OREANDA-NEWS. Fitch Ratings has upgraded Bavarian Sky S.A., Compartment German Auto Loans 2's class B notes and affirmed the class A notes, as follows:

EUR525.2m class A notes: affirmed at 'AAAsf'; Stable Outlook
EUR53.8m class B notes: upgraded to 'AA+sf' from 'AA-sf'; Stable Outlook

The transaction is a securitisation of German auto loan receivables originated by BMW Bank GmbH, a wholly owned subsidiary of BMW AG and granted to private and commercial customers.

KEY RATING DRIVERS
The rating actions reflect the transaction's good performance to date, as reflected by the low defaults and increased credit enhancement for the class A and B notes.

The transaction has been amortising since closing in August 2014.The sequential redemption of the notes combined with excess spread, which can be used to repay principal, has led to rapid amortisation of the class A notes. About 55% of the senior notes were outstanding as of end-June 2015. Credit enhancement, which consists of overcollateralisation and a non-amortising reserve fund, has more than doubled since closing. It is currently 19.3% for class A and 10.9% for class B compared with 9.0% and 3.8%, respectively, at closing.

Cumulative defaults are 0.1% as of June 2015. This is lower than Fitch's expectation for cumulative defaults at this point in life of the transaction. So far, all defaults have been sufficiently covered by available excess spread. The reported cumulative losses (0.09%) are almost identical to defaults due to a lag in recoveries. Arrears of more than 30 days past due are 0.39% which is in line with other German auto loan deals.

The current pool composition is similar to the initial pool. There is a slight increase in the share of balloon loans, which is due to the slower amortisation of contracts with a balloon component.

No back-up servicer was appointed at closing. A suitable replacement entity will be appointed should a servicer replacement become necessary, e.g. due to the servicer's default. The reserve fund is available to cover liquidity shortfalls during a transition phase. A commingling reserve and a set-off reserve will be funded upon a trigger breach linked to BMW AG's creditworthiness. No such event has yet occurred.

The rating is further supported by Germany's stable economy and record low unemployment.

RATING SENSITIVITIES
Fitch has revised its lifetime default base case to 1.5% from 1.9% at closing. The recoveries base case has been maintained at 60%.

Expected impact on the note rating of increased defaults (class A/B):
Current ratings: 'AAAsf'/'AA+sf'
Increase base case defaults by 25%: 'AAAsf'/'AA+sf'
Increase base case defaults by 50%: 'AAAsf'/'AAsf'

Expected impact on the note rating of reduced recoveries (class A/B):
Current ratings: 'AAAsf'/'AA+sf'
Reduce base case recovery by 50%: 'AAAsf'/'AA+sf'

Expected impact on the note rating of increased defaults and decreased recoveries (class A/B):
Current ratings: 'AAAsf'/'AA+sf'
Increase default base case by 10%; reduce recovery base case by 10%: 'AAAsf'/'AA+sf'
Increase default base case by 25%; reduce recovery base case by 25%: 'AAAsf'/'AAsf'
Increase default base case by 50%; reduce recovery base case by 50%: 'AAAsf'/'A+sf'

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

DATA ADEQUACY
Fitch has checked the consistency and plausibility of the information it has received about the performance of the asset pool and the transaction. There were no findings that were material to this analysis. Fitch has not reviewed the results of any third party assessment of the asset portfolio information or conducted a review of origination files as part of its ongoing monitoring.

Prior to the transaction closing, Fitch reviewed the results of a third party assessment conducted on the asset portfolio information, which indicated no adverse findings material to the rating analysis.

Prior to the transaction closing, Fitch conducted a review of a small targeted sample of the 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 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.
- Monthly investor reports provided by BMW Bank GmbH up to 30 June 2015 (July reporting date)