DBRS Morningstar Takes Rating Actions on Bavarian Sky France, Compartment French Auto Leases 3

DBRS Ratings GmbH (DBRS Morningstar) took the following rating actions on the notes issued by Bavarian Sky France, Compartment French Auto Leases 3 (the Issuer):

-- Class A Notes confirmed at AAA (sf)
-- Class B Notes upgraded to AA (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 2025.

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 February 2020 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 French auto lease receivables originated by BMW Finance S.N.C. (BMW Finance). The transaction closed in March 2018, with no revolving period. The initial EUR 522.7 million portfolio consisted of new (89.15% of the pool balance) and used (10.85%) auto leases, granted to both private individuals (69.09%) and commercial borrowers (30.91%). The residual values associated with the auto leases have been securitised and comprised 57.4% of the portfolio at closing; as of the February 2020 payment date, they accounted for 90.5% of the total outstanding collateral balance.

PORTFOLIO PERFORMANCE
As of the February 2020 payment date, 31- to 60-day delinquencies and 61- to 90-day delinquencies each represented 0.2% of the discounted portfolio balance, respectively, while delinquencies greater than 90 days also amounted to 0.2%. Gross cumulative defaults amounted to 1.0% of the original portfolio balance, of which 20.8% has been recovered to date.

PORTFOLIO ASSUMPTIONS
DBRS Morningstar conducted a loan-by-loan analysis of the remaining pool of receivables and has updated its base case PD and LGD assumptions to 2.1% and 36.3%, respectively. The residual value (RV) haircuts were updated to 37.0% at the AAA (sf) rating level and 32.0% at the AA (sf) rating level.

CREDIT ENHANCEMENT
The subordination of the respective junior obligations and overcollateralisation provide credit enhancement to the Notes. As of the February 2020 payment date, credit enhancement to the Class A Notes increased to 60.1% from 34.4% at the time of the last DBRS Morningstar rating action; credit enhancement to the Class B Notes increased to 40.8% from 22.0%.

The transaction benefits from a nonamortising cash reserve available to cover senior fees and interest due on the Notes, funded at closing using part of the proceeds of a subordinated loan. In the event of Issuer default, as well as at the legal final maturity date, it can also be used to cover principal payments on the Notes. The reserve has been at its target level of EUR 2.6 million since closing.

BNP Paribas Securities Services SCA acts as the account bank for the transaction. Based on the DBRS Morningstar private rating of BNP Paribas Securities Services SCA, 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 Critical Obligations Rating (COR) of DZ Bank at AA is above the First Rating Threshold as described in DBRS Morningstar's "Derivative Criteria for European Structured Finance Transactions" methodology.

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”. 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.

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 “Global Methodology for Rating Sovereign Governments” at: https://www.dbrs.com/research/350410/global-methodology-for-rating-sovereign-governments.

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 (as the Servicer).

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

At the time of the initial rating, 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 26 March 2019, when DBRS Morningstar confirmed the rating on the Class A Notes at AAA (sf) and upgraded the 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.dbrs.com.

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 2.1% and 36.3%, respectively. For the Class A and Class B Notes, RV Loss rates of 37.0% and 32.0% were assumed considering their respective rating levels.
-- 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 of 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 of 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 of 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 AA (sf)
-- 50% increase in RV Loss, expected rating of AA (low) (sf)
-- 25% increase in both PD and LGD, expected rating of AA (sf)
-- 50% increase in both PD and LGD, expected rating of AA (sf)
-- 25% increase in RV Loss and 25% increase in both PD and LGD, expected rating of AA (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 A (high) (sf)
-- 50% increase in RV Loss and 50% increase in both PD and LGD, expected rating of A (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.

Ratings assigned by DBRS Ratings GmbH are subject to EU and US regulations only.

Lead Analyst: Daniel Rakhamimov, Senior Analyst
Rating Committee Chair: Alfonso Candelas, Senior Vice President
Initial Rating Date: 12 March 2018

DBRS Ratings GmbH
Neue Mainzer Straße 75
60311 Frankfurt am Main Deutschland

Geschäftsführer: Detlef Scholz
Amtsgericht Frankfurt am Main, HRB 110259
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 Morningstar 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 info@dbrs.com.