Press Release: S&PGR Raises Rating In German Auto Lease ABS VCL 20
The following is a press release from Standard & Poor's: OVERVIEW -- Following our review of VCL 20's performance, we have raised and removed from CreditWatch positive our rating on the class B notes. -- At the same time, we have affirmed our 'AAA (sf)' rating on the class A notes. -- We believe that the positive performance of the transaction and the buildup of credit enhancement outweigh the potential negative effect caused by the ongoing emission scandal. -- VCL 20's notes are backed by a static portfolio of German auto lease receivables, which VW Leasing originated to mostly commercial retail customers. MADRID (S&P Global Ratings) Aug. 10, 2016--S&P Global Ratings today raised to 'AA+ (sf)' from 'A+ (sf)' and removed from CreditWatch positive its credit rating on VCL Multi-Compartment S.A., Compartment VCL 20's class B notes. At the same time, we have affirmed our 'AAA (sf)' rating on the class A notes (see list below). Today's rating actions follow our review of the transaction's performance since closing in October 2014 and the application of our criteria (see "Related Criteria"). On May 10, 2016, we placed on CreditWatch positive our rating on the class B notes due to improved performance and increased credit enhancement (see "Ratings On Five German VW Auto ABS Transactions' Class B Notes Placed On CreditWatch Positive Due To Performance"). We have analyzed credit risk under our European auto asset-backed securities (ABS) criteria, using the transaction's historical net loss data (see "Methodology And Assumptions For European Auto ABS," published on Oct. 15, 2015). The data show that the default level is lower than our expectations at closing. In our base-case scenario, we forecast that Germany will record GDP growth of 1.7% in 2016, 1.5% in 2017, and 1.4% in 2018, compared with 1.5% in 2015. At the same time, we expect unemployment rates to stabilize at historically low levels. We have therefore lowered our net loss base-case assumptions. We have also adjusted our recovery assumptions in line with other recent German auto loan and leasing ABS deals issued by Volkswagen Bank GmbH and Volkswagen Leasing GmbH. The available credit enhancement for the class A and B notes has increased since closing. This is because the notes have amortized sequentially until they reached their overcollateralization targets (12.25% for the class A notes and 7.5% for the class B notes). Once the transaction reached these targets, the issuer began paying principal pro rata to the class A and B noteholders. We also believe that the buildup of credit enhancement through deleveraging is likely to outweigh any potential negative effect on collateral performance caused by the emission manipulations. We believe that Volkswagen AG's (VW) admission on Sept. 22, 2015, that it installed software designed to manipulate diesel engine exhaust emissions in relation to nitrogen oxides (NOx) in 11 million passenger cars and commercial vehicles could ultimately affect the transaction in a number of areas: potential declines in the realization proceeds if borrowers/lessees default, potential dilution of the receivables backing the transaction as a result of vehicle owner claims against VW, and potential increase in the operational risk associated with VW. Based on VW's public announcements, we assume that the proposed remediation actions will not result in a change to the fuel economy figures, performance figures, or CO2 or noise emissions, and that the vehicles will remain roadworthy until and after a recall. Hence, based on the currently available information, we do not assume potential dilution of the receivables backing the transaction as a result of vehicle owner claims against the seller. As a result of our revised net loss expectations, revised recovery rate assumptions, and the transaction's increased credit enhancement, we have raised to 'AA+ (sf)' from 'A+ (sf)' and removed from CreditWatch positive our rating on the class B notes. At the same time, we have affirmed our 'AAA (sf)' rating on the class A notes because we consider that the available credit enhancement is commensurate with the currently assigned rating. Our counterparty, operational, and legal risk analysis remains unchanged since closing. VCL 20's notes are backed by a portfolio of German auto lease receivables, which Volkswagen Leasing GmbH originated to its mostly commercial retail customer base in the ordinary course of its business. RELATED CRITERIA AND RESEARCH Related Criteria -- Criteria - Structured Finance - General: Methodology And Assumptions For Ratings Above The Sovereign--Single-Jurisdiction Structured Finance - May 29, 2015 -- Criteria - Structured Finance - General: Global Framework For Cash Flow Analysis Of Structured Finance Securities - October 09, 2014 -- Criteria - Structured Finance - ABS: Global Methodology And Assumptions For Assessing The Credit Quality Of Securitized Consumer Receivables - October 09, 2014 -- Criteria - Structured Finance - ABS: Methodology And Assumptions For European Auto ABS - October 15, 2015 -- Criteria - Structured Finance - General: Methodology: Criteria For Global Structured Finance Transactions Subject To A Change In Payment Priorities Or Sale Of Collateral Upon A Nonmonetary EOD - March 02, 2015 -- Criteria - Structured Finance - General: Global Framework For Assessing Operational Risk In Structured Finance Transactions - October 09, 2014 -- General Criteria: Methodology Applied To Bank Branch-Supported Transactions - October 14, 2013 -- Legal Criteria: Europe Asset Isolation And Special-Purpose Entity Criteria--Structured Finance - September 13, 2013 -- Criteria - Structured Finance - General: Counterparty Risk Framework Methodology And Assumptions - June 25, 2013 -- Criteria - Structured Finance - General: Global Derivative Agreement Criteria - June 24, 2013 -- Criteria - Structured Finance - General: Criteria Methodology Applied To Fees, Expenses, And Indemnifications - July 12, 2012 -- General Criteria: Global Investment Criteria For Temporary Investments In Transaction Accounts - May 31, 2012 -- General Criteria: Methodology: Credit Stability Criteria - May 03, 2010 -- General Criteria: Use Of CreditWatch And Outlooks - September 14, 2009 -- Criteria - Structured Finance - General: Standard & Poor's Revises Criteria Methodology For Servicer Risk Assessment - May 28, 2009 Related Research -- The Brexit Vote Is Benefiting Emerging Economies, But For How Long?, July 27, 2016 -- As Brexit Takes Shape, Europe Is Set To Slow--Not Stall, July 8, 2016 -- Europe's Economic Outlook After The Brexit Vote, July 4, 2016 -- Ratings On Five German VW Auto ABS Transactions' Class B Notes Placed On CreditWatch Positive Due To Performance, May 10, 2016 -- Volkswagen's Additional EUR9.5 Billion Charge For Emissions Has No Immediate Rating Impact, April 22, 2016 -- How We Rate And Monitor EMEA Structured Finance Transactions, March 24, 2016 -- Could The Air Start To Clear At Volkswagen?, Feb. 16, 2016 -- Europe's Carmakers Face A Long Road To Clear The Air On Emissions, Feb. 2, 2016 -- German Automaker Volkswagen Downgraded To 'BBB+' from 'A-' On Adverse Emissions Impacts; Outlook Negative, Dec. 1, 2015 -- Volkswagen Financial Services Ratings Lowered To 'BBB+'; Ratings On VW Bank Affirmed; Outlooks Negative, Dec. 1, 2015 -- Bulletin: Volkswagen Ratings Currently Unaffected By CO2 Irregularities As Long-Term Rating Already On CreditWatch Negative, Nov. 4, 2015 -- German Automaker Volkswagen Ratings Lowered To 'A-/A-2' On Governance; L-T Ratings Remain On Watch Neg On Ongoing Risks, Oct. 12, 2015 -- Volkswagen Financial Services Ratings Lowered To 'A-/A-2'; Still On CreditWatch Negative, Oct. 12, 2015 -- Recent Volkswagen Announcement Has Potential To Affect Related ABS Transactions, Oct. 2, 2015 -- 2015 EMEA ABS Scenario And Sensitivity Analysis, Aug. 6, 2015 -- New Issue: VCL Multi-Compartment S.A., Compartment VCL 20, Oct. 27 2014 -- European Structured Finance Scenario And Sensitivity Analysis 2014: The Effects Of The Top Five Macroeconomic Factors, July 8, 2014 -- Global Structured Finance Scenario And Sensitivity Analysis: Understanding The Effects Of Macroeconomic Factors On Credit Quality, July 2, 2014 -- Scenario Analysis: Gross Default Rates And Excess Spread Hold The Answer To Future European Auto ABS Performance, May 12, 2009 RATINGS LIST VCL Multi-Compartment S.A., Compartment VCL 20 EUR1.058 Billion Asset-Backed Floating-Rate Notes (Including A EUR25.76 Million Unrated Subordinated Loan) Class Rating To From Rating Raised And Removed From CreditWatch Positive B AA+ (sf) A+ (sf)/Watch Pos Rating Affirmed A AAA (sf) Primary Credit Analyst: Ignacio T Estruga, Madrid (34) 91-389-6964; ignacio.estruga[a]spglobal.com Research Contributor: Vidhya Venkatachalam, CFA, CRISIL Global Analytical Center, an S&P affiliate, Mumbai Additional Contact: Structured Finance Europe; StructuredFinanceEurope[a]spglobal.com No content (including ratings, credit-related analyses and data, valuations, model, software, or other application or output therefrom) or any part thereof (Content) may be modified, reverse engineered, reproduced, or distributed in any form by any means, or stored in a database or retrieval system, without the prior written permission of Standard & Poor's Financial Services LLC or its affiliates (collectively, S&P). 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Press Release: S&PGR Raises Rating In German Auto -2-
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