OREANDA-NEWS. June 23, 2015. Fitch Ratings has assigned Driver Master S.A. Compartment 1's EUR1.18bn class A and B notes the following expected ratings:

EUR1.13bn floating-rate, asset-backed class A series of notes, due May 2024: 'AAA(EXP)sf'; Outlook Stable

EUR52.5m floating-rate, asset-backed class B series of notes, due May 2024: 'A+(EXP)sf'; Outlook Stable

EUR62.5m subordinated loan, due May 2024: 'NR(EXP)sf'

The final ratings are contingent upon the receipt of final documents conforming to the information already received, a satisfactory review of final legal opinions to support the agency's analytical approach and the selection of swap counterparties.

The ratings are based on Fitch's assessment of Volkswagen Bank GmbH's (VWB) origination and servicing procedures, Fitch's expectations of future asset performance, the available credit enhancement (CE), and the transaction's legal structure.

KEY RATING DRIVERS
Fitch has determined a default base case of 1.8% for the transaction portfolio. The assigned base case reflects the strong performance of prior Driver transactions and our expectation of a benign economic environment over the initial revolving period of 11 months and the subsequent amortisation period. To reflect the low default base case, the revolving period and the balloon risk, the agency applied a 'AAAsf' default multiple of 7.5x.

As in other Master transactions, the portfolio balance may fluctuate substantially during the revolving period as regular tap-ups and take-outs occur. Asset and portfolio eligibility criteria and a note redemption mechanism based on portfolio quality limit adverse consequences. The transaction documents state that tap-ups and take-outs can only be carried out in cases where the ratings will not be lower than 'AAAsf' for the class A notes and 'A+sf' for the class B notes.

The class A notes benefit from initial overcollateralisation (OC) of 9.8% and the class B notes from initial OC of 5.6%. However, the OC can decrease by 0.35% points during the revolving period for each class of notes (to 9.45% for class A and 5.25% for class B). If the actual OC drops below these thresholds, the transaction will start amortising. Additionally, the floor of the reserve fund (0.6% of maximum pool balance) needs to be preserved for the revolving period to continue.

The risk of cash flow and servicing interruptions in a scenario involving bankruptcy of Volkswagen AG or its financial service subsidiaries within Volkswagen Financial Services AG is mitigated by a cash reserve, providing liquidity of approximately 11 monthly payments of senior cost and swap payments (thereby note interest) and by the solid credit standing of the wider group to which the servicer belongs (Volkswagen AG).

RATING SENSITIVITIES
Fitch tested the rating sensitivity of the notes to various scenarios, including an increase in the base case default rate and/or a decrease in the base case recovery rate for the portfolio. The model-implied sensitivities indicate that an increase in the base case default rate by 50% together with a decrease in the base case recovery rate by 50% may result in a downgrade of the class A notes, to 'Asf' from 'AAAsf' and a downgrade of the class B notes, to 'BBB-sf' from 'A+sf'.

TRANSACTION CHARACTERISTICS
The transaction is a platform for VWB (the seller) to securitise, on a revolving basis, German auto loan receivables. During the revolving period, further assets may be transferred or repurchased by the seller, subject to certain conditions. Further, different class A and B series can be issued or existing series' balances can be changed (due to take-out or tap-up).

At the end of the revolving period, each investor can opt to extend the revolving period for his series or initiate its amortisation. In case of an extension, the note margins as well as the maximum issuance amount may be amended. Fitch regularly monitors the activity of the platform during the revolving period and will perform a full rating analysis in case the latter is extended.

Assets will be purchased at a discount rate creating OC. During the replenishment period, new receivables will be purchased at a discount rate for OC (1.73%). This is higher than the one applied for the initial purchase (0.6%), while no cash reserve is funded. In the event of a tap-up, the new receivables will be purchased at the initial discount rate for OC (0.6%) and the cash reserve will be funded with 1.13% of the asset balance. In both cases, the overall OC increases by the same amount.

In the event of a take-out of performing receivables, the redemption mechanism will ensure that the total CE increases to compensate for the relative increase of delinquent receivables.
In any case, the minimum OC levels of 9.45% for class A and 5.25% need to be maintained for the revolving period to continue. Additionally, the floor of the reserve fund (0.6% of maximum pool balance ever achieved) needs to be preserved.

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

DATA ADEQUACY
Fitch sought to receive a third party assessment conducted on the asset portfolio information, but none was available at this stage. Fitch expects to receive a third party assessment prior to the closing of the transaction.

Fitch conducted a review of a small targeted sample of VWB '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.

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.

SOURCES OF INFORMATION
The information below was used in the analysis:
- Preliminary pool stratification data provided by VWB as at 28 February 2015
- Dynamic delinquency data from September 2008 to December 2014, for the overall loans book and split into new vs used cars.
- Loss vintage data, for the overall book and split into different sub-pools: new balloon, new amortising, used balloon, used amortising. The data provided spans the period between January 2004 and December 2014.

REPRESENTATIONS AND WARRANTIES
A comparison of the transaction's Representations, Warranties & Enforcement Mechanisms to those typical for the asset class is available by accessing the appendix that accompanies the presale report, dated 5 June 2015 at www.fitchratings.com. In addition refer to the special report "Representations, Warranties, and Enforcement Mechanisms in Global Structured Finance Transactions" dated 26 March 2015 available on the Fitch website.