OREANDA-NEWS. Fitch Ratings has upgraded Bavarian Sky S.A., Compartment No. 3's class B notes and affirmed the class A notes' ratings, as follows:

EUR21.9m class A notes (XS0789919767): affirmed at 'AAAsf'; Stable Outlook
EUR30.4m class B notes (XS0789930145): upgraded to 'AAAsf' from 'AA+sf'; Stable Outlook

The transaction is a securitisation of auto lease receivables originated by BMW Bank GmbH (BMW Bank). The originator is a wholly owned subsidiary of BMW AG. Securitised leases were granted to German private and commercial lessees. Due to a repurchase of all lease contracts relating to private lessees, the current pool consists of commercial obligors only.

KEY RATING DRIVERS
The rating actions reflect the transaction's stable performance, which is better than Fitch's expectations. According to the investor report as of 31 March 2015, the observed cumulative default rate since closing in July 2012 is 0.05%, while the reported loss rate to date is 0.01%. Accounts delinquent for 30+ days account for 1.1% of the remaining portfolio balance. Fitch's economic outlook for Germany is stable. Therefore, no significant performance deterioration in the transaction is expected, which is reflected in the notes' Stable Outlooks.

The transaction started amortising in August 2013 after the one-year revolving period ended. Credit enhancement for both note classes has increased significantly since. The class A notes benefit from 132% credit enhancement, consisting of overcollateralisation from subordination of the class B notes (58.2%) and a non-amortising reserve fund, which provides 53.8% credit enhancement. The class B notes currently benefit from 87.9% credit enhancement, with the majority provided from the reserve fund. We found the notes' ratings to be insensitive to a hypothetical complete loss of the reserve fund. In addition, the transaction benefits from substantial excess spread that has so far been sufficient to cover realised losses.

The current pool composition is comparable to that at closing, except that no private lessees remain in the portfolio following a repurchase by the originator to address legal uncertainties about lease contracts with private customers. Leases backed by new cars represent about 94% of the portfolio, while the remaining leases are backed by used vehicles. The weighted average remaining term of the pool is 10.5 months, and the average current balance per lessee has decreased to EUR3,831 due to contracts' amortisation. The largest 10 lessees account for roughly 0.8% of the overall pool balance.

Only regular monthly lease installments have been securitised in the transaction, and not residual values (RV). Hence, the transaction's performance is not exposed to RV risks of the underlying lease contracts and therefore has exposure to the development of used car prices only regarding achievable recovery rates for terminated contracts.

Fitch has maintained its lifetime base case default assumption at 0.3%. The agency also left its recovery base case assumption of 65% unchanged, producing an unchanged loss base case of 0.11% until the transaction's maturity.

RATING SENSITIVITIES
Expected impact upon the note rating of increased defaults and decreased recoveries (class A/ B):
Current ratings: 'AAAsf'/'AAAsf'
Increase default base case by 25% and reduce recovery base case by 25%: 'AAAsf'/'AAAsf'

The notes' ratings are not sensitive to an isolated increase (reduction) of 25% in defaults (recoveries).