Fitch Rates Bavarian Sky S.A., Compartment German Auto Loans 7 'AAAsf'/Stable.
EUR1,000 million floating-rate class A notes, due October 2024: 'AAAsf'; Outlook Stable
EUR75.3 million fixed-rate class B notes, due October 2024: not rated
EUR5.4 million subordinated loan: not rated
The transaction is a securitisation of German auto loan receivables originated by BMW Bank GmbH, a wholly owned subsidiary of BMW AG, and granted to private (74%) and commercial (26%) customers. The notes are denominated in euro. The rated class A notes pay a floating interest rate of one-month Euribor plus 40 bps, while the class B notes have a fixed coupon of 1%. Proceeds from the subordinated loan were used to fund the non-amortising reserve fund of EUR5.4 million.
KEY RATING DRIVERS
Healthy Performance of Underlying Receivables
Losses in BMW Bank's book are comparable to other captive auto loan originators in Germany. Fitch has used a default assumption of 1.7%. The default base case is based on the continuing strong performance of the latest vintages, a stable economy in Germany expected over the next two years, and the healthy performance of existing transactions originated by BMW Bank.
High Balloon Exposure
Nearly 99% of the loans (by balance) within the final asset pool include a balloon component at loan maturity. Borrowers may face a payment shock if they cannot refinance the balloon amount (due to a BMW Bank default), or sell the car for the balloon amount (due to a downturn in the used-car market). Fitch has considered this additional default risk by increasing the default multiple (7.0x for AAAsf) in its analysis.
Turbo Amortisation Feature
All available funds of the waterfall, after paying senior costs, swap and interest payments and the reserve fund refill, are allocated to pay down the class A notes until they are redeemed in full. This mechanism leads to a faster amortisation than in comparable transactions where notes often only amortise to target balances.
Provisions against Commingling Risk
Neither the servicer nor its parent company BMW AG is publicly rated by Fitch. Nevertheless, Fitch has formed a credit view on BMW AG. According to the transaction documentation, commingling risk will be collateralised via a reserve, if in Fitch's view BMW AG's creditworthiness falls below the level outlined in Fitch's counterparty criteria. The agency therefore believes that this risk is adequately addressed within the transaction structure.
The transaction does not have formalised back-up servicing arrangements, but the risk is reduced by the standard nature of the asset class and the availability of liquidity through the non-amortising reserve fund.
Expected impact on the note rating of increased defaults (class A):
Current rating: 'AAAsf'
Increase base case defaults by 10%: 'AAAsf'
Increase base case defaults by 25%: 'AA+sf'
Increase base case defaults by 50%: 'AAsf'
Expected impact on the note rating of decreased recoveries (class A):
Current rating: 'AAAsf'
Reduce base case recovery by 10%: 'AAAsf'
Reduce base case recovery by 25%: 'AAAsf'
Reduce base case recovery by 50%: 'AA+sf'
Fitch views the recovery-related sensitivities above to also provide an indication on rating changes upon potential deterioration of used car prices of vehicles equipped with diesel engines (see Fitch: European Diesel Restrictions Could Hit Used Car Prices). We have estimated the total diesel share in the pool at 60%, based on line-by-line data from the predecessor deal Bavarian Sky 6. Assuming a decrease of 25% in diesel vehicles' recovery proceeds as sensitivity, while leaving recovery proceeds for non-diesel vehicles unchanged, the resulting rating sensitivity lies within the 10% and 25% sensitivities (that are applied to the entire pool) above.
Expected impact on the note rating of increased defaults and decreased recoveries (class A):
Current rating: 'AAAsf'
Increase default base case by 10%; reduce recovery base case by 10%: 'AAAsf'
Increase default base case by 25%; reduce recovery base case by 25%: 'AA+sf'
Increase default base case by 50%; reduce recovery base case by 50%: 'A+sf'
USE OF THIRD-PARTY DUE DILIGENCE PURSUANT TO RULE 17G-10
Form ABS Due Diligence-15E was not provided to, or reviewed by, Fitch in relation to this rating action.
Fitch reviewed the results of a third-party assessment conducted on the asset portfolio information, and concluded that there were no findings that affected the rating analysis.
Fitch conducted a review of a small targeted sample of BMW Bank'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.
- Quarterly default and loss vintage data provided by BMW Bank for 2009-2Q17. Additionally, Fitch used 2008 default and loss vintage data received from BMW Bank in the course of a predecessor auto loan transaction analysis.
- Monthly data for the total book and new business volumes provided by BMW Bank for 2007-2Q17.
- Monthly delinquency information provided by BMW Bank for 2007-2Q17.
- Annual prepayment information provided by BMW Bank for 2007-2Q17.
- Portfolio stratifications and amortisation profile provided by BMW Bank for the preliminary pools as of 31 July 2017 and 31 August 2017, and the final pool as of 30 September 2017.
The model below was used in the analysis. Click on the link for a description of the model.
EMEA Cash Flow Model.
REPRESENTATIONS AND WARRANTIES
A description of the transaction's representations, warranties and enforcement mechanisms (RW&Es) that are disclosed in the offering document and which relate to the underlying asset pool is available by accessing the appendix referenced under "Related Research" below. The appendix also contains a comparison of these RW&Es to those Fitch considers typical for the asset class as detailed in the Special Report titled "Representations, Warranties and Enforcement Mechanisms in Global Structured Finance Transactions," dated 31 May 2016.
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|Publication:||Daily the Pak Banker (Lahore, Pakistan)|
|Date:||Dec 27, 2017|
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