DBRS Morningstar Upgrades and Confirms Credit Ratings on Two VCL Multi-Compartment S.A. Transactions

DBRS Ratings GmbH (DBRS Morningstar) took the following credit rating actions on the notes issued by VCL Multi-Compartment S.A., acting for and on behalf of its Compartment VCL 34 (VCL 34) and VCL Multi-Compartment S.A., acting for and on behalf of its Compartment VCL 37 (VCL 37):

VCL 34:
-- Class A Notes confirmed at AAA (sf)
-- Class B Notes upgraded to AA (sf) from AA (low) (sf)

The credit ratings on the Class A Notes and Class B Notes address the timely payment of interest and the ultimate payment of principal on or before the legal final maturity date in September 2027.

VCL 37:
-- Class A Notes confirmed at AAA (sf)
-- Class B Notes upgraded to AA (sf) from AA (low) (sf)

The credit ratings on the Class A Notes and Class B Notes address the timely payment of interest and the ultimate payment of principal on or before the legal final maturity date in September 2028.

The credit rating actions follow an annual review of the transactions and are based on the following analytical considerations:
-- Portfolio performance, in terms of delinquencies, defaults, and losses, as of the October 2023 payment date;
-- Probability of default (PD), loss given default (LGD), and expected loss assumptions on the remaining receivables; and
-- Current available credit enhancement to the notes to cover the expected losses at their respective credit rating levels.

The transactions are static securitisations of German auto lease receivables originated and serviced by Volkswagen Leasing GmbH (VWL). VCL 34 and VCL 37 closed in November 2021 and November 2022, respectively, each with an initial EUR 1.0 billion collateral portfolio that consisted of auto lease receivables (excluding residual value claims relating to the final balloon instalment) granted to both retail and commercial customers.

PORTFOLIO PERFORMANCE
VCL 34:
As of the October 2023 payment date, loans that were 30 to 60 and 60 to 90 days delinquent represented 0.6% and 0.2% of the outstanding portfolio balance, respectively, while loans more than 90 days delinquent amounted to 0.8%. Cumulative net losses amounted to 0.05% of the original portfolio balance to date.

VCL 37:
As of the October 2023 payment date, loans that were 30 to 60 and 60 to 90 days delinquent represented 0.5% and 0.1% of the outstanding portfolio balance, respectively, while loans more than 90 days delinquent amounted to 0.4%. Cumulative net losses amounted to 0.01% of the original portfolio balance to date.

PORTFOLIO ASSUMPTIONS AND KEY DRIVERS
DBRS Morningstar received updated historical vintage data from the originator and conducted a loan-by-loan analysis of the remaining pool of receivables. DBRS Morningstar updated its base case PD assumption to 1.3% and maintained its base case LGD assumption at 40.0%.

CREDIT ENHANCEMENT
The subordination of the junior obligations provides credit enhancement to the rated notes in the transactions.

As of the October 2023 payment date, in VCL 34, credit enhancement to the Class A and Class B Notes increased to 12.1% and 7.4% from 10.0% and 6.4%, respectively, at the time of the previous annual review 12 months ago.

In VCL 37, credit enhancement to the Class A and Class B Notes increased to 8.9% and 5.8% from 5.5% and 3.5%, respectively, at the time of DBRS Morningstar’s initial credit rating 12 months ago.

The transactions benefit from liquidity support provided by a cash reserve. The reserve is available to cover the payment of senior expenses, swap payments, and interest payments on the notes.

In VCL 34, the reserve was funded to EUR 12.0 million at closing with a target amount equal to 1.2% of the outstanding discounted receivables balance, subject to a floor of 1.0% of the initial outstanding discounted receivables balance. As of the October 2023 payment date, the reserve was at its floor level of EUR 10.0 million.

In VCL 37, the reserve was funded to EUR 11.0 million at closing with a target amount equal to the lesser of EUR 11.0 million and the aggregate outstanding principal balance of the rated notes at the end of the collection period. As of the October 2023 payment date, the reserve was at its target level of EUR 11.0 million.

The Bank of New York Mellon, Frankfurt Branch (BNYM Frankfurt) acts as the account bank for the transactions. Based on DBRS Morningstar’s private credit rating on BNYM Frankfurt, the downgrade provisions outlined in the transactions documents, and other mitigating factors inherent in the transactions structure, DBRS Morningstar considers the risk arising from the exposure to the account bank to be consistent with the credit 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 VCL 34. DBRS Morningstar’s Long-Term Critical Obligations Rating of AA on DZ Bank is consistent with the first credit rating threshold as described in DBRS Morningstar's "Derivative Criteria for European Structured Finance Transactions" methodology.

Skandinaviska Enskilda Banken AB (SEB) acts as the swap counterparty for VCL 37. DBRS Morningstar’s Long-Term Critical Obligations Rating of AA on SEB is consistent with the first credit rating threshold as described in DBRS Morningstar's "Derivative Criteria for European Structured Finance Transactions" methodology.

DBRS Morningstar’s credit ratings on the rated notes address the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents.

DBRS Morningstar’s credit ratings do not address nonpayment risk associated with contractual payment obligations contemplated in the applicable transactions documents that are not financial obligations.

DBRS Morningstar’s long-term credit ratings provide opinions on risk of default. DBRS Morningstar considers risk of defaults to be the risk that an issuer will fail to satisfy the financial obligations in accordance with the term under which a long-term obligation has been issued.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factors that had a significant or relevant effect 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/416784/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings.

DBRS Morningstar analysed the transaction structures in Intex DealMaker.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the credit ratings is the “Master European Structured Finance Surveillance Methodology” (22 October 2023), https://www.dbrsmorningstar.com/research/422281/master-european-structured-finance-surveillance-methodology.

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

DBRS Morningstar has applied the principal methodology consistently and conducted a review of the transactions in accordance with the principal methodology.

A review of the transactions legal documents was not conducted as the legal documents have remained unchanged since the most recent credit rating actions.

For a more detailed discussion of the sovereign risk impact on Structured Finance credit 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/421590/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 credit ratings include investor reports provided by VWL and loan-level data provided by the European DataWarehouse GmbH. Additionally, DBRS Morningstar was provided with updated historical performance data from the originator as follows:
-- Monthly static net loss data from January 2013 to June 2023; and
-- Monthly dynamic delinquency data from January 2010 to June 2023.

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

At the time of the initial credit ratings, DBRS Morningstar was supplied with third-party assessments. However, this did not impact the credit rating analysis.

DBRS Morningstar considers the data and information available to it for the purposes of providing these credit ratings to be of satisfactory quality.

DBRS Morningstar does not audit or independently verify the data or information it receives in connection with the credit rating process.

The last credit rating action on VCL 34 took place on 23 November 2022, when DBRS Morningstar confirmed its credit ratings of AAA (sf) and AA (low) (sf) on the Class A and Class B Notes, respectively.

The last credit rating action on VCL 37 took place on 25 November 2022, when DBRS Morningstar finalised its provisional credit ratings of AAA (sf) and AA (low) (sf) on the Class A and Class B Notes, respectively.

The lead analyst responsibilities for VCL 37 have been transferred to Daniel Rakhamimov.

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

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

-- DBRS Morningstar expected a lifetime base case PD and LGD for the pools 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 pools of loans are 1.3% and 40.0%, respectively.
-- The risk sensitivity overview below illustrates the credit 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 credit rating on the Class A Notes in VCL 34 would be expected to remain at AAA (sf), ceteris paribus. If the PD increases by 50%, the credit rating on the Class A Notes in VCL 34 would be expected to remain at AAA (sf), ceteris paribus. Furthermore, if both the PD and LGD increase by 50%, the credit rating on the Class A Notes in VCL 34 would be expected to fall to AA (high) (sf).

VCL 34:
Class A Notes Risk Sensitivity:
-- 25% increase in LGD, expected credit rating of AAA (sf)
-- 50% increase in LGD, expected credit rating of AAA (sf)
-- 25% increase in PD, expected credit rating of AAA (sf)
-- 50% increase in PD, expected credit rating of AAA (sf)
-- 25% increase in PD and 25% increase in LGD, expected credit rating of AAA (sf)
-- 25% increase in PD and 50% increase in LGD, expected credit rating of AA (high) (sf)
-- 50% increase in PD and 25% increase in LGD, expected credit rating of AA (high) (sf)
-- 50% increase in PD and 50% increase in LGD, expected credit rating of AA (high) (sf)

Class B Notes Risk Sensitivity:
-- 25% increase in LGD, expected credit rating of AA (sf)
-- 50% increase in LGD, expected credit rating of AA (sf)
-- 25% increase in PD, expected credit rating of AA (sf)
-- 50% increase in PD, expected credit rating of AA (sf)
-- 25% increase in PD and 25% increase in LGD, expected credit rating of AA (sf)
-- 25% increase in PD and 50% increase in LGD, expected credit rating of AA (sf)
-- 50% increase in PD and 25% increase in LGD, expected credit rating of AA (sf)
-- 50% increase in PD and 50% increase in LGD, expected credit rating of AA (sf)

VCL 37:
Class A Notes Risk Sensitivity:
-- 25% increase in LGD, expected credit rating of AAA (sf)
-- 50% increase in LGD, expected credit rating of AAA (sf)
-- 25% increase in PD, expected credit rating of AAA (sf)
-- 50% increase in PD, expected credit rating of AAA (sf)
-- 25% increase in PD and 25% increase in LGD, expected credit rating of AAA (sf)
-- 25% increase in PD and 50% increase in LGD, expected credit rating of AA (high) (sf)
-- 50% increase in PD and 25% increase in LGD, expected credit rating of AA (high) (sf)
-- 50% increase in PD and 50% increase in LGD, expected credit rating of AA (sf)

Class B Notes Risk Sensitivity:
-- 25% increase in LGD, expected credit rating of AA (sf)
-- 50% increase in LGD, expected credit rating of AA (sf)
-- 25% increase in PD, expected credit rating of AA (sf)
-- 50% increase in PD, expected credit rating of AA (sf)
-- 25% increase in PD and 25% increase in LGD, expected credit rating of AA (sf)
-- 25% increase in PD and 50% increase in LGD, expected credit rating of AA (low) (sf)
-- 50% increase in PD and 25% increase in LGD, expected credit rating of AA (low) (sf)
-- 50% increase in PD and 50% increase in LGD, expected credit 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: https://registers.esma.europa.eu/cerep-publication. 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 credit 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 Credit Rating Date: 13 October 2021 (VCL 34), 10 October 2022 (VCL 37)

DBRS Ratings GmbH
Neue Mainzer Straße 75
60311 Frankfurt am Main Deutschland
Tel. +49 (69) 8088 3500
Geschäftsführer: Detlef Scholz
Amtsgericht Frankfurt am Main, HRB 110259

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

-- Rating European Structured Finance Transactions Methodology (6 October 2023), https://www.dbrsmorningstar.com/research/421599/rating-european-structured-finance-transactions-methodology.
-- Legal Criteria for European Structured Finance Transactions (30 June 2023), https://www.dbrsmorningstar.com/research/416730/legal-criteria-for-european-structured-finance-transactions.
-- Master European Structured Finance Surveillance Methodology (22 October 2023), https://www.dbrsmorningstar.com/research/422281/master-european-structured-finance-surveillance-methodology.
-- DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (4 July 2023), https://www.dbrsmorningstar.com/research/416784/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings.
-- Operational Risk Assessment for European Structured Finance Servicers (15 September 2023),
https://www.dbrsmorningstar.com/research/420572/operational-risk-assessment-for-european-structured-finance-servicers.
-- Rating European Consumer and Commercial Asset-Backed Securitisations (22 October 2023), https://www.dbrsmorningstar.com/research/422276/rating-european-consumer-and-commercial-asset-backed-securitisations.
-- Interest Rate Stresses for European Structured Finance Transactions (15 September 2023), https://www.dbrsmorningstar.com/research/420602/interest-rate-stresses-for-european-structured-finance-transactions.
-- Derivative Criteria for European Structured Finance Transactions (18 September 2023), https://www.dbrsmorningstar.com/research/420754/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 https://www.dbrsmorningstar.com/research/278375.

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