OREANDA-NEWS. Fitch Ratings has assigned final ratings to the notes of Driver Australia Two Trust. The transaction is the second term securitisation 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 (A/Stable/F1), with a legal final maturity date of April 2023. The ratings are as follows:

AUD436m Class A notes: 'AAAsf'; Outlook Stable;
AUD27m Class B notes: 'A+sf'; Outlook Stable;
AUD30m Subordinated Loan: not rated; and
AUD7m Collateral Loan: not rated.

A cash collateral account of AUD6m is funded from the initial Collateral Loan amount of AUD13m and is included in credit support.

The notes were issued by Perpetual Corporate Trust Limited in its capacity as trustee of Driver Australia Two 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, including vehicles of its own brands, primarily Volkswagen, Audi, and Skoda.

KEY RATING DRIVERS
Performance of Loan Receivables: Performance of the transaction will, among other factors, be driven by the origination and servicing process, the support mechanisms in place, and the default and recovery levels of the underlying receivables.

Discounted Assets: The aggregate nominal amount of the notes, plus the subordinated loan and collateral loan, equals the present value of the purchased receivables discounted at issuance using the discount rate plus the cash collateral amount, therefore, the transaction yields no excess income to cover losses, or reimburse losses.

VWFSA Risk: There is no back-up servicer, and the transaction is dependent on VWFSA's operational and credit assessment capabilities. VWFSA is an unrated entity, as such, an advance mechanism is in place so collections are prepaid and segregated from VWFSA's own funds. The transaction is reliant on VWFSA making compensation payments to cover interest shortfalls if borrowers on interest rates higher than that of the discount rate prepay. This risk has been included within Fitch's cash-flow analysis under various stressed scenarios.

Credit Support: The Class A and B notes benefit from credit enhancement (CE) of 14.0% and 8.6% respectively, provided by the subordinated loan and collateral loan. A cash collateral account (CCA) has been fully funded at closing to cover any potential interest shortfalls on the rated notes. Any amounts outstanding in the account at final maturity are available to cover any principal shortfalls on the notes.

Balloon Loans within Portfolio: Obligors who are subject to balloon payments are required to make such payments if the balloon payments cannot be refinanced. By balance, 59.6% of the pool is 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 within its analysis.

Fitch modelled various loss distributions and recovery profiles, as well as prepayment speeds, in its analysis. In running the scenarios, Fitch observed that most scenarios passed; however, the model did observe two minor (less than 2%) scenario failures. Fitch determined that the small amounts of discrepancy caused by severe stress on a number of variables simultaneously in a short period of time are within the tolerance level of the ratings assigned.

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 Two Trust to increased gross default levels, and decreased recovery rates over the life of the transaction.

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 notes were impacted under each scenario tested. These include mild (10% decrease), moderate (25% decrease) and severe (50% decrease) stress scenarios. The analysis also showed that the ratings of the Class B notes remained stable under mild recovery stress of 10%, and were susceptible to downgrade only under the moderate (25%) to severe (50%) stresses. The ratings of both the Class A and B notes were adversely impacted 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.

Fitch's key rating drivers and rating sensitivity analysis are discussed further in the corresponding new issue report entitled "Driver Australia Two Trust", published today. Included as an appendix to the report are a description of the representations, warranties, and enforcement mechanisms.