OREANDA-NEWS. Fitch Ratings has assigned VCL Multi-Compartment S.A.'s class A and B notes to be issued under Compartment 22 (VCL 22) the following ratings:

EUR800m floating-rate, asset-backed class A notes, due August 2021: 'AAAsf'; Outlook Stable
EUR20.5m floating-rate, asset-backed class B notes, due August 2021: 'A+sf'; Outlook Stable
EUR28.1m subordinated loan, due August 2021: not rated

The transaction is a securitisation of auto lease receivables originated to German companies and individuals by Volkswagen Leasing GmbH (VWL), a subsidiary of Volkswagen Financial Services AG, which is itself a subsidiary of Volkswagen AG (BBB+/Negative/F2).

KEY RATING DRIVERS
We determined default and recovery base cases of 1.85% and 66.4%. At 'AAAsf', we applied a high default stress multiple of 6.0x and a recovery haircut of 45%. Compared with the previous VCL transactions, the base case recovery expectation was lowered due to effects expected from the emission scandal resulting in a higher loss expectation.

In the pool, 16.6% of lease receivables (by volume) have been reported as affected by VW's manipulation of nitrogen oxide (NOx) emission tests. Fitch expects at least a temporary impact on the used car prices for these vehicles. The agency therefore reduced its base case recovery expectations for affected vehicles by 10%. Risks going beyond lower car prices depend on the technical fix and are currently seen as sufficiently remote.

The estimated balance of CO2-affected vehicles is 6.6% of the pool (including 3.6% already identified as affected at closing). The seller is obliged to repurchase CO2-affected vehicles as soon as identified, starting in December 2015. A reserve of EUR56.47m adequately protects the transaction from losses pending the repurchases.

No formal back-up servicing arrangements are made to replace VWL as a servicer. Servicer continuity risk is reduced by the comfortable liquidity position, covering at least nine monthly payments. Moreover, given the close integration of the seller within VW group and its size, we believe that a disorderly servicing interruption is very unlikely.

A non-amortising cash reserve (7.7% of initial pool balance) is available to cover certain seller-related risks such as commingling and tax risks. During the first periods of the transaction, Fitch deems the size of the reserve as just adequate to cover potential commingling and tax risks. As the aggregate exposure of commingling and tax risks is decreasing over time, in later periods there will be excess amounts that could be used for other seller-related risks.

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' and the class B notes to 'BBB-sf'.

Additionally, scenarios reducing recovery rates further were analysed, simulating a permanent damage to VW's brand image. For example, a decrease in the recovery rate base case of NOx-affected vehicles by 25% and a simultaneous decrease in the recovery rate base case of non-affected vehicles by 10% (resulting in a recovery rate base case of 59.1% for total pool) would not lead to a downgrade of the notes.

TRANSACTION CHARACTERISTICS
The transaction's characteristics are largely comparable with the existing term securitisations under the VCL brand. VCL 22 differs from previous VCL transactions with respect to the cash reserve available to cover seller-related risks (commingling, tax risks and breaches of the seller's representations). Previous VCL transactions benefit from residual values covering these risks.

The class A and B notes pay floating interest based on one-month Euribor. Since the receivables pay fixed interest, the issuer will enter into swap agreements at closing to hedge the resulting interest rate mismatch.

The transaction is static and will start amortising from closing. Repayment of note principal switches between sequential and pro-rata allocation, based on transaction performance. Unchanged loss triggers inducing sequential note amortisation are not keeping pace with the lower observed losses; their effectiveness has therefore diminished. However, the fairly long period until the target overcollateralisation levels are reached protects the structure from a rapid switch to a pro-rata amortisation.

The EUR857.2m portfolio consists of 82,644 lease contracts granted to 54,497 lessees. It is well diversified in terms of single obligors; geographical distribution; and industry sectors of the lessees. The share of NOx-affected vehicles is 16.6% and CO2-affected vehicles are estimated at 6.6% of the total pool balance.

VWL acts as a servicer. The risk of cash flow and servicing interruptions is reduced by a cash reserve, providing liquidity of 9x monthly senior cost and swap payments (equal to note interest).

DUE DILIGENCE USAGE
Fitch received a third party assessment conducted on the asset portfolio information prior to closing.

DATA ADEQUACY
Fitch 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. Fitch was also provided with the number and volume of vehicles in the pool affected by VW's alleged emission manipulation. This allowed the agency to perform a detailed analysis of the initial pool.

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:
-Static loss data (number and amount) since January 2002 until September 2015.
-Dynamic delinquency from January 2010 data until September 2015.
-Pool stratification data provided by VWL as of 30 October 2015.
-Surveillance data for existing VCL transactions.
-Number / amount of vehicles affected by the emission manipulation, as provided by originator.

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 November 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.