OREANDA-NEWS. Fitch Ratings has assigned final ratings to the Driver Australia Master Trust's automotive-backed floating-rate notes. The transaction is the fourth securitisation backed by Australian automotive receivables originated by Volkswagen Financial Services Australia Pty Ltd (VWFSA, not rated), a wholly owned subsidiary of Volkswagen Financial Services AG, itself wholly owned by Volkswagen AG (VW, BBB+/Negative/F2). The transaction has a legal final maturity date of August 2025. The ratings are as follows:

- AUD105.4m Series 2016-1 Class A notes: 'AAAsf'; Outlook Stable

- AUD9.1m Series 2016-1 Class B notes: 'A+sf'; Outlook Stable

- AUD12.8m Subordinated Loan: not rated

The notes were issued by Perpetual Corporate Trust Limited in its capacity as trustee of Driver Australia Master Trust. The transaction features a 12-month revolving period whereby further assets may be transferred or repurchased by the seller, along with issuing additional class A and B notes (tap-ups) up to a maximum total principal amount of AUD3bn, or note balances may be reduced (take-outs), subject to meeting certain conditions.

VWFSA provides 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.

The collateral backing the Driver Australia Master Trust transaction is of similar credit quality to prior pools securitised under Driver Australia term securitisations. At the cut-off date, the total collateral pool consisted of loan receivables backed by new motor vehicles (88.4%) and used motor vehicles (11.6%). The weighted average seasoning is 6.5 months. The pool has a weighted average remaining term of 48.4 months and contains predominantly VW-branded vehicles.

KEY RATING DRIVERS

Credit Support: The rated notes benefit from credit enhancement provided by the subordinated loan and overcollateralisation (OC) via a purchase price discount. A cash collateral account will be fully funded at closing to cover potential interest shortfalls. Amounts outstanding in the account at final maturity are available to cover principal shortfalls.

Portfolio Turnover and Volatility: The portfolio balance may fluctuate substantially during the revolving period as regular tap-ups and take-outs occur, as in other revolving transactions. Only performing assets that meet eligibility criteria may be transferred to other VW term securitisations that may increase the relative share of delinquent receivables.

Redemption Mechanism: If a term take-out occurs a note redemption mechanism, based on portfolio quality, reduces adverse consequences for the trust by increasing credit enhancement available to the rated classes. All new assets added to the portfolio must comply with eligibility criteria and portfolio parameters. A discount to the purchase price at initial purchase and subsequent additional purchases provides excess assets over liabilities in the form of OC.

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, then any additional principal will be allocated to repay the subordinated loan. All series will amortise if any early amortisation events are met, including, among others, the build-up of excessive balances in the accumulation accounts and credit enhancement increase conditions being met.

RATING SENSITIVITIES

Unexpected increases in the frequency of foreclosures and the loss severity on defaulted loans, could produce loss levels higher than Fitch's base case, which could in turn result in negative rating actions on the notes.

Fitch has evaluated the sensitivity of the ratings assigned to Driver Australia Master Trust to increased gross default levels and decreased recovery rates over the life of the transaction. Its analysis found that collectively, the class A notes' ratings were susceptible to downgrades under Fitch's moderate (25% increase) and severe default (50% increase) scenarios, whereas the class B notes were susceptible only under more severe (50% increase) scenarios.

Recovery scenarios, whereby recovery rate assumptions are decreased, showed that the ratings of the class A notes were affected under only severe (50% decrease) scenarios, while the class B notes were not affected under any of the stress scenarios tested. The ratings of the class A notes were adversely affected under all combined stress scenarios of 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, while the class B notes were affected under moderate and severe scenarios of a 25% increase in defaults and 25% decrease in recoveries and a 50% increase in defaults and 50% decrease in recoveries, respectively.

DUE DILIGENCE USAGE

No third party due diligence was provided or reviewed in relation to this rating action.

DATA ADEQUACY

Fitch conducted a review of 10 sample loan files focusing on the underwriting procedures of VWFSA compared to its credit policy. Fitch checked the consistency and plausibility of the information and no material discrepancies were noted that would affect Fitch's rating analysis.

Fitch reviewed the results of the agreed-upon procedures conducted on the portfolio. The agreed-upon procedures reported no material errors that would affect Fitch's rating analysis.

Key rating drivers and rating sensitivities are further discussed in the corresponding new issue report, "Driver Australia Master Trust", published today. Included as an appendix to the report are a description of the representations, warranties and enforcement mechanisms.