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05 Nov 2010
EUR 103.8 Million debt securities affected
Frankfurt am Main, November 05, 2010 -- Moody's Investors Service today upgrades three classes issued by Driver
Four GmbH, Driver Three GmbH, and Driver Two GmbH
Issuer: Driver Four GmbH (Driver Four)
....EUR30 million B notes, upgraded
to Aa1 (sf); previously on 7 July 2010, rated A1 (sf) placed
under review for possible upgrade
Issuer: Driver Three GmbH (Driver Three)
....EUR35 million B certificate, upgraded
to Aa1 (sf); previously on 7 July 2010, rated A1 (sf) placed
under review for possible upgrade
Issuer: Driver Two GmbH (Driver Two)
....EUR38.5 million B certificate,
upgraded to Aaa (sf); previously on 7 July 2010, rated A1 (sf)
placed under review for possible upgrade
Today's rating actions conclude Moody's review of these three transactions
and take into consideration the better-than-expected performance
of the collateral and the stable macroeconomic environment in Germany.
The ratings take into account: (i) the credit quality of the underlying
portfolio of auto-loan receivables, from which Moody's determined
its cumulative loss rate and volatility assumption; and (ii) the
build-up of credit enhancement within the transaction structure.
The ratings also consider the transaction structure as assessed in Moody's
cash flow analysis. The expected cumulative loss rate and volatility
are the two key parameters Moody's uses to calibrate its loss-distribution
curve, used in the cash-flow model to rate European ABS transactions.
PORTFOLIOS EXPECTED CUMULATIVE LOSS RATE
Moody's has reassessed its lifetime loss expectation for the pools in
each deal, which revealed that the three transactions have out-performed
Moody's performance expectations that were assumed at closing.
The collateral performance trend is in line with Moody's stable sector
outlook for German auto ABS (EMEA ABS, CMBS & RMBS Asset Performance
Outlooks, July 2010). As of October 2010, 90+
day delinquencies on the current balance are 0.41% for Driver
Four, 0.39% for Driver Three and 0.41%
for Driver Two. Over the past year, cumulative losses reported
as a percentage of the original total securitised pool balances marginally
increased to 0.42% from 0.27% in Driver Four,
to 0.38% from 0.22 % in Driver Three and to
0.47% from 0.37% in Driver Two.
During the review process Moody's also assessed the future performance
of balloon loans within the securitised pools. This loan type represents
a significant portion of the transaction pools, representing 94%,
87% and 91% of the outstanding portfolio of Driver Four,
Three and Two, respectively as of October 2010. The high
proportion of balloon loans can be explained by the longer maturity (on
average) of these contracts compared with fully amortising loans.
Balloon loans include a large payment obligation by the borrower at the
loan maturity. At the maturity of the balloon payment the borrower
settles the final payment with either (i) directly paying the balloon
amount to Volkswagen Bank GmbH, (ii) returning the car to the dealer
who will then make the final payment to Volkswagen Bank GmbH, (subject
to physical and technical conditions of the vehicle); or (iii) through
refinancing of the purchase price of the car with Volkswagen Bank GmbH.
In an insolvency scenario of Volkswagen AG (rated A3/P-2) and Volkswagen
Bank GmbH (rated A2/P-1), the borrower with a balloon loan
may face greater difficulties to refinance the balloon payment.
This translates into a potential increase in both the borrower's
default probability and the severity of a default, as Moody's
assumes that certain vehicle values may be negatively affected in an insolvency
scenario of the manufacturer.
Moody's revised its assumptions, taking into account the consequence
of an insolvency scenario of Volkswagen AG and Volkswagen Bank GmbH on
the performance of the balloon loans. Under this scenario,
Moody's assumes that 5% of the borrowers with a balloon loan
will default, and that vehicle recoveries will reach 60%
of the defaulted balloon installment. This discounted value is
commensurate with the assumptions that Moody's would apply in the
current market environment for residual values of auto-lease receivables.
Moody's expects future cumulative losses as a percentage of the remaining
balances (as of September 2010) for amortising loan contracts to be 1.1%
for Driver Four and 1.4% for Driver Three and Driver Two.
Overall, Moody's revised its cumulative loss assumption for the
whole portfolio (amortising and balloon loans) to 0.68%
from 1.55% on the original balance for Driver Four,
to 0.77% from 1.6% for Driver Three and to
0.65% from 1.6% for Driver Two, both
on original balance plus replenishments. Expressed as a percentage
of current balance as of September 2010, these revised cumulative
loss rates translate to 1.6% for Driver Four and Three and
1.7% for Driver Two.
VOLATILITY AND CONSTANT PREPAYMENT RATE
Due to the significant portion of balloon loans in the outstanding portfolios,
Moody's increased its volatility assumption to 50% from 40%
at close. Moody's understands volatility as the ratio of the standard
deviation and the cumulative mean loss rate assumptions of a portfolio.
The initial constant prepayment rates--ranging between 12%
to 25% among the three transactions--were decreased to 15%.
This results in an alignment of these rates to the historical values observed
until now in the three transactions.
Driver Four GmbH, Driver Three GmbH and Driver Two GmbH closed in
2007, 2006 and 2005, respectively. All three are auto-loan
ABS deals originated by Volkswagen Bank GmbH, the financing arm
of Volkswagen AG. For details on the transactions' structures,
please refer to the New Issue Reports available on www.moodys.com.
The cash collateral accounts in the three transactions are currently at
their target levels. So far, the issuers have not used their
cash collateral accounts.
The principal methodology used in this rating was "The Lognormal
Approach applied to ABS Analysis" published in July 2000 and "Revising
Default/Loss Assumptions Over the Life of an ABS/RMBS Transaction"
published in December 2008.
Moody's used its excel based cash-flow model Moody's ABSROM™
as part of its quantitative analysis of the transaction. Moody's
ABSROM™ model enables users to model various features of a standard
European ABS transaction -- including the specifics of the
loss distribution of the assets, their portfolio amortisation profile,
yield, or recoveries and replenishments during the revolving period,
as well as the specific priority of payments, triggers, swaps
and reserve funds on the liability side of the ABS structure. Moody's
ABSROM™ User Guide, available on Moody's website, covers
the functionality of the model and provides a comprehensive index of the
user inputs and outputs.
The combination of the key updated assumptions together with the current
credit enhancement levels resulted in the upgrades of all rated notes
for the transactions. Moody's analysed various sensitivities of
cumulative loss rates to test the robustness of its revised ratings.
For instance, Moody's observed that the quantitative/model-indicated
rating outcome of the class B notes would remain consistent with the revised
rating if the mean loss assumptions increased up to 25% of its
revised value (2% vs 1.6% base case assumption) for
Driver Four and Three and up to approximately 30% (2.2%
vs 1.7%) for Driver Two.
Moody's Investors Service did not receive or take into account a third
party due diligence report on the underlying assets or financial instruments
related to the monitoring of this transaction in the past six months.
The rating has been disclosed to the rated entity or its designated agents
and issued with no amendment resulting from that disclosure.
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, public information, and confidential
and proprietary Moody's Investors Service information.
Moody's Investors Service considers the quality of information available
on the issuer or obligation satisfactory for the purposes of maintaining
a credit rating.
Moody's Investors Service may have provided Ancillary or Other Permissible
Service(s) to the rated entity or its related third parties within the
three years preceding the Credit Rating Action. Please see the
ratings disclosure page www.moodys.com/disclosures on our
website for further information.
Additional research, including the pre-sale report for these
transactions and reports for prior transactions, are available at
www.moodys.com. In addition Moody's publishes a weekly
summary of structured finance credit, ratings and methodologies,
available to all registered users of our website, at www.moodys.com/SFQuickCheck.
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Please see ratings tab on the issuer/entity page on Moodys.com
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The date on which some Credit Ratings were first released goes back to
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Frankfurt am Main
Structured Finance Group
Moody's Deutschland GmbH
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
VP - Senior Credit Officer
Structured Finance Group
Moody's France SAS
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's Deutschland GmbH
Moody's upgrades German auto ABS notes issued by Driver Four, Driver Three and Driver Two, originated by Volkswagen Bank
An der Welle 5
Frankfurt am Main 60322
No Related Data.
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