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Rating Action:

Moody's assigns definitive ratings to Driver Brasil Four FIDC, a Brazilian auto loan securitization

 The document has been translated in other languages

15 Jul 2019

BRL 1.0 billion of Senior shares rated

Sao Paulo, July 15, 2019 -- Moody's América Latina has assigned definitive ratings to the senior shares issued by Driver Brasil Four Banco Volkswagen Fundo de Investimento em Direitos Creditórios Financiamento de Veículos (Driver Brasil Four FIDC), a securitization backed by a static pool of auto loans originated by Banco Volkswagen S.A. (Banco Volkswagen ,not rated). Banco Volkswagen S.A. is a fully owned subsidiary of Volkswagen Financial Services AG (A3, Long Term Issuer Rating, Foreign Currency).

The complete rating action is as follows:

Issuer: Driver Brasil Four FIDC

Senior Shares: Aaa.br (sf) (National Scale) and Baa3 (sf) (Global Scale, Local Currency)

RATINGS RATIONALE

Moody's bases the ratings on the following factors:

- The initial 9.0% credit enhancement for the senior shares in the form of overcollateralization (OC). After closing, the OC must reach the 10.0% target to allow cash flows to be released to the junior shareholders.

- Asset performance triggers that require an increase of the senior target OC ratio to 15% if performance deteriorates with the cumulative net loss ratio exceeding 1.5% in the first 12 months or exceeding 3.5% between months 13 to 24. If at any time the cumulative net loss ratio exceeds 5%, the transaction's priority of payments will switch from pro-rata to sequential amortization.

- The static nature of the collateral, whereby no additional collateral may be purchased after the closing date.

- The discount rate used to calculate the discounted principal balance of the pool is derived from the weighted average financing cost of the Fund (weighted average rate of the swap agreements and servicing and administrative fees), plus expected excess spread of around 100bps to cover net losses

- Strong historical performance of loans originated by Banco Volkswagen, reflecting robust underwriting credit criteria.

- Good credit quality of the static preliminary pool cut for Driver Brasil Four FIDC. The securitized pool will only include loans to finance light vehicles; loans for trucks and heavy vehicles are not allowed. As of July 10, 2019, the pool is highly diversified consisting of 47,464 loans. Approximately 78% of the outstanding pool balance is related to loans that finance the acquisition of new vehicles. Loans are extended to a diversified retail customer base, 88% of which is comprised of private individuals and 12% of which is comprised of corporate obligors. The original weighted average loan term is 37 months, however, the pool has an average seasoning of approximately 14 months, resulting in a weighted average remaining loan term of only 23 months.

- The transaction benefits from Banco Bradesco S.A.'s (Ba2 long-term bank deposit rating, Global Scale, Local Currency) operational quality. Banco Bradesco S.A will act as master servicer, and its subsidiaries, BEM Distribuidora de Títulos e Valores Mobiliários Ltda (BEM DTVM , not rated) and BRAM DTVM (not rated) will act as trustee and fund manager, respectively. The responsibilities of Banco Bradesco S.A. include, among other duties, verifying that all receivables purchased by the fund meet certain eligibility criteria, monitoring the early amortization triggers, in addition to managing all of the Issuer's daily financial and operating activities.

- The overall transaction structure and the legal framework, including the bankruptcy remoteness of the issuer and well established Brazilian laws and regulations for the securitization of vehicle loans.

The senior shares will daily accrue a floating-rate interest equivalent to 106.25% of the DI Rate (Brazilian Interbank Rate). The legal final maturity will take place 60 months after closing. The maturity could be extended by the trustee, on a discretionary basis, for a maximum period of 12 additional payment dates counted from the maturity date of the credit right with the latest maturity date, to allow for potential recoveries. Payments to subordinated shares are permitted on a monthly basis as long as (a) target senior OC ratio and the senior OC floor are maintained and (b) no evaluation or early liquidation event is triggered.

The transaction documents contemplate that the fund will enter into interest rate swaps with Itaú Unibanco S.A. (Ba2 long-term bank deposit rating, Global Scale, Local Currency) to mitigate the interest rate mismatch risk arising from the fixed rate assets and floating rate liabilities. The interest rate swap is expected to adequately hedge the interest rate risk on the senior certificates. Moody´s notes that the interest rate swap will only be entered between the fund and the hedge counterparty after closing of the fund. Moody´s notes that it has not modeled any interest rate risk in the transaction, and that the assigned definitive ratings assume that the interest rate swaps i) will be in place in a short period of time after closing of the fund and ii) that their notional volume closely tracks the outstanding notional volumes of the senior as they decrease thereby satisfactorily eliminating actual interest rate mismatches incurred. Risk may arise from the early termination of the swaps given i) a positive market value of the swap to the fund upon swap counterparty default or ii) open interest rate risk position to the fund should the swap be early terminated.

In assigning the ratings to this transaction, Moody's evaluated historical performance data from January 1, 2009 and ending September 30, 2018. Moody's assumed a lognormal distribution of losses for the static pool with a mean expected loss of 2.5% and a PCE of 12.5% (PCE, or the portfolio credit enhancement, represents the credit enhancement consistent with the highest rating achievable -i.e., the local currency ceiling- in the country). Other model input assumptions include a conditional prepayment rate of 15.0% per annum. The discount rate used for modeling was approximately 7.8% per annum.

Moody's has considered how the cash flows generated by the collateral are allocated to the parties within the transaction, and the extent to which various structural features of the transaction might themselves provide additional protection to investors, or act as a source of risk. In addition, Moody's has analyzed the strength of triggers to reduce the exposure of the portfolio to the originator/servicer bankruptcy.

Factors that would lead to an upgrade or downgrade of the ratings:

A performance of the securitized loan pool consistently better than original projections by Moody's could lead to an upgrade of the rating on the senior shares.

Factors that may lead to a downgrade of the ratings include a downgrade of the swap counterparty, a severe performance deterioration of the underlying collateral or a severe downturn in the Brazilian economy.

The principal methodology used in these ratings was "Moody's Global Approach to Rating Auto Loan- and Lease-Backed ABS" published on March 15, 2019. Please see the Rating Methodologies page on www.moodys.com.br for a copy of this methodology.

Moody's National Scale Credit Ratings (NSRs) are intended as relative measures of creditworthiness among debt issues and issuers within a country, enabling market participants to better differentiate relative risks. NSRs differ from Moody's global scale credit ratings in that they are not globally comparable with the full universe of Moody's rated entities, but only with NSRs for other rated debt issues and issuers within the same country. NSRs are designated by a ".nn" country modifier signifying the relevant country, as in ".za" for South Africa. For further information on Moody's approach to national scale credit ratings, please refer to Moody's Credit rating Methodology published in May 2016 entitled "Mapping National Scale Ratings from Global Scale Ratings". While NSRs have no inherent absolute meaning in terms of default risk or expected loss, a historical probability of default consistent with a given NSR can be inferred from the GSR to which it maps back at that particular point in time. For information on the historical default rates associated with different global scale rating categories over different investment horizons, please see http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1174796.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions of the disclosure form.

This transaction is considered as structured finance product in accordance with Instrução CVM nº 521.

Moody's either did not receive or take into account one or more third-party due diligence assessment(s) regarding the underlying assets or financial instruments (the "Due Diligence Assessment(s)") in this credit rating action.

The Due Diligence Assessment(s) referenced herein were prepared and produced solely by parties other than Moody's. While Moody's uses Due Diligence Assessment(s) only to the extent that Moody's believes them to be reliable for purposes of the intended use, Moody's does not independently audit or verify the information or procedures used by third-party due-diligence providers in the preparation of the Due Diligence Assessment(s) and makes no representation or warranty, express or implied, as to the accuracy, timeliness, completeness, merchantability or fitness for any particular purpose of the Due Diligence Assessment(s).

The analysis includes an assessment of collateral characteristics and performance to determine the expected collateral loss or a range of expected collateral losses or cash flows to the rated instruments.

Moody's quantitative analysis entails an evaluation of scenarios that stress factors contributing to sensitivity of ratings and take into account the likelihood of severe collateral losses or impaired cash flows.

Information sources used to prepare the rating are the following: parties involved in the ratings, public information and confidential and proprietary Moody's information.

Information types used to prepare the rating are the following: debt documentations, legislation, by-laws and legal documents, asset portfolio data, historical performance data, public information, and Moody's information.

Sources of Public Information: Moody's considers public information from many third party sources as part of the rating process. These sources may include, but are not limited to, the list available in the link http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1182686.

Moody's considers the quality of information available on the rated entity, obligation or credit satisfactory for the purposes of issuing a rating.

Moody's adopts all necessary measures so that the information it uses in assigning a rating is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

The rating has been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

Please see the ratings disclosure page on www.moodys.com.br for general disclosure on potential conflicts of interests.

Moody's America Latina Ltda. may have provided Other Permissible Service(s) to the rated entity or its related third parties within the 12 months preceding the credit rating action. Please go to the report "Ancillary or Other Permissible Services Provided to Entities Rated by Moody's America Latina Ltda." in the link http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1181768 for detailed information.

Entities rated by Moody's America Latina Ltda. and the rated entities' related parties may also receive products/services provided by parties related to Moody's America Latina Ltda. engaging in credit ratings activities within the 12 months preceding the credit rating action. Please go to the link http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1181769 for a list of entities receiving products/services from these related entities and the products/services received.

The date of the last Credit Rating Action was 15/05/2019.

Moody's ratings are constantly monitored, unless designated as point-in-time ratings in the initial press release. All Moody's ratings are reviewed at least once during every 12-month period.

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.br.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Please see ratings tab on the issuer/entity page on www.moodys.com.br for the last rating action and the rating history. The date on which some ratings were first released goes back to a time before Moody's ratings were fully digitized and accurate data may not be available. Consequently, Moody's provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com.br for further information.

Please see Moody's Rating Symbols and Definitions on the Ratings Definitions page on www.moodys.com.br for further information on the meaning of each rating category and the definition of default and recovery.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com.br for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com.br for additional regulatory disclosures for each credit rating.

Ely Mizrahi
Asst Vice President - Analyst
Structured Finance Group
Moody's America Latina Ltda.
Avenida Nacoes Unidas, 12.551
16th Floor, Room 1601
Sao Paulo, SP 04578-903
Brazil
JOURNALISTS: 0 800 891 2518
Client Service: 1 212 553 1653

Karen Ramallo
Senior Vice President/Manager
Structured Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Releasing Office:
Moody's America Latina Ltda.
Avenida Nacoes Unidas, 12.551
16th Floor, Room 1601
Sao Paulo, SP 04578-903
Brazil
JOURNALISTS: 0 800 891 2518
Client Service: 1 212 553 1653

No Related Data.
© 2020 Moody's Corporation, Moody's Investors Service, Inc., Moody's Analytics, Inc. and/or their licensors and affiliates (collectively, "MOODY'S"). All rights reserved.

CREDIT RATINGS ISSUED BY MOODY'S INVESTORS SERVICE, INC. AND/OR ITS CREDIT RATINGS AFFILIATES ARE MOODY'S CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES, AND MATERIALS, PRODUCTS, SERVICES AND INFORMATION PUBLISHED BY MOODY'S (COLLECTIVELY, "PUBLICATIONS") MAY INCLUDE SUCH  CURRENT OPINIONS. MOODY'S INVESTORS SERVICE DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL FINANCIAL OBLIGATIONS AS THEY COME DUE AND ANY ESTIMATED FINANCIAL LOSS IN THE EVENT OF DEFAULT OR IMPAIRMENT. SEE MOODY'S RATING SYMBOLS AND DEFINITIONS PUBLICATION FOR INFORMATION ON THE TYPES OF CONTRACTUAL FINANCIAL OBLIGATIONS ADDRESSED BY MOODY'S INVESTORS SERVICE CREDIT RATINGS. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS, NON-CREDIT ASSESSMENTS ("ASSESSMENTS"), AND  OTHER OPINIONS INCLUDED IN MOODY'S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. MOODY'S PUBLICATIONS MAY ALSO INCLUDE QUANTITATIVE MODEL-BASED ESTIMATES OF CREDIT RISK AND RELATED OPINIONS OR COMMENTARY PUBLISHED BY MOODY'S ANALYTICS, INC. AND/OR ITS AFFILIATES. MOODY'S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND MOODY'S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND  PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL, OR HOLD PARTICULAR SECURITIES. MOODY'S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND  PUBLICATIONS DO NOT COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. MOODY'S ISSUES ITS CREDIT RATINGS, ASSESSMENTS AND OTHER OPINIONS AND PUBLISHES  ITS PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL, WITH DUE CARE, MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING, OR SALE.

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Moody's Investors Service, Inc., a wholly-owned credit rating agency subsidiary of Moody's Corporation ("MCO"), hereby discloses that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by Moody's Investors Service, Inc. have, prior to assignment of any credit rating, agreed to pay to Moody's Investors Service, Inc. for credit ratings opinions and services rendered by it fees ranging from $1,000 to approximately $2,700,000. MCO and Moody's investors Service also maintain policies and procedures to address the independence of Moody's Investors Service credit ratings and credit rating processes. Information regarding certain affiliations that may exist between directors of MCO and rated entities, and between entities who hold credit ratings from Moody's Investors Service and have also publicly reported to the SEC an ownership interest in MCO of more than 5%, is posted annually at www.moodys.com under the heading "Investor Relations — Corporate Governance — Director and Shareholder Affiliation Policy."

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