OREANDA-NEWS. September 28, 2015. Fitch Ratings has assigned Driver UK three final ratings as follows:

GBP350m Class A floating-rate, asset-backed notes (ISIN: XS1260117095), due January 2024: 'AAAsf'; Stable Outlook

GBP39.9m Class B floating-rate, asset-backed notes (ISIN: XS1260117418), due January 2024: 'A+sf'; Stable Outlook

GBP59.9m subordinated loan: not rated

The transaction is a securitisation of a portfolio of UK auto loan receivables originated by Volkswagen Financial Services (UK) Limited (VWFS).

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

KEY RATING DRIVERS
Used Car Price Exposure
The issuer is exposed to the risk of declines in used car prices, as regards both residual values (RV) and voluntary terminations (VT). Fitch has assumed a combined RV and VT loss of 17.2% in a 'AAAsf' scenario and 12% in an 'A+sf' scenario. Under a personal contract purchase (PCP) loan, borrowers face a balloon payment at maturity if they choose not to return the vehicle.

PCP and hire purchase (HP) loans are regulated by the Consumer Credit Act, so borrowers can terminate contracts without further repayment obligations once 50% of the total amount due is paid.

Credit Losses Low
Loss expectations are low for the pure instalment portions of the loans. Fitch applied instalment losses of 5.5% in a 'AAAsf' scenario (3.1% for 'A+sf'), which is slightly lower than in the predecessor transaction.

Principal Allocation Switches
After the revolving period, principal allocation on the notes follows a strictly sequential order until certain over-collateralisation (OC) targets are reached. As long as the OC targets are maintained, principal funds can also be allocated to junior notes and then finally to the subordinated loan. The available CE is nevertheless sufficient to protect the notes against back-loaded defaults.

Limited Revolving Period Risk
The transaction features a short revolving period of six months. Fitch modelled some migration of the initial pool towards assets with more adverse risk characteristics, but considers the risk of economic deterioration, or a material shift in VWFS's origination during the replenishment phase to be limited.

TRANSACTION STRUCTURE
The originator is a wholly-owned subsidiary of Volkswagen Financial Services AG which itself is a subsidiary of Volkswagen AG (A/F1 on Rating Watch Negative). The issuer entered into interest rate swap agreements at closing to hedge the mismatch between the fixed-paying assets and the floating-rate notes. Credit Agricole Corporate and Investment Bank is swap provider.

As of the initial pool's cut-off date, the weighted average remaining term of the portfolio is 39 months. The major part of the initial portfolio comprises new vehicle loans (72.5%) with the remainder being used vehicle loans. PCP loans account for almost 90% of the initial portfolio, and HP loans represent the remaining 10% of the initial collateral.

A new issue report, including further information on transaction related stress, key rating drivers and rating sensitivities, as well as material sources of information that were used to prepare the final rating, is available at www.fitchratings.com.

RATING SENSITIVITIES
Expected impact on the note rating of increased defaults (class A/class B):
Current ratings: 'AAAsf'/'A+sf'
Increase base case defaults by 10%: 'AA+sf' / 'Asf'
Increase base case defaults by 25%: 'AA+sf' / 'Asf'
Increase base case defaults by 50%: 'AAsf' / 'A-sf'

Expected impact on the note rating of reduced recoveries (class A/class B):
Current ratings: 'AAAsf'/'A+sf'
Reduce base case recovery by 10%: 'AA+sf' / 'Asf'
Reduce base case recovery by 25%: 'AA+sf' / 'Asf'
Reduce base case recovery by 50%: 'AAsf' / 'A-sf'

Expected impact on the note rating of increased market value stress (class A/class B):
Current ratings: 'AAAsf'/'A+sf'
Increase market value stress by 10%: 'AA+sf' / 'Asf'
Increase market value stress by 25%: 'AAsf' / 'A-sf'
Increase market value stress by 50%: 'AA-sf' / 'BBBsf'

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

DUE DILIGENCE USAGE
Fitch was provided with a third party asset portfolio assessment in relation to this rating action.

DATA ADEQUACY
Fitch reviewed the results of the third party assessment conducted on the asset portfolio information, which indicated no adverse findings material to the rating analysis. Fitch believes the sample size and relevance of the tested fields suggest the data provided by the originator for assigning the ratings was of acceptable quality.

Fitch conducted a review of a small targeted sample of VWFS '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:
- Transaction pool stratification data provided by VWFS and loan-by-loan information.
- Dynamic quarterly delinquency data from March 2008 to August 2015, for the overall loans book and split into four sub-pools (PCP new, PCP used, HP new, HP used).
- Quarterly static default vintage data, for the overall book and split into the four different sub-pools. The data provided spans the period between 3Q02 and 2Q15.
- Monthly recovery data, for the overall book, split into proceeds from vehicle remarketing and cash proceeds. The data provided spans the period between August 2002 and June 2015.
- Dynamic monthly prepayment data from January 2004 to August 2015.

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 new issue report, dated 25 September 2015 at www.fitchratings.com. In addition refer to the special report "Representations, Warranties, and Enforcement Mechanisms in Global Structured Finance Transactions" dated 12 June 2015 available on the Fitch website.