DBRS Morningstar Assigns Provisional Ratings to Bavarian Sky French Auto Leases 4Auto
DBRS Ratings GmbH (DBRS Morningstar) assigned provisional ratings to the following classes of notes expected to be issued by Bavarian Sky French Auto Leases 4 (the Issuer), a French Fonds Commun de Titrisation (FCT):
-- Class A Notes at AAA (sf)
-- Class B Notes at A (sf)
DBRS Morningstar did not assign provisional ratings to the Class C Notes or the residual units expected to be issued in this transaction.
The ratings of the Class A Notes and the Class B Notes address the timely payment of scheduled interest and ultimate repayment of principal by the legal final maturity date, in accordance with the terms of the notes.
DBRS Morningstar based its provisional ratings on information provided by the Issuer and its agents as of the date of this press release. The ratings will be finalised upon receipt of an execution version of the governing transaction documents. To the extent that the documents and information provided to DBRS Morningstar as of this date differ from the executed version of the governing transaction documents, DBRS Morningstar may assign different final ratings to the Class A Notes and the Class B Notes.
This transaction represents the issuance of notes backed by a static portfolio related to vehicle lease agreements, including the residual value (RV) component for the leases, granted by BMW Finance SNC (BMW Finance or the Seller) to private and commercial borrowers residing or incorporated in the Republic of France.
A pledge without dispossession (gage sans dépossession) over the leased vehicles has been granted by the Seller in favour of the management company to guarantee any and all present and future payment obligations of the Seller under the lease receivables purchase agreement and the servicer agreement. The transaction is managed by France Titrisation and the receivables are serviced by BMW Finance. BMW Finance is a wholly owned subsidiary of BMW AG.
DBRS Morningstar based its ratings on a review of the following analytical considerations:
-- The transaction's capital structure, including form and sufficiency of available credit enhancement;
-- Relevant credit enhancement in the form of subordination, excess spread, and the availability of the cash reserve;
-- Credit enhancement levels are sufficient to support DBRS Morningstar’s projected cumulative net losses and residual value losses under various stressed cash flow assumptions for the Class A Notes and the Class B Notes;
-- The ability of the transaction to withstand stressed cash flow assumptions and repay investors according to the terms under which they have invested;
-- BMW Finance’s financial strength and its capabilities with regard to originations, underwriting, and servicing;
-- The transaction parties’ financial strength with regard to their respective roles;
-- The credit quality of the collateral and historical and projected performance of the Seller’s portfolio;
-- The sovereign rating of the Republic of France currently at AA (high) with a Stable trend; and
-- The expected consistency of the transaction’s legal structure with DBRS Morningstar’s “Legal Criteria for European Structured Finance Transactions” methodology and the presence of legal opinions that are expected to address the true sale of the assets to the Issuer.
The cash flow structure benefits from a full turbo amortisation mechanism allows whereby, after replenishment of the reserve fund, all available distribution amounts including excess spread are made available to pay down the most senior notes outstanding. This effectively means that, until the notes are repaid in full, no amounts can be used to pay junior items in the priority of payments.
A nonamortising cash reserve account equal to 0.5% of the portfolio balance at the cut-off date is available to the structure. The cash reserve provides liquidity to the Class A Notes and the Class B Notes while also ultimately providing credit enhancement to the notes. It is available to repay principal on the notes when the outstanding principal balance of the portfolio reaches zero and on the legal final maturity date.
All underlying contracts are fixed rate while floating-rate notes will be issued. The Class A Notes are indexed to one-month Euribor. Interest rate risk for the Class A Notes is mitigated through an interest rate swap provided by DZ Bank AG Deutsche Zentral-Genossenschaftsbank, Frankfurt am Main (DZ Bank).
The Issuer bank account is held at BNP Paribas Securities Services (BNPSS). DBRS Morningstar privately rates BNPSS and concluded that it meets the minimum criteria to act in its capacity as the account bank. The transaction is expected to contain downgrade provisions relating to the account bank consistent with DBRS Morningstar’s criteria.
DZ Bank is the swap counterparty for the transaction. The DBRS Morningstar public Long-Term Issuer Rating on DZ Bank is at AA (low) with a Stable trend. The hedging documents are expected to contain downgrade provisions consistent with DBRS Morningstar’s criteria.
DBRS Morningstar analysed the transaction structure in Intex DealMaker.
The Coronavirus Disease (COVID-19) and the resulting isolation measures have caused an economic contraction, leading to sharp increases in unemployment rates and income reductions for many borrowers. DBRS Morningstar anticipates that delinquencies may continue to increase in the coming months for many structured finance transactions, some meaningfully. The ratings are based on additional analysis and adjustments to expected performance as a result of the global efforts to contain the spread of the coronavirus. For this transaction, DBRS Morningstar applied a moderate haircut to its expected recovery rate and adjusted expected default rates associated with corporate lessees.
On 16 April 2020, the DBRS Morningstar Sovereign group released a set of macroeconomic scenarios for the 2020-22 period in select economies. These scenarios were last updated on 28 January 2021. For details, see the following commentaries: https://www.dbrsmorningstar.com/research/372842/global-macroeconomic-scenarios-january-2021-update and https://www.dbrsmorningstar.com/research/359903/global-macroeconomic-scenarios-application-to-credit-ratings. The DBRS Morningstar analysis considered impacts consistent with the moderate scenario in the referenced reports.
On 8 May 2020, DBRS Morningstar published a commentary outlining how the coronavirus crisis is likely to affect DBRS Morningstar-rated ABS transactions in Europe. For more details, please see: https://www.dbrsmorningstar.com/research/360734/european-abs-transactions-risk-exposure-to-coronavirus-covid-19-effect and https://www.dbrsmorningstar.com/research/362712/european-structured-finance-covid-19-credit-risk-exposure-roadmap.
For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.
For more information regarding the structured finance rating approach and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/359905.
For more information regarding structured finance rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/358308.
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/373262.
All figures are in euros unless otherwise noted.
The principal methodology applicable to the ratings is: Rating European Consumer and Commercial Asset-Backed Securitisations (3 September 2020).
DBRS Morningstar 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.
Other methodologies referenced in this transaction are listed at the end of this press release.
These may be found at: http://www.dbrsmorningstar.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 Morningstar Credit Ratings” of the “Global Methodology for Rating Sovereign Governments” at: https://www.dbrsmorningstar.com/research/364527/global-methodology-for-rating-sovereign-governments.
The sources of data and information used for these ratings include BMW Finance SNC.
DBRS Morningstar received the following data and information:
-- Static default and net loss data; data was provided separately for used/new vehicles and private/corporate customers;
-- Dynamic origination, delinquency, and prepayment data;
-- Summarised stratification tables as at 31 January 2021;
-- Vehicle realisation proceeds split by vehicle model and fuel type; and
-- A theoretical amortisation of the selected pool.
DBRS Morningstar did not rely upon third-party due diligence in order to conduct its analysis.
DBRS Morningstar was supplied with third-party assessments. However, this did not impact the rating analysis.
DBRS Morningstar considers the data and information available to it for the purposes of providing these ratings to be of satisfactory quality.
DBRS Morningstar does not audit or independently verify the data or information it receives in connection with the rating process.
These ratings concern newly issued financial instruments. These are the first DBRS Morningstar ratings on these financial instruments.
Information regarding DBRS Morningstar ratings, including definitions, policies, and methodologies, is available on www.dbrsmorningstar.com.
To assess the impact of changing the transaction parameters on the ratings, DBRS Morningstar considered the following stress scenarios, as compared to the parameters used to determine the ratings (the base case):
-- Expected default: 2.4%.
-- Expected recovery rate: 60.0%.
-- Loss given default (LGD): 59.8% for the AAA (sf) scenario and 53.2% for the A (sf) scenario.
-- RV loss: 39.2% for the AAA (sf) scenario and 27.4% for the A (sf) scenario.
Scenario 1: A 25% increase in the expected default and LGD.
Scenario 2: A 50% increase in the expected default and LGD.
Scenario 3: A 25% increase in the RV loss.
Scenario 4: A 25% increase in the expected default and LGD and a 25% increase in the RV loss.
Scenario 5: A 50% increase in the expected default and LGD and a 25% increase in the RV loss.
Scenario 6: A 50% increase in the expected RV loss.
Scenario 7: A 25% increase in the expected default and LGD and a 50% increase in the RV loss.
Scenario 8: A 50% increase in the expected default and LGD and a 50% increase in the RV loss.
DBRS Morningstar concludes that the expected ratings under the eight stress scenarios will be:
-- Class A Notes: AA (sf), AA (low) (sf), AA (sf), AA (low) (sf), A (high) (sf), A (high) (sf), A (sf), and A (low) (sf)
-- Class B Notes: A (low) (sf), BBB (high) (sf), BBB (high) (sf), BBB (sf), BBB (low) (sf), BB (high) (sf), BB (high) (sf), and BB (sf)
For further information on DBRS Morningstar 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.
DBRS Morningstar understands further information on DBRS Morningstar historical default rates may be published by the Financial Conduct Authority (FCA) on its webpage: https://www.fca.org.uk/firms/credit-rating-agencies.
These ratings are endorsed by DBRS Ratings Limited for use in the United Kingdom.
Lead Analyst: Guglielmo Panizza, Assistant Vice President
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: 9 March 2021
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The rating methodologies used in the analysis of this transaction can be found at: http://www.dbrsmorningstar.com/about/methodologies
-- Rating European Consumer and Commercial Asset-Backed Securitisations (3 September 2020),
-- Rating European Structured Finance Transactions (21 July 2020), https://www.dbrsmorningstar.com/research/364305/rating-european-structured-finance-transactions-methodology.
-- Legal Criteria for European Structured Finance Transactions (11 September 2019),
-- Derivative Criteria for European Structured Finance Transactions (24 September 2020),
-- Operational Risk Assessment for European Structured Finance Originators (30 September 2020), https://www.dbrsmorningstar.com/research/367603/operational-risk-assessment-for-european-structured-finance-originators.
-- Operational Risk Assessment for European Structured Finance Servicers (19 November 2020), https://www.dbrsmorningstar.com/research/370270/operational-risk-assessment-for-european-structured-finance-servicers.
-- Interest Rate Stresses for European Structured Finance Transactions (28 September 2020),
-- DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (3 February 2021), https://www.dbrsmorningstar.com/research/373262/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings.
A description of how DBRS Morningstar analyses structured finance transactions and how the methodologies are collectively applied can be found at: http://www.dbrsmorningstar.com/research/278375.
For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at email@example.com.
ALL DBRS RATINGS ARE SUBJECT TO DISCLAIMERS AND CERTAIN LIMITATIONS. PLEASE READ THESE DISCLAIMERS AND LIMITATIONS AND ADDITIONAL INFORMATION REGARDING DBRS RATINGS, INCLUDING DEFINITIONS, POLICIES, RATING SCALES AND METHODOLOGIES.
- Legal Criteria for European Structured Finance Transactions (Archived) / September 11, 2019
- Rating European Structured Finance Transactions Methodology (Archived) / July 21, 2020
- Derivative Criteria for European Structured Finance Transactions (Archived) / September 24, 2020
- Interest Rate Stresses for European Structured Finance Transactions (Archived) / September 28, 2020
- Rating European Consumer and Commercial Asset-Backed Securitisations (Archived) / September 3, 2020
- Operational Risk Assessment for European Structured Finance Servicers (Archived) / November 19, 2020
- Operational Risk Assessment for European Structured Finance Originators (Archived) / September 30, 2020
- DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (Archived) / February 3, 2021