- We have affirmed our ratings on Driver UK Master Compartment 3's series 2016-1 class A and B notes.
- The collateral comprises auto loans that Volkswagen Financial Services (UK) originated for its customers in England, Scotland, Wales, and Northern Ireland.
LONDON (S&P Global Ratings) Nov. 25, 2020--S&P Global Ratings today affirmed its 'AAA (sf)' and 'A+ (sf)' credit ratings on Driver UK Master S.A., Compartment 3's (DUKM C3) series 2016-1 class A and B notes.
This pool of assets is notable for its high concentration of Porsche vehicles (66.05%) and the high concentration of assets located in Northern Ireland (22.90%). These high concentrations were also a feature at closing. We have accounted for these concentrations in our analysis.
Periodically, noteholders in this transaction have the option to extend the revolving period. As part of this renewal the main changes are:
- A 10-month extension to the revolving period to September 2021 (the original revolving period was subject to a renewal every 12 months, but this was reduced to six months in May 2020);
- The repricing of the note coupons and interest rates swaps;
- The extension of the legal final maturity date;
- An increase in the minimum required credit enhancement level for both the class A and B notes;
- The switch of the index on the notes from one-month LIBOR to daily compounded SONIA
- The amendment of the credit enhancement increase conditions related to the cash collateral account balance so that if the balance drops below the required level for three consecutive determination dates (up from a similar requirement on each payment date previously) or if the minimum cash collateral balance falls below the documented floor level, it will trigger an early amortization event; and
- The inclusion of a dynamic net loss ratio, instead of a cumulative net loss ratio, to trigger an end to the revolving period.
In our view, these amendments do not affect the outstanding ratings as we deem these offers to be opportunistic, rather than distressed. We have therefore affirmed our 'AAA (sf)' and 'A+ (sf)' ratings on the class A and B notes, respectively.
A combination of subordination, overcollateralization, and a cash reserve provides credit enhancement. The transaction does not have a principal deficiency ledger mechanism or any excess spread before the insolvency of the seller.
Our analysis indicates that the class A notes' available credit enhancement is sufficient to withstand losses that are commensurate with a 'AAA' rating. Our cash flow analysis indicates that the available credit enhancement for the class B notes is commensurate with a higher rating than that currently assigned. However, we have affirmed our 'A+ (sf)' rating on the class B notes on account of the transaction's revolving nature.
Our ratings in this transaction are not constrained by the application of structured finance sovereign risk, counterparty, or operational risk criteria (see "Related Criteria").
S&P Global Ratings believes there remains a high degree of uncertainty about the evolution of the coronavirus pandemic. Reports that at least one experimental vaccine is highly effective and might gain initial approval by the end of the year are promising, but this is merely the first step toward a return to social and economic normality; equally critical is the widespread availability of effective immunization, which could come by the middle of next year. We use this assumption in assessing the economic and credit implications associated with the pandemic (see our research here: www.spglobal.com/ratings). As the situation evolves, we will update our assumptions and estimates accordingly.
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|Primary Credit Analyst:||Rory O'Faherty, London + 44 20 7176 3724;|
|Research Contributor:||Sachin Desai, CRISIL Global Analytical Center, an S&P affiliate, Mumbai|
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