DBRS Ratings Limited (DBRS) confirmed the Class A Notes issued by Bavarian Sky France, Compartment French Auto Leases 2 (the Issuer) at AAA (sf) and upgraded the Class B Notes to AA (sf) from A (high) (sf) (together, the Notes).
The rating actions follow an annual review of the transaction and are based on the following analytical considerations:
-- The portfolio performance, in terms of level of delinquencies and cumulative net losses, as of the November 2018 payment date;
-- The increased levels of credit enhancement (CE) available to the Notes to cover expected losses are in line with their respective rating levels.
The ratings address the timely payment of interest and the ultimate repayment of principal on or before the legal final maturity date in November 2023.
Bavarian Sky France, Compartment French Auto Leases 2 is a securitisation of auto lease receivables originated in France by BMW Finance SNC (BMW Finance). As of the November 2018 payment date, the EUR 232.9 million portfolio comprised leases for new (91.4% of the outstanding discounted lease balance) and used (8.6%) vehicles, granted to both commercial (26.7%) and private individuals (73.3%). The residual value associated with the auto leases has been securitised and comprises 79.1% of the current portfolio. The transaction has no revolving period and has been amortising since it closed in December 2016.
As of the November 2018 payment date, 30- to 60-day delinquencies represented 0.2% of the outstanding discounted lease balance; 60- to 90-day delinquencies comprised 0.1% of the balance; and delinquencies greater than 90 days were 0.3%. The gross cumulative default ratio as a percentage of the original portfolio was 0.7% as of November 2018, 18.8% of which has been recovered so far.
DBRS conducted an analysis of the remaining collateral pool and updated its cumulative net loss assumption to 2.5%. DBRS’s residual value haircuts were updated to 36.6% for the AAA (sf) rating level and 29.9% for the AA (sf) rating level.
CE is provided primarily by the subordination of the respective junior obligations. Additionally, the cash reserve may be applied to principal shortfalls at Issuer default or final maturity. CE for the Class A Notes increased to 69.1% in November 2018 from 23.5% at closing while the CE for the Class B Notes increased to 46.8% from 13.5%.
The transaction benefits from a non-amortising cash reserve available to cover senior fees and interest due on the Notes, funded at closing with part of the proceeds of a subordinated loan. In the event of Issuer default, it can also be used to cover principal payments on the Notes. It has been at its target level of EUR 2.6 million since closing.
A swap structure is in place to hedge the interest rate mismatch between the Notes, indexed to one-month Euribor, and the fixed interest rate payments from the collateral portfolio. DZ BANK AG Deutsche Zentral-Genossenschaftsbank (DZ BANK AG) acts as the Swap Counterparty for the transaction. DBRS’s Long Term Critical Obligations Rating of DZ BANK AG at AA is consistent with the First Rating Threshold as described in the “Derivative Criteria for European Structured Finance Transactions” methodology.
BNP Paribas Securities Services SCA acts as the Account Bank for the transaction. Based on DBRS private rating of BNP Paribas Securities Services SCA, the downgrade provisions outlined in the transaction documents, and structural mitigants, DBRS consider the risk arising from the exposure to BNP Paribas Securities Services SCA to be consistent with the rating assigned to the Notes, as described in DBRS’s “Legal Criteria for European Structured Finance Transactions” methodology.
All figures are in euros unless otherwise noted.
The principal methodology applicable to the ratings is: “Master European Structured Finance Surveillance Methodology”.
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 rating action.
Other methodologies referenced in this transaction are listed at the end of this press release.
These may be found on www.dbrs.com at: http://www.dbrs.com/about/methodologies.
For a more detailed discussion of the sovereign risk impact on Structured Finance ratings, please refer to “Appendix C: The Impact of Sovereign Ratings on Other DBRS Credit Ratings” of the “Rating Sovereign Governments” methodology at: http://dbrs.com/research/333487/rating-sovereign-governments.pdf.
The sources of data and information used for these ratings include monthly investor reports provided by France Titrisation (the Management Company) and BMW Finance.
DBRS did not rely upon third-party due diligence in order to conduct its analysis.
At the time of the initial rating, DBRS was supplied with third-party assessments. However, this did not impact the rating analysis.
DBRS considers the data and information available to it for the purposes of providing these ratings to be of satisfactory quality.
DBRS does not audit or independently verify the data or information it receives in connection with the rating process.
The last rating action on this transaction took place on 12 December 2017 when DBRS confirmed the rating of the Class A Notes at AAA (sf) and upgraded the rating of the Class B Notes to A (high) (sf).
Information regarding DBRS ratings, including definitions, policies and methodologies, is available on www.dbrs.com.
To assess the impact of the changing the transaction parameters on these ratings, DBRS considered the following stress scenarios, as compared to the parameters used to determine the rating (the “Base Case”):
-- DBRS expected a base case probability of default (PD), loss given default (LGD) and residual value loss (RV loss) for the portfolio 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 pool of assets of receivables are 3.3% and 75.0%, respectively. For the Class A and B Notes, RV loss of 36.6% and 29.9% were assumed considering their respective rating levels.
Class A Notes risk sensitivity:
-- 25% increase in RV loss, expected rating of AAA (sf)
-- 50% increase in RV loss, expected rating of AAA (sf)
-- 25% increase in both PD and LGD, expected rating of AAA (sf)
-- 25% increase in both PD and LGD and 25% increase in RV loss, expected rating of AAA (sf)
-- 25% increase in both PD and LGD and 50% increase in RV loss, expected rating of AAA (sf)
-- 50% increase in both PD and LGD, expected rating of AAA (sf)
-- 50% increase in both PD and LGD and 25% increase in RV loss, expected rating of AAA (sf)
-- 50% increase in both PD and LGD and 50% increase in RV loss, expected rating of AAA (sf)
Class B Notes risk sensitivity:
-- 25% increase in RV loss, expected rating of AA (sf)
-- 50% increase in RV loss, expected rating of AA (sf)
-- 25% increase in both PD and LGD, expected rating of AA (sf)
-- 25% increase in both PD and LGD and 25% increase in RV loss, expected rating of AA (sf)
-- 25% increase in both PD and LGD and 50% increase in RV loss, expected rating of AA (sf)
-- 50% increase in both PD and LGD, expected rating of AA (sf)
-- 50% increase in both PD and LGD and 25% increase in RV loss, expected rating of AA (low)(sf)
-- 50% increase in both PD and LGD and 50% increase in RV loss, expected rating of A (high) (sf)
For further information on DBRS historical default rates published by the European Securities and Markets Authority (ESMA) in a central repository, see: http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml.
Ratings assigned by DBRS Ratings Limited are subject to EU and US regulations only.
Lead Analyst: Joana Seara da Costa, Assistant Vice President
Rating Committee Chair: Alfonso Candelas, Senior Vice President
Initial Rating Date: 14 November 2016
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The rating methodologies used in the analysis of this transaction can be found at: http://www.dbrs.com/about/methodologies.
-- Master European Structured Finance Surveillance Methodology
-- Legal Criteria for European Structured Finance Transactions
-- Operational Risk Assessment for European Structured Finance Servicers
-- Rating European Consumer and Commercial Asset-Backed Securitisations
-- Interest Rate Stresses for European Structured Finance Transactions
-- Derivative Criteria for European Structured Finance Transactions
A description of how DBRS analyses structured finance transactions and how the methodologies are collectively applied can be found at: http://www.dbrs.com/research/278375.
For more information on this credit or on this industry, visit www.dbrs.com or contact us at email@example.com.