October 16, 2017 / 2:11 PM / 5 months ago

Fitch Assigns Bavarian Sky UK 1 plc Expected Ratings

(The following statement was released by the rating agency) Link to Fitch Ratings' Report: Bavarian Sky UK 1 plc here LONDON, October 16 (Fitch) Fitch Ratings has assigned Bavarian Sky UK 1 plc notes' the following expected rating: GBP floating-rate class A notes, due November 2025: 'AAA(EXP)sf'; Outlook Stable GBP fixed-rate class B notes, due November 2025: not rated The transaction is a securitisation of auto loan receivables, originated by BMW Financial Services (GB) Ltd (BMW FS GB), a wholly owned subsidiary of BMW AG, and granted to private customers. The transaction will feature a 12-month revolving period. The class A notes pay floating interest, linked to one-month Libor, while the asset pool pays fixed interest. The assignment of the final rating is contingent on the receipt of final documents conforming to information already received. KEY RATING DRIVERS Used Car Price Exposure The securitised loans include the residual value (RV) at contract maturity and voluntary termination (VT) rights, once 50% of the total amount due is paid. The issuer is exposed to the risk of declines in used car prices, thus increasing RV and VT losses. Fitch assumed a combined RV and VT loss of 23% in a 'AAAsf' scenario. Limited Pool Migration Risk Fitch considers the risk of a pool migration towards riskier characteristics during the revolving period as moderate, as replenishment criteria are sufficiently close to the initial pool's attributes. The agency modelled the transaction assuming a migration to a stressed pool composition during the 12-month revolving period. Fitch applied a 1.3% and 73.3% base case default and recovery rate on the stressed pool, respectively. The stressed pool's assumed 'AAAsf' default multiple is 6.75x and the recovery haircut is 50%. Turbo Amortisation Feature After the end of the revolving period, all available funds of the waterfall, after paying senior costs, swap and interest payments and the reserve fund refill, are allocated to pay down the class A notes, until they are redeemed in full. This mechanism leads to a faster amortisation than in comparable transactions, where notes often only amortise to target balances. Commingling Risk Addressed Neither the servicer nor its parent company is publicly rated by Fitch. However, collections are not significantly clustered and are transferred to the issuer's account within two business days. There is also a declaration of trust for the benefit of the issuer, segregating collections from the insolvency estate of the seller. Hence, Fitch considers commingling risk sufficiently addressed. RATING SENSITIVITIES Expected impact on the note rating of increased defaults (class A): Current rating: 'AAAsf' Increase base case defaults by 50%: 'AAAsf' Expected impact on the note rating of decreased recoveries (class A): Current rating: 'AAAsf' Reduce base case recovery by 50%: 'AAAsf' Expected impact on the note rating of decreased recoveries and increase of the RV market value decline (MVD) assumption, together with a 5% add-on the VT MVD (class A): Current rating: 'AAAsf' Reduce base case recovery and increase MVD by 10%: 'AAAsf' Reduce base case recovery and increase MVD by 25%: 'AA+sf' Reduce base case recovery and increase MVD by 50%: 'AA+sf' Fitch views the recovery and MVD-related sensitivities above provide an indication on rating changes upon potential the deterioration of used car prices of vehicles equipped with diesel engines (see Fitch: European Diesel Restrictions Could Hit Used Car Prices). The total diesel share in the initial pool is 58%. Assuming a decrease of 25% in diesel vehicles' recovery proceeds and a 25% increase in MVD as sensitivity, while leaving assumptions for non-diesel vehicles unchanged, the resulting rating sensitivity lies within the 10% and 25% (that are applied to the entire pool). The expected impact on the note rating of increased defaults, decreased recoveries and decreased net proceeds from the sale after the return of the vehicle, either at maturity or due to VT (class A) are: Current rating: 'AAAsf' Base case defaults increased by 10%, recovery rate and net sale proceeds decrease by 10%: 'AA+sf' Base case defaults increased by 25%, recovery rate and net sale proceeds decrease by 25%: 'AA-sf' Base case defaults increased by 50%, recovery rate and net sale proceeds decrease by 50%: 'BBBsf' USE OF THIRD-PARTY DUE DILIGENCE PURSUANT TO RULE 17G-10 Form ABS Due Diligence-15E was not provided to, or reviewed by, Fitch in relation to this rating action. DATA ADEQUACY Fitch reviewed the results of a third-party assessment conducted on the asset portfolio information, and concluded that there were no findings that affected the rating analysis. Fitch conducted a review of a small targeted sample of the originator's origination files and found the information contained in the reviewed files to be adequately consistent with the originator's policies and practices and the other information provided to the agency about the asset portfolio. Overall, Fitch's assessment of the asset pool information relied upon for the agency's rating analysis according to its applicable rating methodologies indicates that it is adequately reliable. SOURCES OF INFORMATION The information below was used in the analysis. -Loan-by-loan data provided by BMW FS GB as at 31 August 2017 -Quarterly default data split between new and used vehicles provided by BMW FS GB for 2006-2Q17 -Quarterly recovery data split between new and used vehicles provided by BMW FS GB for 2007-2Q17 -Quarterly origination volumes split between new and used vehicles provided by BMW FS GB for 2007-2Q17 -Monthly delinquency information split between new and used vehicles provided by BMW FS GB for January 2008 - June 2017 -Monthly prepayment information on the total book provided by BMW FS GB for January 2006 - June 2017 -Monthly historical information on average downpayments, term to maturity, RV, loan-to-value ratio and annual percentage rate on the total book provided by BMW FS GB for January 2006 - June 2017 Monthly historical data on RV and VT regarding sale proceeds, number of vehicles sold, remarketing costs, associated profit and loss provided by BMW FS GB for January 2007 - June 2017 -Portfolio stratifications and amortisation profile provided by BMW FS GB for the preliminary pool of 31 August 2017. MODELS The models below were used in the analysis, Click on the links for a description of the models. <a href="https://www.fitchratings.com/site/structuredfinance/emeacfm ">EMEA Cash Flow Model <a href="https://www.fitchratings.com/site/structuredfinance/abs/ukvt ">UK Voluntary Termination Model REPRESENTATIONS AND WARRANTIES A description of the transaction's representations, warranties and enforcement mechanisms (RW&Es) that are disclosed in the offering document and which relate to the underlying asset pool is available by accessing the appendix referenced under "Related Research" below. The appendix also contains a comparison of these RW&Es to those Fitch considers typical for the asset class as detailed in the Special Report titled Representations, Warranties and Enforcement Mechanisms in Global Structured Finance Transactions, dated 31 May 2016. Contacts: Primary Analyst Katerina Pavlopoulou Analyst +44 20 3530 1228 Fitch Ratings Limited 30 North Colonnade London E14 5GN Secondary Analyst Marina Nebrat Analyst +49 69 768076 260 Committee Chairperson Markus Papenroth, CFA Managing Director +44 20 3530 1707 Media Relations: Athos Larkou, London, Tel: +44 203 530 1549, Email: athos.larkou@fitchratings.com. Additional information is available on www.fitchratings.com Applicable Criteria Fitch's Interest Rate Stress Assumptions for Structured Finance and Covered Bonds - Excel File (pub. 17 Feb 2017) here Global Consumer ABS Rating Criteria (pub. 25 May 2017) here Global Consumer ABS Rating Criteria – EMEA and APAC Auto Residual Value Addendum (pub. 15 May 2017) here Global Structured Finance Rating Criteria (pub. 03 May 2017) here Structured Finance and Covered Bonds Counterparty Rating Criteria (pub. 23 May 2017) here Structured Finance and Covered Bonds Counterparty Rating Criteria: Derivative Addendum (pub. 23 May 2017) here Structured Finance and Covered Bonds Country Risk Rating Criteria (pub. 18 Sep 2017) here Structured Finance and Covered Bonds Interest Rate Stresses Rating Criteria (pub. 17 Feb 2017) here Related Research Bavarian Sky UK 1 plc - Appendix here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here Solicitation Status here#solicitation Endorsement Policy here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. 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