DBRS Morningstar Upgrades Credit Rating on Private Driver España 2020-1

DBRS Ratings GmbH (DBRS Morningstar) upgraded its credit rating on the Notes issued by Private Driver España 2020-1 (the Issuer) to AAA (sf) from AA (sf).

Additionally, DBRS Morningstar removed the Under Review with Positive Implications (UR-Pos.) status on the Notes. This credit rating was placed UR-Pos. following the release of an updated sovereign methodology. For more information, please see: https://www.dbrsmorningstar.com/research/421863.

The credit rating on the Notes addresses the timely payment of interest and the ultimate repayment of principal by the legal final maturity date in October 2034.

The upgrade follows an annual review of the transaction and is based on the following analytical considerations:
-- Portfolio performance, in terms of delinquencies, defaults, and losses, as of the November 2023 payment date;
-- Probability of default (PD), loss given default (LGD), and expected loss assumptions on the remaining receivables;
-- The updated sovereign methodology; and
-- Current available credit enhancement to the Notes to cover the expected losses at the AAA (sf) credit rating level.

The Issuer is a securitisation backed by a pool of receivables related to auto loan contracts granted by Volkswagen Bank GmbH, Spanish branch (VWBS). The loans were granted to individuals residing in Spain and small businesses and individual enterprises with registered offices in Spain for the acquisition of either new or used motor vehicles. The transaction closed in November 2020 with an initial portfolio balance of EUR 1,500.0 million and a 36-month revolving period which ended in November 2023.

PORTFOLIO PERFORMANCE
As of the November 2023 payment date, loans 0 to 30 days, 30 to 60 days, and 60 to 90 days in arrears represented 0.6%, 0.4%, and 0.2% of the outstanding portfolio balance, respectively, while loans more than 90 days in arrears represented 0.2%. Gross cumulative defaults amounted to 0.3% of the aggregate original portfolio balance.

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 2.0% and 72.7% from 2.9% and 61.4%, respectively, based on the actual portfolio composition following the end of the revolving period.

CREDIT ENHANCEMENT
The subordination of the subordinated loan and portfolio overcollateralisation provides credit enhancement to the Notes, which has remained at 7.6% since the initial credit rating due to the inclusion of the revolving period, which ended with the November 2023 payment date.

The transaction benefits from a cash reserve that provides liquidity support and is available to cover senior expenses and interest due on the Notes. The reserve is amortising with a target balance equal to 0.75% of the outstanding aggregate discounted receivables balance, subject to a floor equal to the lower of EUR 6.0 million and the outstanding balance of the Notes. As of the November 2023 payment date, the reserve was at its target balance of EUR 11.3 million.

Banco Santander SA acts as the account bank for the transaction. Based on DBRS Morningstar’s public Long Term Critical Obligations Rating of Banco Santander SA at AA (low), 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 credit rating assigned to the Notes, as described in DBRS Morningstar's "Legal Criteria for European Structured Finance Transactions" methodology.

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

DBRS Morningstar’s credit rating does not address non-payment risk associated with contractual payment obligations contemplated in the applicable transaction documents that are not financial obligations.

DBRS Morningstar’s long-term credit rating provides 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 structure in Intex DealMaker.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the credit rating 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 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 credit rating action.

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 this credit rating include investor reports provided by VWBS 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 and quarterly static gross and net loss data from January 2005 to April 2023;
-- Monthly dynamic loss data from January 2009 to April 2023;
-- Monthly dynamic prepayment data from July 2006 to April 2023; and
-- Monthly dynamic delinquency data from January 2008 to April 2023.

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

At the time of the initial credit rating, 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 this credit rating 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 this transaction took place on 13 October 2023, when DBRS Morningstar placed its credit rating on the Notes Under Review with Positive Implications following the release of the updated sovereign methodology.

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 transaction parameters on the credit rating, DBRS Morningstar considered the following stress scenarios as compared with the parameters used to determine the credit rating (the base case):

-- DBRS Morningstar 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 are 2.0% and 72.7%, 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 of the Notes would be expected to decrease to AA (high) (sf), ceteris paribus. If the PD increases by 50%, the credit rating of the Notes would be expected to decrease to AA (sf), ceteris paribus. Furthermore, if both the PD and LGD increase by 50%, the credit rating of the Notes would be expected to decrease to A (high) (sf).

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

This credit rating is 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: 16 November 2020

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The credit rating methodologies used in the analysis of this transaction 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.

-- Master European Structured Finance Surveillance Methodology (22 October 2023), https://www.dbrsmorningstar.com/research/422281/master-european-structured-finance-surveillance-methodology.

-- Legal Criteria for European Structured Finance Transactions (30 June 2023), https://www.dbrsmorningstar.com/research/416730/legal-criteria-for-european-structured-finance-transactions.

-- 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.

-- Operational Risk Assessment for European Structured Finance Originators (15 September 2023), https://www.dbrsmorningstar.com/research/420573/operational-risk-assessment-for-european-structured-finance-originators.

-- 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.

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.