May 25, 2017 / 6:58 AM / 7 months ago

Fitch Assigns Ratings to VW's Driver Australia four Trust

(The following statement was released by the rating agency) Link to Fitch Ratings' Report: Driver Australia four Trust here SYDNEY, May 25 (Fitch) Fitch Ratings has assigned final ratings to Driver Australia four Trust's automotive-backed floating-rate notes. The issuance consists of notes backed by Australian automotive receivables originated by Volkswagen Financial Services Australia Pty Ltd (VWFSA), a wholly owned subsidiary of Volkswagen Financial Services AG, itself wholly owned by Volkswagen AG (VW, BBB+/Negative/F2). The ratings are as follows: AUD441 million Class A notes: 'AAAsf'; Outlook Stable AUD25 million Class B notes: 'AA-sf'; Outlook Stable AUD29 million Subordinated Loan: 'NRsf' The notes were issued by Perpetual Corporate Trust Limited in its capacity as trustee of Driver Australia four Trust. VWFSA is a provider of auto-financing for retail and corporate clients, predominantly through a preferred dealership network in Australia. VWFSA finances a wide range of vehicle models, along with its own branded vehicles, primarily Volkswagen, Audi and Skoda. At the cut-off date, 30 April 2017, the total collateral pool consisted of new (87.5%) and used (12.5%) motor vehicles, with a weighted-average seasoning and remaining term of 10.6 and 44.5 months, respectively. The main products offered within the portfolio are chattel mortgage (66.2%) and consumer loans (33.5%). The portfolio is of similar credit quality to prior pools securitised under the Driver Australia programme. KEY RATING DRIVERS Credit Support: The class A and B notes benefit from credit enhancement (CE) of 13.0% and 8.0%, respectively, provided by the subordinated loan, overcollateralization (OC) and the cash collateral account (CCA) which are funded by a purchase price discount Discount Rate The aggregate principal amount of the notes, the subordinated loan and OC equals the present value of the purchased receivables discounted at a rate of 8.89%. The purchase price will equal the aggregate discounted receivables balance less an amount required to fund the CCA and OC. The discount rate incorporates a buffer rate, which is released to VWFSA at each monthly payment date as a deferred purchase price, and as such the transaction yields no excess income to reimburse losses. Limited VWFSA Risk: There is no back-up servicer, and the transaction is dependent on VWFSA's operational and credit-assessment capabilities. Fitch believes the transaction documents appropriately address seller- and servicer-related risks like commingling and set-off. An advance mechanism is in place, so collections are prepaid and segregated from VWFSA's own funds. Balloon Loans Within Portfolio: Obligors that are subject to balloon payments are required to make such payments if balloon payments cannot be refinanced. The pool, by balance, contains 53% that are subject to balloon payments, which is higher than peer transactions. Fitch expects higher default risk if limited refinancing options exist within the market. This could be the case under more severe economic stress. Fitch has incorporated this risk in its analysis. Multiple Triggers and Events: Mechanisms, based on various performance triggers, provide increasing levels of OC support for noteholders. The notes will amortise sequentially in order of seniority until certain target OC levels are met. Once target OC level are met for the class A, and class B notes, any additional principal will be allocated to repay the subordinated loan. RATING SENSITIVITIES Unanticipated increases in the frequency of defaults and loss severity on defaulted receivables could produce loss levels higher than Fitch's base case, and is likely to result in a decline in CE and remaining loss-coverage levels available to the notes. Decreased CE may make certain note ratings susceptible to negative rating action, depending on the extent of the coverage decline. Hence, Fitch conducts sensitivity analysis by stressing a transaction's initial base-case assumptions. Its analysis found that collectively the class A and B notes' ratings were susceptible to downgrades under Fitch's mild (10% increase), moderate (25% increase) and severe default (50% increase) scenarios. Recovery scenarios whereby recovery rate assumptions are decreased showed that the ratings of the class A and B notes were affected under mild (10% decrease), moderate (25% decrease) and severe (50% decrease) scenarios. The ratings of both the class A and B notes were adversely affected under all combined stress scenarios of a 10% increase in defaults and 10% decrease in recoveries, 25% increase in defaults and 25% decrease in recoveries, and 50% increase in defaults and 50% decrease in recoveries. USE OF THIRD-PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G-10 Form ABS Due Diligence-15E was not provided to, or reviewed by, Fitch in relation to this rating action. REPRESENTATIONS, WARRANTIES AND ENFORCEMENT MECHANISMS A description of the transaction's representations, warranties and enforcement mechanisms (RW&Es) that are disclosed in the offering document and which relate to the underlying asset pool is available by accessing the appendix referenced under "Related Research" below. The appendix also contains a comparison of these RW&Es to those Fitch considers typical for the asset class as detailed in the Special Report titled "Representations, Warranties and Enforcement Mechanisms in Global Structured Finance Transactions," dated 31 May 2016. DATA ADEQUACY Prior to transaction closing, Fitch conducted a review of a small targeted sample of VWFSA's origination files and found the information contained in the reviewed files to be adequately consistent with the originator's policies and practices and the other information provided to the agency about the asset portfolio. Prior to closing, Fitch reviewed the results of a third party assessment conducted on the asset portfolio information and concluded that there were no findings that affected the rating analysis. Overall, Fitch's assessment of the asset pool information relied upon for the agency's rating analysis according to its applicable rating methodologies indicates that it is adequately reliable. Key Rating Drivers and Rating Sensitivities are further discussed in the corresponding new issue report entitled "Driver Australia four Trust", published today. SOURCES OF INFORMATION The information below was used in the analysis: Loan-by-loan data provided by VWFSA as of 30 April 2017 Historical performance and delinquency data provided by VWFSA as of 31 January 2017 Transaction documentation provided by King & Wood Mallesons, the issuer's counsel. The issuer has informed Fitch that not all relevant underlying information used in the analysis of the rated notes is public. Contacts: Primary Analyst Spencer Wilson Associate Director +61 2 8256 0320 Fitch Australia Pty Ltd. Level 15, 77 King St, Sydney, NSW 2000 Secondary Analyst David Carroll Director +61 2 8256 0333 Committee Chairperson Natasha Vojvodic Senior Director +612 8256 0350 Media Relations: Leslie Tan, Singapore, Tel: +65 67 96 7234, Email: Additional information is available on Applicable Criteria Global Consumer ABS Rating Criteria (pub. 01 Dec 2016) here Global Structured Finance Rating Criteria (pub. 03 May 2017) here Structured Finance and Covered Bonds Counterparty Rating Criteria (pub. 23 May 2017) here Structured Finance and Covered Bonds Counterparty Rating Criteria: Derivative Addendum (pub. 23 May 2017) here Related Research Driver Australia four Trust - Appendix here Representations, Warranties and Enforcement Mechanisms in Global Structured Finance Transactions here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here Solicitation Status here#solicitation Endorsement Policy here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. 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