DBRS Ratings Limited (DBRS) confirmed the following ratings on the notes issued by Driver UK Multi-Compartment S.A. acting for and on behalf of its Compartment Private Driver UK 2016-1 (the Issuer):
-- Class A Notes at AA (high) (sf)
-- Class B Notes at A (sf)
The ratings of the Class A Notes and Class B Notes (the Notes) address the timely payment of interest and ultimate payment of principal on or before the legal final maturity date.
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 May 2019 payment date.
-- Probability of default (PD), loss given default (LGD) and expected loss assumptions on the remaining receivables.
-- Current available credit enhancement to the Notes to cover the expected losses at their respective rating levels.
The Issuer is a securitisation of auto loans granted by Volkswagen Financial Services (UK) plc (VWFS) to retail and commercial customers residing in the United Kingdom. The portfolio comprises PCP loans (96.8%) and Hire Purchase loans (3.3%). The transaction had an 11-month revolving period which ended in May 2017.
As of May 2019, two- to three-month arrears represented 0.2% of the outstanding portfolio balance, which is stable since May 2018. The 90+ delinquency ratio was 0.1%, also stable since May 2018. Cumulative net losses were 1.1%.
DBRS conducted an analysis of updated vintage data provided by VWFS and updated its expected gross loss assumption to 8.2% (including Hostile Terminations and Voluntary Terminations (VTs)) from 7.0% for the remaining pool of receivables, driven by an increase in VTs. DBRS assumed a base case recovery rate of 67.9%
The transaction has a sequential/pro rata amortisation structure whereby collections from the receivables are initially used to pay down the Class A Notes in priority to the Class B Notes until the overcollateralisation (OC) target is reached. Once the OC target is reached, principal is allocated on a pro rata basis unless a performance trigger is breached. As of the May 2019 payment date, both the Class A Notes and Class B Notes OC were at their respective target levels.
The transaction structure includes a cash collateral account with two separate ledgers:
-- The Cash Collateral Account is available to cover senior expenses, interest shortfall on the notes and, as soon as the portfolio balance is reduced to zero or on the relevant final maturity date, to repay principal on the notes. The Cash Collateral Account is funded to its target level of GBP 7.5 million.
-- The interest compensation ledger is available to compensate the Issuer for interest shortfalls suffered as a result of early settlements. The Interest Compensation Ledger is funded to its target level of GBP 3.0 million.
The Bank of New York Mellon - London Branch acts as the account bank for the transaction. Based on the DBRS public rating of The Bank of New York Mellon - London Branch at AA, the downgrade provisions outlined in the transaction documents, and other mitigating factors inherent in the transaction structure, DBRS considers the risk arising from the exposure to the account bank to be consistent with the rating assigned to the Class A Notes, as described in DBRS's "Legal Criteria for European Structured Finance Transactions" methodology.
The transaction structure was analysed in Intex DealMaker.
All figures are in British pound sterling unless otherwise noted.
The principal methodology applicable to the ratings is the “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 investor reports provided by Volkswagen Financial Services UK Limited and loan-level data provided by the European DataWarehouse GmbH.
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 4 June 2018, when DBRS downgraded the ratings of the Class A Notes and the Class B Notes to AA (high) (sf) and A (sf), from AAA (sf) and A (high) (sf), respectively.
The lead analyst responsibilities for this transaction have been transferred to Clare Wootton.
Information regarding DBRS ratings, including definitions, policies and methodologies is available at www.dbrs.com.
To assess the impact of changing the transaction parameters on the rating, DBRS considered the following stress scenarios as compared with the parameters used to determine the rating (the Base Case):
-- Probability of Default (PD): Base Case of 8.2%, with a 25% and 50% increase in the Base Case PD.
-- Loss Given Default (LGD): Base Case of 32.1%, 45.6% at the AA (high) (sf) rating level and 40.4% at the A (sf) rating level, with a 25% and 50% increase in the LGD.
-- RV Loss: 35.5% and 28.2% for the AA (high) (sf) and A (sf) scenarios, respectively, with a 25% and 50% increase in the RV Loss.
Class A Notes Risk Sensitivity:
-- 25% increase in PD and LGD, expected rating of A (high) (sf)
-- 50% increase in PD and LGD, expected rating of BBB (high) (sf)
-- 25% increase in RV Loss, expected rating of A (high) (sf)
-- 50% increase in RV Loss, expected rating of BBB (high) (sf)
-- 25% increase in PD and LGD and 25% increase in RV Loss, expected rating of A (low) (sf)
-- 25% increase in PD and LGD and 50% increase in RV Loss, expected rating of BBB (high) (sf)
-- 50% increase in PD and LGD and 25% increase in RV Loss, expected rating of BBB (sf)
-- 50% increase in PD and LGD and 50% increase in RV Loss, expected rating of BBB (low) (sf)
Class B Notes Risk Sensitivity:
-- 25% increase in PD and LGD, expected rating of BB (high) (sf)
-- 50% increase in PD and LGD, expected rating of BB (sf)
-- 25% increase in RV Loss, expected rating of BB (sf)
-- 50% increase in RV Loss, expected rating of B (high) (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of BB (sf)
-- 25% increase in PD and LGD and 50% increase in RV Loss, expected rating of B (high) (sf)
-- 50% increase in PD and LGD and 25% increase in RV Loss, expected rating of B (high) (sf)
-- 50% increase in PD and LGD and 50% increase in RV Loss, expected rating of B (sf)
For further information on DBRS historical default rates published by the European Securities and Markets Authority (ESMA) in a central repository, see:
Ratings assigned by DBRS Ratings Limited are subject to EU and US regulations only.
Lead Analyst: Clare Wootton, Senior Financial Analyst
Rating Committee Chair: Alfonso Candelas, Senior Vice President
Initial Rating Date: 27 June 2016
DBRS Ratings Limited
20 Fenchurch Street
Registered in England and Wales: No. 7139960.
The rating methodologies used in the analysis of this transaction can be found at: http://www.dbrs.com/about/methodologies.
-- Legal Criteria for European Structured Finance Transactions
-- Master European Structured Finance Surveillance Methodology
-- Operational Risk Assessment for European Structured Finance Servicers
-- Rating European Consumer and Commercial Asset-Backed Securitisations
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 firstname.lastname@example.org.