OREANDA-NEWS. Fitch Ratings has affirmed the secured floating-rate notes of Bavarian Sky Korean Auto Receivables 1 Pte. Ltd. The transaction is a securitisation of auto instalment loans (IL) and auto finance lease receivables (FL) in South Korea originated by BMW Financial Services Korea Co. Ltd. (BMW FS K), which is also the servicer of the transaction.

The rating action is as follows:
USD250m floating-rate notes due September 2019 affirmed at 'AAAsf'; Outlook Stable

KEY RATING DRIVERS
The affirmation reflects stable asset performance, sufficient credit enhancement for the rated notes, satisfactory origination and underwriting, a sound asset and macroeconomic outlook, and the presence of currency and interest-rate swaps. The transaction is expected to enter into controlled amortisation at the end of the revolving period in October 2015, as scheduled, since no early amortisation events are expected to be triggered.

Fitch expects delinquencies and defaults to remain low, supported by favourable low unemployment rates and benign interest rates in South Korea. The three-month average delinquency rate and three-month average default rate have been almost zero while the excess spread has been steady at a positive rate of at least 0.6% since closing. Stable unemployment in South Korea is expected to continue supporting the underlying asset performance; Fitch's projected unemployment rates in 2015 and 2016 are 3.6% and 3.5% respectively.

Fitch assumed the worst product mix during the initial rating: during the transaction's revolving period, the portfolio is assumed to migrate to 100% FL, a product that comes under more stress than IL. The latest monthly servicer report shows that FL comprised 25.3% of the outstanding balance as of June 2015. However, as the transaction is still in the revolving period, there is a limited chance that FL would take up a substantial portion of the portfolio, resembling the worst product mix assumed at the initial rating. As of June 2015, the weighted average share of balloon payments stood at 4.9% and 16.0% of the outstanding principal balances of IL and FL respectively, compared with 3.0% and 24.2% at closing.

RATING SENSITIVITIES
Fitch views that the closing rating sensitivities remain valid since sound transaction performance to date indicates the adequacy of loss assumptions used at the initial rating. The transaction's notes may be downgraded by one notch if the base case default rate were to increase by 31% to 5.6% from 4.3%, with all other rating assumptions remaining constant.

Any drastic change to the macroeconomic environment, such as sharp interest rises and a sudden increase in the unemployment rate, may undermine the transaction's performance.

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

DATA ADEQUACY
Fitch conducted a file review of 20 sample loan files focusing on the underwriting procedures conducted by BMW FS K compared to BMW FS K's credit policy at the time of underwriting. Fitch has checked the consistency and plausibility of the information and no material discrepancies were noted that would impact Fitch's rating analysis.

Initial Key Rating Drivers and Rating Sensitivities are described further in the New Issue report dated 26 November 2013.

A comparison of the transaction's representations, warranties and enforcement mechanisms (RW&Es) to those of typical RW&Es for this asset class is available by accessing the reports and/or links given under Related Research below.