors
The transaction has a relatively large exposure to electric and hybrid vehicles at 52% of the current portfolio balance compared with 32% at issuance. Morningstar DBRS received RV performance data over a limited time horizon and aggregated by fuel and product type. Morningstar DBRS notes that RV performance related to hybrid and electric vehicles underperformed vehicles equipped with internal combustion engines in recent years and considered such exposure in deriving its RV loss assumption. Morningstar DBRS considers that the increased exposure to electric vehicles, combined with a potential further increase in that exposure during the revolving period, is a relevant Environmental factor within its analysis, namely the factor "Carbon and Greenhouse Gas (GHG) Costs".

There were no Social or 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 structure in Intex DealMaker.

Notes:
All figures are in Swedish krona unless otherwise noted.

The principal methodology applicable to the credit ratings are the "Master European Structured Finance Surveillance Methodology" (4 February 2025), https://dbrs.morningstar.com/research/447080 and the "Rating European Consumer and Commercial Asset-Backed Securitisations" Methodology (18 September 2024), https://dbrs.morningstar.com/research/439583.

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 the transaction, the analysis continues to consider potential portfolio migration based on replenishment criteria set forth in the transaction legal documents.

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 VFS, legal documentation provided by the Issuer's legal counsel, and the following historical performance data provided by VFS directly or through the arranger, SEB:
-- Static monthly gross loss from November 2015 to October 2024
-- Static monthly net loss data from November 2015 to October 2024
-- Dynamic monthly net loss data from January 2015 to November 2024
-- Dynamic monthly delinquency data from January 2015 to November 2024
-- Dynamic monthly early termination data from January 2015 to November 2024

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

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 this transaction took place on 25 March 2024, when Morningstar DBRS confirmed its AAA (sf) credit ratings on the Class A1, Class A2, Class A3, Class A4, and Class A5 Notes and its AA (low) (sf) credit ratings on the Class B1, Class B2 and Class B4 Notes.

The lead analyst responsibilities for this transaction 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 transaction 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):
-- PD rate used: base case PD of 3.2%, a 25% and 50% increase on the base case PD was tested.
-- LGD rates used: LGD of 55.2% at the AAA (sf) stress level and 48.5% at the A (high) (sf) stress level, a 25% and 50% decrease in the base case LGD was tested.
-- RV Loss rate: 35.1% at the AAA (sf) stress level and 24.9% at the A (high) (sf) stress level. In both scenarios, a 25% and 50% increase in RV Loss was tested.

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

Class B Notes Risk Sensitivity:
-- 25% increase in PD and LGD, expected credit rating of A (low) (sf)
-- 50% increase in PD and LGD, expected credit rating of BBB (high) (sf)
-- 25% increase in RV Loss, expected credit rating of A (low) (sf)
-- 50% increase in RV Loss, expected credit rating of BBB (high) (sf)
-- 25% increase in PD and LGD and 25% increase in RV Loss, expected credit rating of BBB (high) (sf)
-- 25% increase in PD and LGD and 50% increase in RV Loss, expected credit rating of BBB (sf)
-- 50% increase in PD and LGD and 25% increase in RV Loss, expected credit rating of BBB (sf)
-- 50% increase in PD and LGD and 50% increase in RV Loss, 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 Limited for use in the United Kingdom.

Lead Analyst: Stefano Pruni, Senior Analyst
Rating Committee Chair: Alfonso Candelas, Associate Managing Director
Initial Rating Date: 27 March 2023

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.

-- Master European Structured Finance Surveillance Methodology (4 February 2025),
https://dbrs.morningstar.com/research/447080
-- Rating European Structured Finance Transactions Methodology (19 November 2024),
https://dbrs.morningstar.com/research/443199
-- Rating European Consumer and Commercial Asset-Backed Securitisations (18 September 2024), https://dbrs.morningstar.com/research/439583.
-- 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.
-- 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.