S&PGR Raises Rating In German Auto Lease ABS VCL 20

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 
 
 
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Press Release: S&PGR Raises Rating In German Auto -2-

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