OREANDA-NEWS. September 28, 2015. Fitch Ratings has affirmed VCL Master Residual Value S.A., Compartment 1's notes ratings as follows:

Series A 2014-1: affirmed at 'AAAsf'; Outlook Stable
Series A 2014-2: affirmed at 'AAAsf'; Outlook Stable
Series A 2014-3: affirmed at 'AAAsf'; Outlook Stable
Series A 2014-4: affirmed at 'AAAsf'; Outlook Stable
Series A 2014-5: affirmed at 'AAAsf'; Outlook Stable
Series A 2014-6: affirmed at 'AAAsf'; Outlook Stable
Series A 2014-7: affirmed at 'AAAsf'; Outlook Stable
Series A 2014-8: affirmed at 'AAAsf'; Outlook Stable
Series A 2014-9: affirmed at 'AAAsf'; Outlook Stable
Series A 2014-10: affirmed at 'AAAsf'; Outlook Stable
Series A 2014-11: affirmed at 'AAAsf'; Outlook Stable
Series B 2014-1: affirmed at 'A+sf'; Outlook Stable
Series B 2014-2: affirmed at 'A+sf'; Outlook Stable
Series B 2014-3: affirmed at 'A+sf'; Outlook Stable
Series B 2014-4: affirmed at 'A+sf'; Outlook Stable
Series B 2014-5: affirmed at 'A+sf'; Outlook Stable
Series B 2014-6: affirmed at 'A+sf'; Outlook Stable

All class A series of notes rank pari passu and have the same rating. All class B series of notes rank pari passu and have the same rating. Further, all series have the same legal final maturity date (September 2022). Two tranches start amortising from the September 2015 renewal date.

VCL Master Residual Value S.A. is a securitisation vehicle incorporated in Luxembourg. The originator, Volkswagen Leasing GmbH (VWL), is a wholly-owned subsidiary of Volkswagen Financial Services AG, which in turn is 100%-owned by Volkswagen AG (A/F1/RWN). The transaction is a platform for VWL to securitise the residual value (RV) portion of auto leasing contracts with German lessees. The transaction will revolve until September 2016 unless terminated earlier for performance reasons.

The ratings are based on Fitch's assessment of VWL's origination and servicing procedures, Fitch's expectations of asset performance, the available credit enhancement (CE), and the transaction's legal structure. Fitch regularly monitors the activity of the platform during the revolving period and performs a full rating analysis in case the latter is extended.

KEY RATING DRIVERS
This transaction solely securitises the RV component of a lease contract. Investors are exposed to the market value risk of the underlying leased vehicles, which is the focus of Fitch's analysis. Compared with the last renewal in 2014, the agency has lowered its assumption on sale proceeds to 94% from 95% based on the originator's expectation of realisation proceeds relative to contractual RVs in their total portfolio. The 'AAA' market value haircut of 35% was maintained.

RV payments are the issuer's main source of cash. As the amortisation profile of the portfolio is concentrated relative to a purely amortising portfolio, liquidity coverage is crucial. The cash reserve, covering at least 25 months of senior expenses and swap payments (and thereby note interest), provides sufficient liquidity support.

CE covers the market value risk of the underlying vehicles and the credit risk of the underlying lease receivables. In its analysis, Fitch relies on the minimum CE of 44.5% for the class A and 34% for the class B notes. Failure to comply with the minimum CE requirement will trigger an early amortisation event.

The assets are purchased at net present value, with a discount rate of 4.3%. The excess of this rate over the swap payments, senior and servicing fees can be used for note redemption in the amortisation phase and also for asset replenishment during the revolving period.

VWL retains the function of servicer while Volkswagen Bank GmbH acts as data trustee. This creates a risk of cash flow and servicing interruptions in a scenario involving bankruptcy of Volkswagen AG and its subsidiaries within Volkswagen Financial Services AG. This counterparty risk, however, is reduced by the liquidity provided by the cash reserve.

Fitch based its ratings on the series on the following maximum issuance amounts for each series:

Series A 2014-1: EUR0m (amortising)
Series A 2014-2: EUR250m
Series A 2014-3: EUR125m
Series A 2014-4: EUR100m
Series A 2014-5: EUR175m
Series A 2014-6: EUR270m
Series A 2014-7: EUR50m
Series A 2014-8: EUR100m
Series A 2014-9: EUR200m
Series A 2014-10: EUR200m
Series A 2014-11: EUR150m
Series B 2014-1: EUR0m (amortising)
Series B 2014-2: EUR50m
Series B 2014-3: EUR15m
Series B 2014-4: EUR100m
Series B 2014-5: EUR50m
Series B 2014-6: EUR100m

RATING SENSITIVITIES
Fitch tested the rating sensitivity of the notes to various scenarios, including an increase in the market value decline (MVD) assumption for the portfolio. The model-implied sensitivities indicate that an increase in the MVD assumption by 50% may result in a downgrade of the class A notes to 'Asf' and the class B notes to 'BBB-sf'. The notes' ratings are fairly insensitive to increased defaults as the credit risk is of smaller magnitude than the RV risk.

TRANSACTION CHARACTERISTICS
The issuer has a repurchase agreement with VWL, according to which it can sell the leased vehicles at the contractual RV. However, in its analysis, Fitch assumed that the seller has defaulted and cannot honour this repurchase agreement.

As with VCL Master, there is a possibility for term take-out from the issuer. The documents foresee that Fitch will be informed before execution of the onward transfer. At this date, the agency will analyse the pool composition after take-out, in particular with regard to asset concentrations and maturity clustering. Given the bullet-nature of expectancy rights, Fitch considers these variables crucial to the ability of the portfolio to generate sufficient cash flows for the timely payment of interest and ultimate payment of principal on the notes.

Investors will be able to choose if they want to extend the revolving period of their series, provided VWL has not defaulted at the end of the revolving period. Certain series of notes may therefore start amortising, while others continue to revolve. If the revolving period is prolonged, Fitch will fully review the transaction and publish corresponding rating actions.

Further to the RV risk, the transaction is exposed to some credit risk, as customers can default ahead of contract maturity. The credit risk dampens the RV risk as a defaulted contract cannot reach the contract maturity - at which point in time the RV risk materialises. Fitch applied a default base case of 2.5% and recovery base case of 67.5%, resulting in a loss base case from defaulted contracts of 0.8%. These credit assumptions are unchanged from the last renewal in September 2014.

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 that the data provided by the originator for assigning the ratings was of acceptable quality.

Fitch also conducted a review of a small targeted sample of VWL'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:
-Monthly investor reports since transaction closing including performance data;
-Comparison of VWL RV forecast (available semi-annually) with Deutsche Automobil Treuhand GmbH (DAT) forecast since July 2007 for major vehicle types;
-VWL RV forecasts compared with VWL contractual RVs;
-Static write-off information (number and amount) on VWL's lease portfolio until June 2015;
-Dynamic delinquency data since the end of January 2009 on VWL's lease portfolio;
-Pool stratification data provided by VWL as at 31 August 2015
-Market data on used car prices.

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, please refer to the special report "Representations, Warranties, and Enforcement Mechanisms in Global Structured Finance Transactions" dated 12 June 2015 available on the Fitch website.