Creditreform Rating has assigned preliminary ratings to the Class A and Class B notes of VCL Multi-Compartment S.A., acting for and on behalf of its Compartment 27 (VCL 27), as follows:
EUR 705,100,000 Class A Asset Backed Floating Rate Notes: AAAsf
EUR 14,300,000 Class B Asset Backed Floating Rate Notes: AA-sf
The ratings are preliminary and may change as a result of new information. Final ratings will be assigned on the Closing Date subject to a satisfactory review of the transaction documents and legal opinions.
The transaction is a securitisation of German auto lease receivables, originated by Volkswagen Leasing GmbH (VWL). VCL 27 is non-revolving and securitises only the finance portion of the leases; residual values are not securitized by the Issuer. A combination of Subordinated Loan, overcollateralization and a cash reserve will provide credit enhancement to the rated Class A and Class B Notes.
VWL will credit to the Cash Collateral Account certain amounts which will be available to mitigate commingling risks, trade tax and VAT tax risks, and cover the Issuer´s exposure to VWL. To mitigate commingling risk, the structure obliges the Servicer to advance the aggregate value of all lease payments due in the next monthly period if minimum ratings of VWFS are no longer satisfied. Collateral downgrade and replacement provisions mitigate counterparty risk exposures with respect to the Swap counterparty and Account Bank. Risks related to the Issuer are limited, the compartment structure being ring-fenced and with limited recourse to other creditors of the Issuer.
To size the credit risk of the portfolio and derive base case assumptions about loss rates and expected recovery performance, Creditreform Rating used data provided by VWL as well as proprietary data. Following the analysis of historical data, CRA set the base case gross loss rate at 1.62% and the base case recovery rate at 65%. Furthermore, the CRA Portfolio and Benchmark Analysis showed a slightly higher level of credit risk as the base case assumption. CRA considers the default multiples and recovery haircuts to be sufficient to capture the credit and portfolio risk to this transaction.
CRA selects default multiples at x5.62 (AAAsf) and x4.29 (AA-sf). Moreover, CRA set recovery haircuts at 45.34% (AAAsf) and 37.88% (AA-sf), taking into account transaction-specific features such as observed volatility and established recovery procedures, as well as potential market value risks. This resulted in total expected net losses of 5.85% (AAAsf) and 4.14% (AA-sf). These scenario-specific assumptions were tested in CRA´s proprietary cash flow model, which was tailored to reflect the structure of VCL 27 and to assess the issuer´s ability to service its debt in a full and timely manner.