Press Release

DBRS Morningstar Upgrades and Confirms Ratings on Bavarian Sky French Auto Leases 4

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April 13, 2023

DBRS Ratings GmbH (DBRS Morningstar) took the following rating actions on the notes issued by Bavarian Sky French Auto Leases 4 (the Issuer):

-- Class A Notes confirmed at AAA (sf)
-- Class B Notes upgraded to AAA (sf) from A (high) (sf)

The ratings on the notes address the timely payment of interest and ultimate payment of principal on or before the legal final maturity date in April 2029.

The rating actions 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 March 2023 payment date;
-- Probability of default (PD), loss given default (LGD), and residual value (RV) loss assumptions on the remaining receivables; and
-- Current available credit enhancement to the notes to cover the expected losses at the AAA (sf) rating level.

The transaction is a static securitisation of French auto lease receivables originated by BMW Finance S.N.C. (BMW Finance), which closed in April 2021. The initial EUR 588.2 million portfolio consisted of new (86.4% of the pool balance) and used (13.6%) auto leases, granted to both private individuals (83.6%) and commercial borrowers (16.4%). The RVs associated with the auto leases are securitised and comprised 58.3% of the portfolio at closing. As of the March 2023 payment date, the RVs comprised 87.4% of the total outstanding collateral balance.

PORTFOLIO PERFORMANCE
As of the March 2023 payment date, loans that were 0 to 30 days, 30 to 60 days, and 60 to 90 days delinquent represented each 0.2% of the outstanding discounted portfolio balance while loans more than 90 days delinquent also amounted to 0.2%. Gross cumulative defaults amounted to 0.6% of the original portfolio balance, with cumulative recoveries of 34.9% to date.

PORTFOLIO ASSUMPTIONS AND KEY DRIVERS
DBRS Morningstar conducted a loan-by-loan analysis of the remaining pool of receivables and updated its base case PD and LGD assumptions to 2.2% and 34.3%, respectively. The RV loss rate remained at 39.2% at the AAA (sf) rating level.

CREDIT ENHANCEMENT
The subordination of the respective junior obligations and overcollateralisation resulting from the trapping of excess spread in the structure provide credit enhancement to the rated notes. As of the March 2023 payment date, credit enhancement to the Class A Notes increased to 67.1% from 34.6% at the time of DBRS Morningstar’s previous annual review of the transaction 12 months ago while credit enhancement to the Class B Notes increased to 46.1% from 22.6%. The increased credit enhancement prompted the upgrade of the rating on the Class B Notes.

The transaction benefits from a nonamortising cash reserve available to cover senior fees, senior swap payments, and interest due on the notes, funded at closing to EUR 2.94 million using the proceeds of a subordinated loan granted by BMW Finance. In the event of the Issuer’s default, as well as at the legal final maturity date, the cash reserve can also be used to cover principal payments on the notes. The reserve has been at its target balance of EUR 2.94 million since closing.

BNP Paribas SA (BNPP) acts as the account bank for the transaction. Based on the reference rating of AA on BNPP (one notch below its DBRS Morningstar Long Term Critical Obligations Rating of AA (high)), the downgrade provisions outlined in the transaction documents, and other mitigating factors inherent in the transaction structure, DBRS Morningstar considers the risk arising from the exposure to the account bank to be consistent with the ratings assigned to the notes, as described in DBRS Morningstar’s “Legal Criteria for European Structured Finance Transactions” methodology.

DZ BANK AG Deutsche Zentral-Genossenschaftsbank (DZ Bank) acts as the swap counterparty for the transaction. DBRS Morningstar’s public Long Term COR of AA on DZ Bank is consistent with the First Rating Threshold as described in DBRS Morningstar's "Derivative Criteria for European Structured Finance Transactions" methodology.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factors that had a significant or relevant impact on the credit analysis.

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/396929/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings.

DBRS Morningstar analysed the transaction structure in Intex DealMaker.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the ratings is the “Master European Structured Finance Surveillance Methodology” (7 February 2023), https://www.dbrsmorningstar.com/research/409485/master-european-structured-finance-surveillance-methodology.

Other methodologies referenced in this transaction are listed at the end of this press release.

DBRS Morningstar 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.

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/401817/global-methodology-for-rating-sovereign-governments.

The DBRS Morningstar Sovereign group releases baseline macroeconomic scenarios for rated sovereigns. DBRS Morningstar analysis considered impacts consistent with the baseline scenarios as set forth in the following report: https://www.dbrsmorningstar.com/research/384482/baseline-macroeconomic-scenarios-application-to-credit-ratings.

The sources of data and information used for these ratings include investor and servicer reports provided by France Titrisation as the management company and BMW Finance.

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

At the time of the initial ratings, 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.

The last rating action on this transaction took place on 18 April 2022, when DBRS Morningstar confirmed its rating on the Class A Notes at AAA (sf) and upgraded its rating on the Class B Notes to A (high) (sf) from A (sf).

Information regarding DBRS Morningstar ratings, including definitions, policies, and methodologies, is available at www.dbrsmorningstar.com.

Sensitivity Analysis: To assess the impact of changing the transaction parameters on the ratings, DBRS Morningstar considered the following stress scenarios as compared with the parameters used to determine the ratings (the base case):

-- DBRS Morningstar expected a lifetime base case PD, LGD, and RV loss 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 2.2% and 34.3%, respectively. An RV loss rate of 39.2% was assumed at the AAA (sf) rating level.
-- The risk sensitivity overview below illustrates the ratings expected if the PD, LGD and RV loss rates increase by a certain percentage over the base case assumption. For example, if the RV loss increases by 50%, the rating on the Class A Notes would be expected to remain at AAA (sf), ceteris paribus. If both the PD and LGD increase by 50%, the rating on the Class A Notes would be expected to remain at AAA (sf), ceteris paribus. Furthermore, if the PD, LGD, and RV loss rates 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 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)
-- 50% increase in both PD and LGD, expected rating of AAA (sf)
-- 25% increase in RV loss and 25% increase in both PD and LGD, expected rating of AAA (sf)
-- 25% increase in RV loss and 50% increase in both PD and LGD, expected rating of AAA (sf)
-- 50% increase in RV loss and 25% increase in both PD and LGD, expected rating of AAA (sf)
-- 50% increase in RV loss and 50% increase in both PD and LGD, expected rating of AAA (sf)

Class B Notes Risk Sensitivity:
-- 25% increase in RV loss, expected rating of AAA (sf)
-- 50% increase in RV loss, expected rating of AA (sf)
-- 25% increase in both PD and LGD, expected rating of AAA (sf)
-- 50% increase in both PD and LGD, expected rating of AAA (sf)
-- 25% increase in RV loss and 25% increase in both PD and LGD, expected rating of AAA (sf)
-- 25% increase in RV loss and 50% increase in both PD and LGD, expected rating of AA (sf)
-- 50% increase in RV loss and 25% increase in both PD and LGD, expected rating of AA (high) (sf)
-- 50% increase in RV loss and 50% increase in both PD and LGD, expected rating of AA (low) (sf)

For further information on DBRS Morningstar historical default rates published by the European Securities and Markets Authority (ESMA) in a central repository, see: https://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml. For further information on DBRS Morningstar historical default rates published by the Financial Conduct Authority (FCA) in a central repository, see https://data.fca.org.uk/#/ceres/craStats.

These ratings are endorsed by DBRS Ratings Limited for use in the United Kingdom.

Lead Analyst: Daniel Rakhamimov, Assistant Vice President
Rating Committee Chair: Alfonso Candelas, Senior Vice President
Initial Rating Date: 9 March 2021

DBRS Ratings GmbH
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60311 Frankfurt am Main Deutschland
Tel. +49 (69) 8088 3500
Geschäftsführer: Detlef Scholz
Amtsgericht Frankfurt am Main, HRB 110259

The rating methodologies used in the analysis of this transaction can be found at: https://www.dbrsmorningstar.com/about/methodologies.

A description of how DBRS Morningstar analyses structured finance transactions and how the methodologies are collectively applied can be found at https://www.dbrsmorningstar.com/research/278375.

For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at info@dbrsmorningstar.com.

ALL MORNINGSTAR DBRS RATINGS ARE SUBJECT TO DISCLAIMERS AND CERTAIN LIMITATIONS. PLEASE READ THESE DISCLAIMERS AND LIMITATIONS AND ADDITIONAL INFORMATION REGARDING MORNINGSTAR DBRS RATINGS, INCLUDING DEFINITIONS, POLICIES, RATING SCALES AND METHODOLOGIES.

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