DBRS Ratings GmbH (DBRS) confirmed its AAA (sf) rating on the Class A Notes issued by SC Germany Auto 2018-1 (haftungsbeschränkt) (the Issuer).
The confirmation follows an annual review of the transaction and is based on the following analytical considerations:
-- Portfolio performance, in terms of delinquencies, defaults and losses;
-- Probability of default (PD), loss given default (LGD) and expected loss assumptions on the remaining receivables;
-- Current available credit enhancement (CE) to the Class A Notes to cover the expected losses at the AAA (sf) rating level.
The rating on the Notes addresses the timely payment of interest and ultimate payment of principal on or before the legal final maturity date in December 2027.
The Issuer is a static securitisation of German auto loan receivables originated and serviced by Santander Consumer Bank AG (SCB) – a subsidiary of Santander Consumer Finance SA (SCF). The EUR 600.0 million portfolio at closing comprised loans granted exclusively to private borrowers for the purchase of new (40.0% of the initial pool balance) and used (60.0%) vehicles. The transaction closed in June 2018 and had no revolving period.
As of the June 2019 payment date, loans that were 0 to 30 days, 30 to 60 days and 60 to 90 days delinquent represented 0.2%, 0.2% and 0.1% of the outstanding portfolio balance, respectively, while loans more than 90 days delinquent amounted to 0.1%. Gross cumulative defaults amounted to 0.1% of the original principal balance.
DBRS conducted a loan-by-loan analysis of the remaining pool of receivables and has updated its base case PD and LGD assumptions on the outstanding portfolio to 1.2% and 68.8%, respectively.
CE to the Class A Notes is provided by the subordination of the Class B Notes. As of the June 2019 payment date, CE to the Class A Notes increased to 8.9% from 6.5% at closing.
The transaction benefits from an amortising reserve fund that was funded at closing with the proceeds of a subordinated loan granted by the seller. The reserve fund has a target balance equal to 1.0% of the outstanding principal balance of the Class A Notes, subject to a floor of EUR 1,000,000. The reserve provides liquidity support to the structure and is available to cover any shortfalls on senior fees, senior swap payments and interest due on the Class A Notes. As of the June 2019 payment date, the reserve fund was at its target level of EUR 4.1 million.
The Issuer is exposed to potential commingling and set-off risks as collections are transferred to the account bank on a monthly basis, and debtors may open accounts and maintain deposits with the originator. As a mitigant, the transaction documents stipulate that SCB shall fund both a commingling and set-off reserve if the rating of SCB’s parent company – SCF – falls below a specific threshold as defined in the transaction documents. To date, these reserves continue to be unfunded, as none of the rating triggers have been breached.
ABN AMRO Bank N.V (ABN AMRO) acts as the issuer account bank for the transaction. Based on the account bank reference rating of ABN AMRO at AA (low), which is one notch below the DBRS public Long-Term Critical Obligations Rating of AA, the downgrade provisions outlined in the transaction documents, and other mitigating factors inherent in the transactions 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.
DZ BANK AG Deutsche Zentral-Genossenschaftsbank (DZ Bank) and ABN AMRO act as the swap counterparties for the transaction. DBRS’s public Long-Term Critical Obligation Ratings of DZ Bank and ABN AMRO at AA are above the First Rating Threshold as described in DBRS's "Derivative Criteria for European Structured Finance Transactions" methodology.
The transaction structure was analysed in Intex DealMaker.
All figures are in euros unless otherwise noted.
The principal methodology applicable to the rating 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 this rating include monthly investor reports provided by SCB and 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 this rating 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 21 June 2018, when DBRS finalised its provisional rating assigned to the Class A Notes.
The lead analyst responsibilities for this transaction have been transferred to Daniel Rakhamimov.
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):
-- DBRS expected a lifetime base case PD and LGD 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 and LGD of the current pool of loans for the Issuer are 1.2% and 68.8%, respectively.
-- The risk sensitivity overview below illustrates the ratings expected if the PD and LGD increase by a
certain percentage over the base case assumption. For example, if the LGD increases by 50%, the rating on the Class A Notes would be expected to remain at AAA (sf), ceteris paribus. If the PD increases by 50%, the rating on the Class A Notes would be expected to remain at AAA (sf), ceteris paribus. Furthermore, if both the PD and LGD increase by 50%, the rating on the Class A Notes would be expected to remain at AAA (sf).
Class A Notes Risk Sensitivity:
-- 25% increase in LGD, expected rating of AAA (sf)
-- 50% increase in LGD, expected rating of AAA (sf)
-- 25% increase in PD, expected rating of AAA (sf)
-- 50% increase in PD, expected rating of AAA (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of AAA (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of AAA (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of AAA (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of AAA (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 GmbH are subject to EU and US regulations only.
Lead Analyst: Daniel Rakhamimov, Senior Financial Analyst
Rating Committee Chair: Alfonso Candelas, Senior Vice President
Initial Rating Date: 30 May 2018
DBRS Ratings GmbH
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Geschäftsführer: Detlef Scholz
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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
-- 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.