European Structured Finance · sets of €83.8 billion, equity of €8.7 billion, and its 8,456...

Pre‐Sale Report 25 October 2012

European ‐ Structured Finance ABS Germany

VCL 16

Report Date 25 October 2012

Analysts Mike Babick Senior Vice President 44 20 7855 6675 [email protected] Alexander Garrod Vice President 44 20 7855 6633 [email protected] Claire Mezzanotte Managing Director 44 20 7855 6672 [email protected]

Table of Contents Transaction Summary P1 Rating Rationale P2 Assessment of the Sovereign P2 Sector Analysis P3 Transaction Parties and Relevant Dates P3 VWL and VFS P4 Underwriting and Servicing P5 Collateral Analysis P6 Historical Performance P7 Transaction Structure P8 Priority of Payments P8 Transaction Counterparty Risk P11 Cash Flow Analysis P12 Legal Structure P13 Credit Enhancement P14 Methodologies Applied P14 Monitoring and Surveillance P14 Representations & Warranties P15

Ratings

Notes: The ratings address the payment of timely distribution of scheduled interest and ultimate principal.

+Credit enhancement includes subordination, overcollateralisation, and a reserve account. Transaction Summary DBRS, Inc., (DBRS) has assigned provisional ratings to the Class A and Class B Notes issued by VCL 16 as listed on page 1. The present transaction represents the sixteenth publicly placed issuance under Volks‐wagen’s leasing program. There will be two classes of rated notes included in VCL 16. Initial Class A credit support of 8.20% will in‐clude a cash collateral account (1.20%), (funded at inception, amortising to 1.00% of the original dis‐counted receivables balance), the subordination of Class B (2.80%), a subordinated loan (3.00%), and overcollateralisation (1.20%). Class A overcollateralisation in the transaction will build to a target of 12.25%. Initial Class B credit support of 5.40% will include the cash collateral account (1.20%), the subor‐dinated loan, (3.00%), and overcollateralisation (1.20%). Class B overcollateralisation in the transaction will build to a target of 7.50%. The receivables securitized in VCL 16 consist of a pool of automobile leases to retail and commercial cus‐tomers secured by new, used, and demonstration vehicles. The pool has a weighted average original term of approximately 40 months, has nearly 8 months of seasoning, and leases representing new vehicles ac‐count for roughly 95% of the receivables. Notable Features

• The transaction has a sequential/pro‐rata amortisation structure whereby initially all principal payments from the lease receivables will pay down the Class A Notes until Class A overcollaterali‐sation reaches its target level of 12.25%. Thereafter, Class A and Class B will receive principal on a pro‐rata basis unless a performance trigger is breached as is described more fully in the Credit Enhancement section of this report.

Strengths • Collateral pool has 7.7 months of seasoning. • Highly experienced, financially strong servicer. • Notes are secured by the lease receivables only, eliminating residual value risk.

Challenges and Mitigating Factors

• VWL is permitted to commingle collections on the receivables as long as they are the servicer. This risk is mitigated by the availability of collections associated with the expectancy rights to cover any losses arising from commingling.

Debt Par Amount

(€) Initial Credit Enhancement+

Index Note Margin

ISIN Rating Action Rating

Class A Notes

1,000,000,000 8.20% Euribor 1m 0.27% XS0821742144 Provisional Rating

– Finalised AAA (sf)

Class B Notes

30,100,000 5.40% Euribor 1m 0.90% XS0821743977 Provisional Rating

‐ Finalised A (high) (sf)

2 Pre-Sale Report - Structured Finance: European ABS

VCL 16 Report Date 25 October 2012

Rating Rationale The provisional ratings are based upon a review by DBRS of the following analytical considerations: Transaction capital structure, proposed ratings and form and sufficiency of available credit enhance‐

ment. o Credit enhancement is in the form of overcollateralisation, a subordinated loan, subordina‐

tion in the form of the Class B Notes, and amounts held in the cash collateral account. Credit enhancement levels are sufficient to support DBRS projected expected cumulative net loss (CNL) assumption under various stress scenarios.

The ability of the transaction to withstand stressed cash flow assumptions and repay investors ac‐cording to the terms in which they have invested. For this transaction, the rating addresses the pay‐ment of timely interest on a monthly basis and principal by the legal final maturity date.

The transaction parties’ capabilities with regards to originations, underwriting and servicing and the financial strength Volkswagen Leasing GmbH (VWL).

o Volkswagen Leasing GmbH is part of the Volkswagen Group, a leading worldwide manufac‐turer of high quality automotive vehicles and provider of diversified financial services.

The credit quality and industry diversification of the collateral and historical and projected perform‐ance of VWL’s retail lease portfolio.

VWL’s underwriting techniques that include the use of proprietary scorecards that have enabled de‐linquencies and losses to remain at manageable levels despite the recent economic downturn.

Soundness of the legal structure and presence of legal opinions that will address the true sale of the assets to the issuer, the non‐consolidation of the special purpose vehicle with the seller in addition to the transaction’s consistency with the DBRS Legal Criteria for European Structured Finance Transac‐tions methodology, dated April 2012.

Assessment of the Sovereign DBRS has ratings of “AAA” on the Republic of Germany’s long‐term foreign and local currency debt. The trend on both ratings is Stable. The German economy has shown resilience as it is undergoing a strong recovery after the sharp contraction it experienced when world trade collapsed in 2009. Nevertheless, its banking sector has suffered from large holdings of impaired securitised assets and the ensuing extraordinary government support has substantially increased public debt. However, the deterioration in fiscal balances has been limited and in 2011 the fiscal deficit fell to 1% of GDP, well below the 3% of GDP ceiling. The ratings are underpinned by moderate growth prospects for a mature economy, a high level of productivity, high national savings and strong price competitiveness. Moreover, the credibility of fiscal consolidation has been enhanced with the approval of a constitutional rule in 2009 that places a ceiling on central government structural net borrowing of 0.35% of GDP from 2016 onward. The return of economic growth has facilitated the ongoing fiscal retrenchment. Germany’s economy is the largest in Europe, well diversified, with a large tradable sector and highly productive, with output per hour worked at a similar level to France’s and only slightly below that of the United States. All price measures point to a strong level of competitiveness, which has likely helped sustain Germany’s very high share of world goods exports at 8.5% to 10%. With a high national savings rate that easily exceeds domestic investment requirements, Germany has posted consistently high current account surpluses and was responsible for 12.8% of worldwide net capital exports in 2011. Despite these strengths, the rapid rise in public debt is a significant challenge. The increase in expenditures combined with the fall in revenues from the downturn in 2009 generated a comparatively moderate worsening of the fiscal balance of about 3% of GDP. A good starting fiscal position, however, with a budget that was close to balance before the crisis, helped cushion the impact on public debt dynamics.



Extensive support to the financial sector of EUR 334 billion, or 13.4% of GDP, as of 2010 is mainly responsible for the increase in public debt. These interventions, which did not add significantly to fiscal deficits, pushed public debt to 83% of GDP in 2010. However, with a recovery that has been relatively strong the fiscal deficit has fallen significantly and public debt fell for the first time in four years, reaching 81.2% of GDP in 2011. Unwinding the extraordinary support measures to the financial sector and addressing the weaknesses of the Landesbank sector, which suffers from a weak business model, remain challenges. German bank exposures to Greece appear manageable, amounting to EUR 13.3 billion, of which EUR 6.7 billion is to the public sector, according to BIS statistics from the fourth quarter of 2011. Nevertheless, recent political developments in Greece have called into question the Greek government’s willingness and capacity to comply with the EU‐IMF adjustment programme and sustain its membership in the European Monetary Union. Uncertainty over the future of Greece, which may persist for some time given the scale of the macroeconomic adjustment required, could add to downside risks to the growth outlook in Europe. Nevertheless, DBRS believes the sovereign is well placed to provide additional support to the banking sector if necessary. Sector Analysis Last year 3.51 million vehicles (2010: 3.20 million/ +9.7 %) were registered in Germany. The increase in the passenger car market by 8.8 % to 3.17 million vehicles (2010: 2.92 million) was mainly due to the eco‐nomic recovery and the low level in the previous year after the phase‐out of the environmental bonus. Total automobile production* in 2011 reached 6.14 million vehicles, up 6.2 % versus last year (5.78 mil‐lion). Exports* by German manufacturers showed strong gains as their market shares continued to im‐prove in almost all important automobile markets (4.71 million versus 4.40 million vehicles in 2010/ +7.0 %). With car registrations increasing by 11.3 % the Volkswagen Group remained the number one automo‐bile manufacturer in Germany with a share in the car market of 35.9 % (35.1 %). * preliminary figures; cars and light trucks ≤ 6 tonnes GVW, over 6 tonnes not reported

Transaction Parties and Relevant Dates Transaction Parties Type Name Rating

Issuer: VCL Multi‐Compartment S.A. acting for and on behalf of its Compartment VCL 16

N/A

Seller and Servicer: Volkswagen Leasing GmbH DBRS Private Rating Security Trustee and VCL Master Security Trustee:

Wilmington Trust SP Services (Frankfurt) GmbH

Account Bank, Paying Agent, Calculation Agent, Cash Administrator and Interest De‐termination Agent:

Elavon Financial Services Limited DBRS Private Rating

Class A and Class B Swap Counterparty Royal Bank of Canada AA, R‐1 (high)

Relevant Dates Type Date Issue Date 25 October 2012 First Interest Payment Date 21 November 2012 Payment Frequency Monthly Legal Final Maturity Date Class A Notes 21 July 2018

Class B Notes 21 July 2018



Volkswagen Leasing & Volkswagen Financial Services VWL was founded in 1966 and its share capital is held by Volkswagen Financial Services AG (VWFS) head‐quartered in Braunschweig, Germany. VWL is responsible for the leasing business of the Volkswagen Group in Germany. For the first half of 2012, VWL originated approximately 221,000 new contracts, and as of 6/30/2012, serviced a total of 920,000 of contracts. As of 6/30/2012, VWL had leasing assets of €16.2 million and net income for the half year period was €89.8 million. VWFS is a 100%‐owned subsidiary of Volkswagen AG and is responsible for coordinating the worldwide fi‐nancial services activities of the Volkswagen Group. VWFS provides banking, leasing, insurance, and other services to its retail, wholesale and fleet customers. As of 6/30/2012, VW Financial Services had total as‐sets of €83.8 billion, equity of €8.7 billion, and its 8,456 employees helped manage a receivables portfolio of €62.8 billion portfolio of loans, leases, and wholesale receivables. Pre‐tax profit for the first half of 2012 was €478 million and for 2011 was €933 million. The VWFS business model focuses on achieving the entire potential along the automotive value chain by integrating both automotive and financial services.

VWL acts under the AUDI Leasing, Seat Leasing, Skoda Leasing and AutoEuropa Leasing brands. The ob‐jectives of VWL are to lease motor vehicles, especially the following brands: Volkswagen, Audi, SEAT, Skoda, and Volkswagen Nutzfahrzeuge. VWL provides a modern and cost effective alternative to the pur‐chase of vehicles in Germany and for the financing of investments, the latter in particular for the business partners of the Volkswagen Group. In addition to providing leasing for the brands noted above, VWL also offers service‐leasing to commercial and non‐commercial customers and leasing options for used vehicles of all makes. VWL co‐operates closely with the approximately 3,500 dealerships of the Volkswagen Group. A dealer can thus offer the customer complete, competent, personal service, at one stop and from a single source, including the fi‐nancing. The co‐operation between the manufacturer or importer and the dealer‐partner respectively is estab‐lished by a dealer agreement. Under this agreement the dealer‐partner is given the responsibility for mar‐



keting the products and services of the Volkswagen Group and to service the trade‐marked‐products of the Volkswagen Group and to service the trade‐marked‐products of the Volkswagen Group. The dealer‐partners procure leasing business for VWL against commissions. VWL buys the vehicles from the dealer, finances and administers the vehicles and assumes the credit risk. Each dealer‐partner is trained in leasing business. The dealer‐partner is the local contact person and available to the lessee dur‐ing the whole life of the leasing contract.

Underwriting and Servicing Underwriting Prior to acceptance of an application, VWL checks the credit standing of the customer. For private and commercial retail customer contracts, applications are automatically approved by a scoring system if the information on the application demonstrates that the applicant meets VWL's criteria for an automatic ap‐proval. The scoring system takes into account different criteria and factors. For commercial customers, the primary factors evaluated during the scoring process are information related to the product/vehicle and information from external credit agencies (Creditreform, Bürgel). For retail customers, this same in‐formation is supplemented with personal data, job‐related data, and other financial information relating to the borrower. Depending upon the respective information applicable to each criterion, the lease appli‐cation receives a certain amount of scores per criterion according to statistical methods and historical ex‐perience. The sum of scores gives VWL an assessment with respect to the risk of granting a loan to the re‐spective applicant. Applications not automatically accepted by the scoring system are decided by an employee of the credit department. The employees of VWL's credit department are qualified persons (generally with at least several years' training in banks or in industry or with degrees in business administration or similar busi‐ness experience, etc.). Each employee is personally assigned a credit ceiling up to which she/he may un‐derwrite a given lease.

Servicing The leasing application includes a clause authorising VWL to debit the monthly payments directly from the lessee’s bank account. For the present transaction, approximately 94% of the pool, by balance, make payments through direct debit. In the circumstance where customers do not authorise direct debiting, payment comes from standing orders for payment transfers from their bank account, regular bank trans‐fers, or cheque. Generally, less than 2% of direct debit payments are in arrears and in 80% of these cases, the rejection is due to insufficient funds and the remainder are due to closed accounts or incorrect data. In the other 20% of cases, rejection was due to objections, closing of accounts and contradiction and non‐confirmation of account data. Approximately 25% of the direct debits that were initially rejected are resolved within 2 weeks. In the remainder of cases, a reminder letter is generally sent to the customer after the due date for the instal‐ment. If the lessee does not pay then, a second reminder letter is generally sent after another two weeks, in which interest on arrears and other costs are also mentioned. The third reminder (after about one and a half months) includes charges for the reminder (graduated from EUR 8 to EUR 18), the threat of a sum‐mary court order to pay and the threat of termination of the contract. In addition, the dealer who inter‐mediated the contract is brought into the proceeding and requested to investigate the situation and to help with the collection of the debts. In addition, the debts management department of VWL may write an individual letter to the customer or be in touch with the customer or with the dealer by telephone or telefax. The employees of the debts management department of VWL are authorised to grant justifiable payment extensions though the number of such agreements has been negligible.



Collateral Analysis The overwhelming majority of the lease receivables are originated by Volkswagen, Audi, SEAT, Skoda and Volkswagen Nutzfahrzeuge dealers as agents. Under the contracts, the lessees amortise the difference between the purchase price and the vehicle value at contract expiration. The transaction will consist of both open end and closed end leases. Open end lease contracts have no fixed residual values guaranteed by the dealer and the ultimate residual value will depend upon the state of the market when the vehicle is returned to VWL. Closed end lease contracts are based on fixed residual values based upon the contrac‐tual mileage and term of the contract, both being guaranteed by the vehicle dealer in respect of a return of the car in compliance with the terms of the contract. The lease receivables in the VCL 16 transaction are substantially similar to those in prior VCL transactions. The pool characteristics as of the cut‐off date are shown below.

Pool Characteristic VCL 16

Outstanding Discounted Receivables Balance (€000's) 1,075,000

Number of Lessees 57,213

Number of Contracts 93,566

Average Discounted Balance per Contract (€) 11,492

Discount Rate 5.7016%

Pool Characteristics (% Outstanding Discounted Receivables Balance):

Manufacturer

Audi 38.9%

SEAT 2.0%

Skoda 7.2%

Volkswagen 37.2%

VW Nutzfahrzeuge 14.5%

New / Used / Demonstration 95% / 2% / 3%

Closed End / Open End 98% / 2%

Top 20% 0.66%

Geographic Mix (Top 3 Regions)

North Rhine‐Westphalia 22.2%

Bavaria 17.4%

Baden‐Wuerttemberg 15.5%

Top 5 Industries

Manufacturing Industry 21.0%

Public Administration, Education, Health Care and Public Services 19.7%

Other Services 19.7%

Retail/ Wholesale 14.5%

Construction 10.9%



Historical Performance The charts below show delinquency and loss data for VWL’s portfolio. As can be seen, delinquencies and losses have remained at manageable levels despite the continued weak global economic environment.

Annualised Loss Ratio Drawings on provisions + direct write‐offs relative to the exposure multiplied by

an annualized coefficient Provision Ratio (IFRS)

(IFRS specific provisions + portfolio based provisions) / total exposure

Portion of insufficient creditworthiness

Outstanding receivables of terminated contracts / total exposure



Transaction Structure The transaction structure is illustrated below. The receivables purchased by the issuer include receivables held by VWL and receivables originally purchased by VCL Master from VWL and on‐transferred for secu‐rity purposes to the VCL Master Security Trustee. As the underlying assets are fixed rate auto leases and the Notes are floating rate, the transaction will benefit from an interest rate swap whereby the issuer will pay a fixed rate to the swap counterparty and receive a floating rate to mitigate interest rate risk. Re‐payment of the Notes is secured by payments from obligors with respect to the underlying lease receiv‐ables while unsecured transaction risks relating to VWL’s ability to commingle funds (as long as they are the Servicer) are secured by the expectancy rights (residual values) associated with the receivables.

Priority of Payments Prior to any Enforcement Event, distributions from the Available Distribution amount will be made in the following order of priority:

1. amounts payable in respect of taxes (if any) by VCL Multi‐Compartment S.A. other than any tax filing

fees and any annual return or exempt company status fees; 2. amounts (excluding any payments under the Trustee Claim) payable (i) to the Security Trustee under

the Trust Agreement and (ii) pari passu to any successor of the Security Trustee (if applicable) ap‐pointed pursuant to Clauses 34 and 35 of the Trust Agreement or under any agreement replacing the Trust Agreement;



3. of equal rank amounts payable (i) to the Corporate Services Provider under the Corporate Services Agreement, (ii) to the Data Protection Trustee under the Data Protection Trust Agreement; (iii) to the Servicer, the Servicer Fee, and (iv) to the Rating Agencies the fees for the monitoring of the Issue;

4. of equal rank amounts payable (i) to the directors of VCL Multi‐Compartment S.A. and (ii) in respect of other administration costs and expenses of the Issuer including without limitation, any costs relat‐ing to the listing of the Notes, or any Agents' fees, any auditors' fees, any tax filing fees and any an‐nual return or exempt company status fees;

5. amounts payable to the Account Bank maintaining the Accounts for account management fees due under the Account Agreement;

6. amounts payable by the Issuer to the Swap Counterparty in respect of any Net Swap Payments or any Swap Termination Payments under the Swap Agreements (if any and provided that the Swap Coun‐terparty is not the defaulting party (as defined in the relevant Swap Agreement) and there has been no termination of the transaction under the Swap Agreement due to a termination event relating to the Swap Counterparty's downgrade); if the amounts paid by the Issuer to the Swap Counterparty are insufficient to meet the Issuer's payment obligations under the Swap Agreements, such pay‐ments by the Issuer will be used first for payments due under the Class A Swap Agreement and, to the extent such payment obligations have been fully satisfied, second, for payments due under the Class B Swap Agreement;

7. amounts payable in respect of (a) interest accrued during the immediately preceding Interest Accrual Period plus (b) Interest Shortfalls (if any) on the Class A Notes;

8. amounts payable in respect of (a) interest accrued during the immediately preceding Interest Accrual Period plus (b) Interest Shortfalls (if any) on the Class B Notes;

9. to the Cash Collateral Account, until the General Cash Collateral Amount is equal to the Specified General Cash Collateral Account Balance;

10. after a German Trade Tax Increase Event, to the Cash Collateral Account, until the amount of funds in the Cash Collateral Account is equal to the sum of the Specified General Cash Collateral Account Bal‐ance plus the Increased German Trade Tax Risk Reserve Amount;

11. to the holders of the Class A Notes, an aggregate amount equal to the "Class A Principal Payment Amount" for such Payment Date, which is equal to the amount necessary to reduce the outstanding principal amount of the Class A Notes to the Targeted Class A Note Balance;

12. to the holders of the Class B Notes, an aggregate amount equal to the "Class B Principal Payment Amount" for such Payment Date, which is equal to the amount necessary to reduce the outstanding principal amount of the Class B Notes to the Targeted Class B Note Balance;

13. by the Issuer to the Swap Counterparty, any payments under the Swap Agreements other than those made under item sixth above; if the amounts paid by the Issuer to the Swap Counterparty are insuffi‐cient to meet the Issuer's payment obligations under the Swap Agreements, such payments by the Issuer will be used first for payments due under the Class A Swap Agreement and, to the extent such payment obligations have been fully satisfied, second, for payments due under the Class B Swap Agreement;

14. amounts payable in respect of accrued and unpaid interest on the Subordinated Loan (including, without limitation, overdue interest);

15. to the Subordinated Lender, principal amounts until the aggregate principal amount of the Subordi‐nated Loan has been reduced to zero; and

16. to pay all remaining excess to VWL by way of a final success fee.

After an Enforcement Event, distributions from the Available Distribution amount will be made in the fol‐lowing order of priority:

1. amounts payable in respect of taxes (if any) by VCL Multi‐Compartment S.A. other than any tax filing fees and any annual return or exempt company status fees;

2. amounts (excluding any payments under the Trustee Claim) payable (i) to the Security Trustee under the Trust Agreement and (ii) pari passu to any successor of the Security Trustee (if applicable) ap‐



pointed pursuant to Clauses 34 and 35 of the Trust Agreement or under any agreement replacing the Trust Agreement;

3. of equal rank amounts payable (i) to the Corporate Services Provider under the Corporate Services Agreement, (ii) to the Data Protection Trustee under the Data Protection Trust Agreement; (iii) to the Servicer, the Servicer Fee, and (iv) to the Rating Agencies the fees for the monitoring of the Issue;

4. of equal rank amounts payable (i) to the directors of VCL Multi‐Compartment S.A. and (ii) in respect of other administration costs and expenses of the Issuer including without limitation, any costs relating to the listing of the Notes, or any Agents' fees, any auditors' fees, any tax filing fees and any annual re‐turn or exempt company status fees;

5. amounts payable to the Account Bank maintaining the Accounts for account management fees due under the Account Agreement;

6. amounts payable by the Issuer to the Swap Counterparty in respect of any Net Swap Payments or any Swap Termination Payments under the Swap Agreements (if any and provided that the Swap Coun‐terparty is not the defaulting party (as defined in the relevant Swap Agreement) and there has been no termination of the transaction under the Swap Agreement due to a termination event relating to the Swap Counterparty's downgrade); if the amounts paid by the Issuer to the Swap Counterparty are insufficient to meet the Issuer's payment obligations under the Swap Agreements, such payments by the Issuer will be used first for payments due under the Class A Swap Agreement and, to the extent such payment obligations have been fully satisfied, second, for payments due under the Class B Swap Agreement;

7. amounts payable in respect of (a) interest accrued during the immediately preceding Interest Accrual Period plus (b) Interest Shortfalls (if any) on the Class A Notes;

8. to the holders of the Class A Notes in respect of principal until the Class A Notes are redeemed in full; 9. amounts payable in respect of (a) interest accrued during the immediately preceding Interest Accrual

Period plus (b) Interest Shortfalls (if any) on the Class B Notes; 10. to the holders of the Class B Notes in respect of principal until the Class B Notes are redeemed in full; 11. by the Issuer to the Swap Counterparty, any payments under the Swap Agreements other than those

made under item sixth above; if the amounts paid by the Issuer to the Swap Counterparty are insuffi‐cient to meet the Issuer's payment obligations under the Swap Agreements, such payments by the Is‐suer will be used first for payments due under the Class A Swap Agreement and, to the extent such payment obligations have been fully satisfied, second, for payments due under the Class B Swap Agreement;

12. amounts payable in respect of accrued and unpaid interest on the Subordinated Loan (including, without limitation, overdue interest);

13. to the Subordinated Lender, principal amounts until the aggregate principal amount of the Subordi‐nated Loan has been reduced to zero; and

14. to pay all remaining excess to VWL by way of a final success fee. The following represent Foreclosure Events under the transaction documents: 1. with respect to the Issuer an Insolvency Event occurs; or 2. the Issuer defaults in the payment of any interest on the most senior Class of Notes then outstanding

when the same becomes due and payable, and such default continues for a period of five (5) Busi‐ness Days; or

3. the Issuer defaults in the payment of principal of any Note on the Legal Maturity Date.

Foreclosure Events



The following events will result in replacement of the servicer under the transaction documents. 1. an unremedied failure (and such failure is not remedied within three (3) Business Days of notice of

such failure being given) by the Servicer to deliver or cause to be delivered any required payment to the Issuer for distribution to the Noteholders, to the Swap Counterparty and the Subordinated Lend‐er;

2. any unremedied failure (and such failure is not remedied within three (3) Business Days of notice of such failure being given) by the Servicer to duly observe and/or perform in any material respect any other of its covenants or agreements which failure materially and adversely affects the rights of the Issuer or the Noteholders; or

3. the Servicer suffers a Servicer Insolvency Event

provided, however, that a delay or failure of performance referred to under paragraph (1) or (2) above for a period of 150 days will not constitute a Servicer Replacement Event if such delay or failure was caused by an event beyond the reasonable control of the Servicer, an act of god or other similar occurrence.

Transaction Counterparty Risk VWL will service the receivables in accordance with its customary practices and as compensation will re‐ceive a servicing fee of 1.0% of the aggregate discounted outstanding lease balance. In addition, the ser‐vicer will be entitled to reimbursement of any auction costs and any associated costs with respect to re‐conditioning or repairing a vehicle. The servicer will also be entitled to retain any late fees or other admin‐istrative fees and is entitled to investment earnings on the Cash Collateral Account and Distribution Ac‐count. As long as VWL is servicer, the transaction documentation provides for commingling of funds and VWL is permitted to make a single distribution to the Distribution Account. If VWL is not the servicer, collections will be remitted on the 4th, 10th, 15th, and last day of the month. Royal Bank of Canada is the Class A and Class B swap counterparty. Under the terms of the swap agree‐ments, on a monthly basis the Issuer will remit a fixed interest rate to the Issuer and will receive a floating rate that consists of 1‐Month Euribor plus the applicable spread. The DBRS rating of the swap counter‐party is consistent with DBRS swap counterparty criteria and the swaps contain downgrade provisions re‐lating to the swap counterparty consistent with DBRS legal and swap criteria. The Cash Collateral and Distribution Accounts will be held by Elavon Financial Services Limited. DBRS has conducted an internal assessment on the bank and concluded that the bank meets DBRS minimum criteria for account banks. The transaction contains downgrade provisions relating to the account bank consistent with DBRS criteria.

Swap Counterparty

Servicer Replacement Events

Servicer

Bank Accounts



Cash Flow Analysis Data Quality and Historical Performance DBRS reviewed the historical performance of VWL originations by monthly vintage going back to Q1 2002. Given the volume of data, this information is portrayed on an annual basis below. While many lenders experienced deterioration during the recent global economic downturn, VWL’s strict adherence to estab‐lished underwriting and continuous improvements and refinement of their credit and collections polices resulted in strong performance during this stressful period.

For purposes of determining a loss estimate for the current transaction, for vintages that were not fully seasoned, ultimate losses were projected using historical data relating to loss timing. The data received from VWL was considered to be satisfactory. Additional information relating to recoveries and prepay‐ments for similar collateral was available through servicer reports for prior VCL securitisations. DBRS analysis of the vintage data resulted in an expected cumulative net loss assumption of 1.02% for the VCL 16 pool. Recoveries were assumed to be 60% with a three‐month lag. DBRS then analysed cash flows that replicated the cash flows of the assets relative to the established prior‐ity of payments in the transaction. Three different loss distributions were modeled as outlined below. Given the short remaining tenor of the lease receivables, for cash flow modeling purposes, losses were dis‐tributed over 24 months as follows:

Months Front Belly Back 1 to 8 50% 20% 20% 9 to 16 30% 50% 30%

17 to 24 20% 30% 50% 100% 100% 100%



Summary of Cash Flow Analysis Based upon the results of the cash flow modeling, the loss protection afforded to the Class A and Class B Notes is consistent with the respective assigned ratings of AAA (sf) and A (high) (sf). Sensitivity Analysis The tables below illustrate the sensitivity of the rating to various changes in the base case default rates and loss severity assumptions relative to the base case assumptions used by DBRS in assigning the provi‐sional ratings. Class A

0 25 500 AAA AA A (high)25 AA A A (low)50 A (high) A (low) BBB

Increase in Default Rate %

Increase in

LG

D %

Class B

0 25 500 A (high) BBB (high) BBB25 BBB (high) BBB BBB (low)50 BBB BBB (low) BB (high)

Increase in Default Rate %

Increase in

LG

D %

Legal Structure The Class A and Class B Swap Agreements are expected to be governed under English law while the other transaction documents will be subject to German law. The Issuer has expressly elected in its Articles of In‐corporation to be governed by Luxembourg Securitisation Law. Transfer / Assignment of the Receivables Under the Lease Receivables Purchase Agreement, the Issuer has purchased from VWL the lease receiv‐ables and in the case of fully securitized receivables, certain expectancy rights. Representatives and Warranties Please reference the attached report that contains a detailed description of the representations and war‐ranties in the transaction. Buy‐Back/Indemnity Mechanics Please reference attached report that contains a detailed description of the representations and warran‐ties and enforcement mechanisms in the transaction.

Law(s) Impacting Transaction



Credit Enhancement Credit enhancement for VCL 16 transaction will be comprised of overcollateralisation, a subordinated loan, subordination, and a cash collateral account. Class A Notes: Initial credit enhancement for the Class A Notes is 8.20% and is made up of the following components: overcollateralisation (1.20%), the subordinated loan (3.00%), subordination of the Class B Notes (2.80%) and the cash collateral account (1.20%). The cash collateral account amortises to 1.0% of the original dis‐counted receivables balance. The Class A Target Overcollateralisation rate equals 12.25% until a trigger event occurs. Class B Notes: Initial credit enhancement for the Class B Notes is 5.40% and is made up of the following components: overcollateralisation (1.20%), the subordinated loan (3.00%), and the cash collateral account (1.20%). The Class B Target Overcollateralisation rate equals 7.50% until a trigger event occurs (Credit Enhancement In‐crease Condition). Performance Triggers Level 1 Credit Enhancement Increase Condition will exist if the Cumulative Net Loss Ratio exceeds (i) 0.5 percent for any Payment Date prior to or during January 2014 or (ii) 1.15 percent for any Payment Date after January 2014 until and including October 2014. In the event a Level 1 trigger is breached pro‐rata amortiza‐tion can resume if:

The Class A Target Overcollateralisation equals 14.0% and,

The Class B Target Overcollateralisation equals 8.25%.

Level 2 Credit Enhancement Increase Condition will occur if the Cumulative Net Loss Ratio exceeds 1.6 per‐cent for any Payment Date. If a Level 2 trigger is breached, the transaction reverts to fully sequential amorti‐zation and cannot revert back to pro‐rata.

Methodologies Applied The following are the primary methodologies DBRS applied to assign a rating to the above referenced transaction, which can be found on www.dbrs.com under the heading Methodologies.

• Legal Criteria for European Structured Finance Transactions. • Swap Criteria for European Structured Finance Transactions. • Rating European Consumer and Commercial Asset‐Backed Securitisations. • Operational Risk Assessment for European ABS and SME CLO Servicers. • Unified Interest Rate Model for U.S. and European Structured Credit.

Monitoring and Surveillance The transaction will be monitored DBRS in accordance with its Master European Structured Finance Surveillance Methodology available at www.DBRS.com

http://www.dbrs.com/�



Representations and Warranties

The Rule 17g‐7 Report of Representations and Warranties is hereby incorporated by reference and can be found at http://dbrs.com/research/251978/dbrs‐17g‐7‐disclosure‐report‐vcl‐multi‐compartment‐s‐a‐vcl‐16.pdf Note: All figures are in Euro unless otherwise noted.

This report is based on information as of October 2012, unless otherwise noted. Subsequent information may result in material changes to the rating assigned herein and/or the contents of this report.

Copyright © 2012, DBRS Limited, DBRS, Inc. and DBRS Ratings Limited (collectively, DBRS). All rights reserved. The in-formation upon which DBRS ratings and reports are based is obtained by DBRS from sources DBRS believes to be accurate and reliable. DBRS does not audit the information it receives in connection with the rating process, and it does not and cannot independently verify that information in every instance. The extent of any factual investigation or independent verification depends on facts and circumstances. DBRS ratings, reports and any other information provided by DBRS are provided “as is” and without representation or warranty of any kind. DBRS hereby disclaims any representation or warranty, express or im-plied, as to the accuracy, timeliness, completeness, merchantability, fitness for any particular purpose or non-infringement of any of such information. In no event shall DBRS or its directors, officers, employees, independent contractors, agents and rep-resentatives (collectively, DBRS Representatives) be liable (1) for any inaccuracy, delay, loss of data, interruption in service, error or omission or for any damages resulting therefrom, or (2) for any direct, indirect, incidental, special, compensatory or consequential damages arising from any use of ratings and rating reports or arising from any error (negligent or otherwise) or other circumstance or contingency within or outside the control of DBRS or any DBRS Representative, in connection with or related to obtaining, collecting, compiling, analyzing, interpreting, communicating, publishing or delivering any such informa-tion. Ratings and other opinions issued by DBRS are, and must be construed solely as, statements of opinion and not state-ments of fact as to credit worthiness or recommendations to purchase, sell or hold any securities. A report providing a DBRS rating is neither a prospectus nor a substitute for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the securities. DBRS receives compensation for its rating activities from issuers, insurers, guarantors and/or underwriters of debt securities for assigning ratings and from subscribers to its website. DBRS is not responsible for the content or operation of third party websites accessed through hypertext or other computer links and DBRS shall have no liability to any person or entity for the use of such third party websites. This publication may not be re-produced, retransmitted or distributed in any form without the prior written consent of DBRS. ALL DBRS RATINGS ARE SUBJECT TO DISCLAIMERS AND CERTAIN LIMITATIONS. PLEASE READ THESE DISCLAIMERS AND LIMITA-TIONS AT http://www.dbrs.com/about/disclaimer. ADDITIONAL INFORMATION REGARDING DBRS RATINGS, IN-CLUDING DEFINITIONS, POLICIES AND METHODOLOGIES, ARE AVAILABLE ON http://www.dbrs.com.

http://dbrs.com/research/251978/dbrs-17g-7-disclosure-report-vcl-multi-compartment-s-a-vcl-16.pdf�

http://dbrs.com/research/251978/dbrs-17g-7-disclosure-report-vcl-multi-compartment-s-a-vcl-16.pdf�

European Structured Finance · sets of €83.8 billion, equity of €8.7 billion, and its 8,456...

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Transcript of European Structured Finance · sets of €83.8 billion, equity of €8.7 billion, and its 8,456...