Fitch Assigns Expected Ratings to VW's Driver Australia Three Trust

(The following statement was released by the rating agency)SYDNEY, February 29 (Fitch) Fitch Ratings has assigned expected ratings to the Driver Australia Three Trust's automotive-backed floating-rate notes. The transaction is the third term securitisation backed by Australian automotive receivables originated by Volkswagen (DE:VOWG_p) Financial Services Australia Pty Ltd (VWFSA), a wholly owned subsidiary of Volkswagen Financial Services AG, itself wholly owned by Volkswagen AG (VW, BBB+/Negative/F2). The transaction has a legal final maturity date of May 2024. The ratings are as follows:AUD436m Class A notes: 'AAA(EXP)sf'; Outlook Stable;AUD27m Class B notes: 'A+(EXP)sf'; Outlook Stable;AUD32m Subordinated Loan: not rated; and AUD5m Collateral Loan: not rated.The notes will be issued by Perpetual Corporate Trust Limited, in its capacity as trustee of Driver Australia Three Trust. VWFSA is a provider of auto financing for retail and corporate clients, predominantly through a preferred dealership network in Australia. VWFSA finances a wide range of vehicle models, along with its own branded vehicles, primarily being Volkswagen, Audi, and Skoda.The collateral backing the Driver Australia Three transaction is of similar credit quality to prior pools securitised under the Driver Australia programme. At the cut-off date, the total collateral pool consisted of loan receivables, backed by new motor vehicles (88.9%) and used motor vehicles (11.1%), with a weighted average (WA) seasoning of 10.2 months, and a WA remaining term of 45.5 months. KEY RATING DRIVERS Credit Support: The Class A and B notes benefit from credit enhancement (CE) of 14.0% and 8.6%, respectively, provided by the Subordinated Loan and overcollateralisation via the Collateral Loan. A cash collateral account (CCA) will be fully funded at closing to cover any potential interest shortfalls on the rated notes. Any amounts outstanding in the account at final maturity are available to cover any principal shortfalls on the notes. Discounted Assets: The aggregate nominal amount of the notes, plus the Subordinated Loan and overcollateralisation via the Collateral Loan, equals the present value of the purchased receivables discounted at issuance using the discount rate. The transaction, therefore, yields no excess income to cover losses, or to reimburse losses.VWFSA Risk: There is no back-up servicer, and the transaction is dependent on VWFSA's operational and credit assessment capabilities. VWFSA is an unrated entity; and, as such, an advance mechanism is in place so that collections are prepaid and segregated from VWFSA's own funds. The transaction is reliant on VWFSA making compensation payments to cover interest shortfalls if borrowers on interest rates higher than that of the discount rate prepay. This risk has been included within Fitch's cash-flow analysis under various stressed scenarios. Balloon Loans within Portfolio: Obligors that are subject to balloon payments are required to make such payments if the balloon payments cannot be refinanced. The pool, by balance, contains 56.6% that are subject to balloon payments, which is higher than peer transactions. Fitch expects higher default risk if limited refinancing options exist within the market. This could be the case under more severe economic stress. Fitch has incorporated this risk in its analysis.Impact of Emissions Allegation: In accordance with the transaction documents, any legally permissible reduction of instalments or termination of contracts by obligors would be a breach of warranty made to the issuer by the seller. Fitch has also considered higher price declines for 7.7% of the discounted portfolio balance that are affected vehiclesEXPECTED RATING SENSITIVITIES Unexpected increases in the frequency of foreclosures, and the loss severity on defaulted loans, could produce loss levels higher than Fitch's base case, which could in turn result in negative rating actions on the notes. Fitch has evaluated the sensitivity of the ratings assigned to Driver Australia Three Trust to increased gross default levels and decreased recovery rates over the life of the transaction.Its analysis found that collectively, the Class A and B notes' expected ratings were susceptible to downgrades under Fitch's moderate (25% increase) and severe default (50% increase) scenarios, while the Class A notes were also impacted under mild default stress(10% increase). Recovery scenarios, whereby recovery rate assumptions are decreased, showed that the expected ratings of the Class A and B notes were impacted only under moderate (25% decrease) and severe (50% decrease) scenarios. The expected ratings of both the Class A and B notes were adversely impacted under all combined stress scenarios of 10% increase in defaults and 10% decrease in recoveries, 25% increase in defaults and 25% decrease in recoveries, and 50% increase in defaults and 50% decrease in recoveries.DUE DILIGENCE USAGE No third party due diligence was provided or reviewed in relation to this rating action.DATA ADEQUACYFitch conducted a file review of 10 sample loan files focusing on the underwriting procedures of VWFSA compared to its credit policy. Fitch has checked the consistency and plausibility of the information and no material discrepancies were noted that would impact Fitch's rating analysis.Fitch reviewed the results of the agreed-upon procedures (AUP) conducted on the portfolio. The AUP reported no material errors that would impact Fitch's rating analysisKey Rating Drivers and Expected Rating Sensitivities are further discussed in the corresponding presale report entitled, "Driver Australia Three Trust", published today. Included as an appendix to the report are a description of the representations, warranties, and enforcement mechanisms.Contacts: Primary Analyst Spencer WilsonAssociate DirectorPhone +612 8256 320Fitch Australia Pty Ltd.Level 15, 77 King St, Sydney, NSW 2000Secondary Analyst Ben NeweyDirectorPhone +612 8256 341Committee Chairperson Natasha VojvodicSenior DirectorPhone +612 8256 0350Media Relations: Leni Vu, Sydney, Tel: +61 2 8256 0304, Email: leni.vu@fitchratings.com.Additional information is available at www.fitchratings.com.The sources of information identified for this rating action were Australia and New Zealand Banking Group, as arranger, and Volkswagen Financial Services AG, VWFSA and the issuer's counsel King Wood Mallesons. The issuer has informed Fitch that not all relevant information about the rated notes is public.Driver Australia Three Trusthttps://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=877874Applicable Criteria Counterparty Criteria for Structured Finance and Covered Bonds (pub. 14 May 2014)https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=744158Counterparty Criteria for Structured Finance and Covered Bonds: Derivative Addendum (pub. 14 May 2014)https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=744175Global Consumer ABS Rating Criteria (pub. 03 Dec 2015)https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=874105Global Structured Finance Rating Criteria (pub. 06 Jul 2015)https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=867952Related Research Driver Australia Three Trust - Appendixhttps://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=878390Additional Disclosures Dodd-Frank Rating Information Disclosure Form https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr _id=1000202Solicitation Status https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1000202Endorsement Policy https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&det ail=31ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S FREE WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE. Fitch Australia Pty Ltd holds an Australian financial services licence (AFS licence no. 337123) which authorises it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001.