OREANDA-NEWS. Fitch Ratings has affirmed Bavarian Sky Europe S.A., Compartment 1 Switzerland's CHF220.5m class A notes at 'AAAsf' with Stable Outlook.

The transaction is a securitisation of lease receivables originated in Switzerland by BMW (Schweiz) AG (BMWS) and associated residual value (RV) claims. The originator is a wholly owned subsidiary of BMW AG. The leases are granted to Swiss commercial and private customers.

KEY RATING DRIVERS

The affirmation reflects the transaction's stable performance, which is in line with Fitch's expectations. As of the February report date, the observed cumulative default rate since closing in May 2013 is 1.5% of the initial pool balance, including additionally purchased assets. The cumulative loss rate for the same period is 0.3%. Accounts currently delinquent for 30+ days are 0.9% of the total pool balances.

The transaction featured a three-year revolving period which is longer than in the majority of other revolving auto ABS transactions. Thus it will continue replenishing until May 2016 unless early amortisation is triggered. In Fitch's view, the early amortisation triggers, together with replenishment criteria, protect the transaction from performance deterioration. To capture potential pool deterioration over the revolving period, Fitch constructed a worst-case portfolio subject to the underlying pool at closing and the replenishing criteria.

The rated notes benefit from credit enhancement consisting of overcollateralisation through subordination (26.5%) and a non-amortising reserve fund (1%). Additionally, the transaction benefits from substantial excess spread that has been sufficient to cover defaults so far.

The transaction also securitises the RV. The RV component of the leases is currently 52.8% of the outstanding balance (up from 43.3% at closing) and could increase up to 60% during the revolving period. The share of RV claims could further increase during the amortisation phase as the RV is only due at maturity. RV risk would only transfer to the issuer if the car dealers who are committed to repurchase the vehicle at an agreed price default. At closing, leases were originated through about 90 BMWS-franchised dealers, with significant dealer concentration. In February 2015, the top 20 dealers (by RV exposure) account for approximately 46.4% of the total RV.

The transaction does not feature a swap as there is no interest rate or currency mismatch. The ratings of the account bank (BNP Paribas, A+/F1) are in line with Fitch's counterparty criteria, and the transaction documents include triggers and specify remedial actions.

Fitch expects the performance of Swiss consumer ABS transactions to remain stable, supported by a stable economic environment and a low unemployment rate. However, the Swiss franc appreciation after the Swiss national Bank abandoned its euro/franc ceiling will make imports into Switzerland cheaper and put additional pressure on used car prices in Switzerland. This could negatively impact recoveries and increase RV risk. However, Fitch does not expect this to affect our ratings as we have already incorporated significant stresses in our analysis via stressed recovery and RV assumptions.

RATING SENSITIVITIES

Based on the performance observation so far, Fitch sees no reason to revise its initial base case assumptions.

Expected impact upon the note rating of increased defaults for Class A:
Current rating: 'AAAsf'
Increase base case defaults by 25%: 'AAAsf'

Expected impact upon the note rating of decreased recoveries for Class A:
Current rating: 'AAAsf'
Decrease base case recovery by 25%: 'AAAsf'

Expected impact upon the note rating of increased losses and reduced recoveries for Class A:
Current rating: 'AAAsf'
Increase base case defaults by 10%, reduce base case recovery by 10%: 'AAAsf'
Increase base case defaults by 25%, reduce base case recovery by 25%: 'AA+sf'

Expected impact upon the note rating of increased market value stress for Class A:
Increase market value stress by 10%: 'AAAsf'
Increase market value stress by 25%: 'AA+sf'

Initial Key Rating Drivers and Rating Sensitivities are further described in the New Issue Report published on 15 May 2013.