VCL Multi-Compartment S.A., Compartment VCL 30 German Auto ABS Notes Assigned Ratings

  • We assigned our ratings to VCL Multi-Compartment S.A., Compartment VCL 30's class A and B auto ABS notes.
  • The ratings reflect our assessment of the company's origination policies, as well as our evaluation of VW Leasing's ability to fulfill its role as servicer under the transaction documents, among other factors.
FRANKFURT (S&P Global Ratings) March 25, 2020--S&P Global Ratings today assigned its ratings to VCL Multi-Compartment S.A., Compartment VCL 30's (VCL 30) class A and B notes (see list).
The note issuance is an ABS transaction backed by a portfolio of German auto lease receivables, which Volkswagen Leasing GmbH (VW Leasing) originated to its mostly retail and commercial customer base in the ordinary course of its business. The lease receivables arise from fixed-term, level payment lease contracts, with payments due monthly. The residual values of the leased vehicles corresponding to the lease receivables have not been sold to VCL 30, so no additional residual value risk is present in this transaction.
The transaction's capital structure is similar to that of its rated predecessor, VCL 29. Additionally, the cash reserve is amortizing at 1.2% of the outstanding asset balance, subject to a floor of 1.0% of the initial discounted pool balance, similar to VCL 24, VCL 26, and VCL 29. In VCL 25, the cash reserve was nonamortizing.
VW Leasing is a limited liability company and has underwritten auto leasing contracts in Germany since 1966. It is wholly owned by Volkswagen Financial Services AG, which in turn is a 100% subsidiary of Volkswagen AG. In the overall car financing market, VW Leasing is the leading captive car leasing provider in Germany. The objectives of VW Leasing are to lease motor vehicles and other movable assets from brands such as Volkswagen, Audi, SEAT, Skoda, and Volkswagen Nutzfahrzeuge vehicles, service-leasing to commercial and non-commercial customers, and leasing of used vehicles of all makes, including demonstration vehicles as used vehicles.
In our view, the company's track record of stable, strong quality asset origination is among the best of all European auto ABS issuers.
In our base-case scenario, we took into account the recent COVID-19 developments. We forecast no economic growth in 2020 for Germany. However, we expect a growth rate of 1.5% in 2021 that stabilizes at 1.1% in 2022. At the same time, we expect unemployment rates to further decline to 3.3% during 2020 and to stabilize at 3.4% during 2021 and 2022 (see "Related Research").
In our view, changes in GDP growth and the unemployment rate largely determine portfolio performance. We set our credit assumptions to reflect our economic outlook. Our near-term view is that the German economy will be affected by the COVID-19 outbreak. However, we expect to see growth starting from 2021.
Our cumulative gross loss base-case scenario for the securitized pool is 2.00%, unchanged from the base-case we applied to VCL 29. The cumulative gross loss base-case scenario reflects our assumption of the German economy's continued growth combined with historically low unemployment rates, as well as the good performance of previous VCL transactions. We applied our base-case multiples of 4.3x and 2.97x for defaults at the 'AAA' and 'AA-' rating levels, respectively.
Our ratings on the class A and B notes reflect our assessment of the credit and cash flow characteristics of the underlying asset pool. Our analysis indicates that the available credit enhancement for the rated notes is sufficient to withstand the credit and cash flow stresses that we apply at a 'AAA' rating level for the class A notes, and at a 'AA-' rating level for the class B notes. We have analyzed the transaction's structural features and performed our cash flow analysis by applying our global cash flow criteria.
Our ratings also reflect that the replacement mechanisms implemented in the transaction documents adequately mitigate the counterparty risks to which the transaction is exposed. We believe that the final documentation and the presented remedy provisions at closing adequately mitigate counterparty risk in line with our counterparty criteria.
We consider the issuer to be a bankruptcy remote entity under our legal criteria. The transaction legal opinion at closing confirmed that the assets' sale would survive VW Leasing's insolvency.
Our long-term unsolicited sovereign rating on Germany is 'AAA'. Therefore, our ratings in this transaction are not constrained by our structured finance sovereign risk criteria.
We have analyzed the effect of a moderate stress on the credit variables and their ultimate effect on the ratings on the notes. We have run two scenarios and the results are in line with our credit stability criteria.
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