Fitch Affirms Five Driver ABS Classes; Upgrades One

(The following statement was released by the rating agency)SYDNEY, September 14 (Fitch) Fitch Ratings has affirmed five classes and upgraded one class of notes from three transactions of the Driver Australia Trust's asset-backed floating-rate notes. The securitised transactions are backed by Australian automotive finance receivables originated by Volkswagen (DE:VOWG_p) Financial Services Australia Pty Ltd (VWFSA), a wholly-owned subsidiary of Volkswagen Financial Services AG. A full list of rating actions follows at the end of this ratings action commentary.KEY RATING DRIVERSThe two-notch upgrade of the class B notes of Driver Australia Two Trust (DA2) reflects a lower level of losses than expected, the build-up of credit enhancement (CE) due to the sequential pay-down of the notes, stable asset performance in the pool and Fitch's expectations of continued benign economic conditions in Australia in the near term. The affirmation of the class A notes of DA2 also reflects these factors. Net losses since closing reached 0.12% (AUD0.62m) of the original balance at end-June 2016. The 30+ day delinquency rate also remained low at 0.82%, below Fitch's 2Q16 Dinkum ABS Index of 1.5%.The affirmations of the rated notes of Driver Australia One Trust (DA1) and Driver Australia Three Trust (DA3) reflect Fitch's view that the available CE is sufficient to support the notes at their current ratings levels, the stable credit quality and performance of the pool, and Fitch's expectations of continued benign economic conditions in Australia in the near term. As at end-June 2016, net losses since closing were 0.25% (AUD1.24m) and 0% (AUD0) of the original portfolio balances for DA1 and DA3, respectively. The 30+ day delinquency rate for DA1 was 2.02%, above Fitch's 2Q16 Dinkum ABS Index of 1.5%. DA3, being less seasoned, was below the index at 0.20%.At settlement, each respective trust purchased the securitised receivables discounted at a single discount rate equivalent to the aggregate of the fixed swap rate (including margins), senior expenses and servicing fees. As such, the transactions yield no excess income to cover or reimburse losses, and are exposed to losses should high interest yielding receivables prepay or default. Under the transaction documents VWFSA is obligated to make interest compensation payments to the trusts if a receivable that has an interest rate higher than the discount rate at issuance is discharged early. In its initial ratings Fitch assumed various levels of stressed prepayment rates and made the additional assumption that VWFSA was unable to make these payments. Additional credit support was also provided at issuance through a funded cash collateral account available to cover any potential interest shortfalls. Actual prepayments and discharges at June 2016 were well within Fitch's stressed assumptions, and consequently, the credit enhancement available to cover losses increased. In its analysis, Fitch has tailored specific default timing in line with historical observations and product characteristics. A cash flow model was run for DA2, where the default distribution was compressed to 22 months from 42 months at closing. The compression reflects the decrease in the remaining term of the underlying asset, particularly as longer dated assets have diminished as a percentage of the pool. The standard prepayment stresses in the fast and medium prepayment scenarios were also increased to reflect the faster actual prepayment rates. The notes for DA1 are amortising on a pro-rata basis as targeted pro-rata triggers have been met. The DA2 and DA3 notes have been amortising sequentially from closing and are expected to amortise on a pro-rata basis once the targeted overcollateralisation (OC) levels are reached. For DA2 and DA3, the initial target OC percentages are 26% and 18% for the Class A and B notes, respectively.RATING SENSITIVITIES The prospect of downgrades is considered remote at present given the expected performance of the DA1, DA2 and DA3 portfolios, and the level of subordination available for each class of notes for their respective ratings. USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G-10 Form ABS Due Diligence-15E was not provided to, or reviewed by, Fitch in relation to this rating.REPRESENTATIONS, WARRANTIES AND ENFORCEMENT MECHANISMS 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," refer to the report dated 26 March 2015 and 31 May 2016.DATA ADEQUACY Fitch conducted a file review of 10 sample loan files focusing on the underwriting procedures conducted by VWFSA compared to its credit policy at the time of underwriting. Fitch has checked the consistency and plausibility of the information and no material discrepancies were noted that would impact Fitch's rating analysis.The full list of rating actions is shown below with the balances as at payment date 21 July 2016:Driver Australia One Trust AUD51.6m Class A (ISIN AU0000DAOHA1) affirmed at 'AAAsf'; Outlook StableAUD7.4m Class B (ISIN AU0000DAOHB9) affirmed at 'AAsf'; Outlook StableDriver Australia Two Trust AUD220.7m Class A (ISIN AU0000DAQHA6) affirmed at 'AAAsf'; Outlook StableAUD27m Class B (ISIN AU0000DAQHB4) upgraded to 'AAsf' from 'A+sf'; Outlook StableDriver Australia Three Trust AUD454.6m (ISIN AU3FN0030474) Class A affirmed at 'AAAsf'; Outlook StableAUD31.0m (ISIN AU3FN0030482) Class B affirmed at 'AA-sf'; Outlook StableContacts: Lead Surveillance Analyst Stephen LoAnalyst+61 2 8256 0379Fitch Australia Pty LtdLevel 15, 77 King St, Sydney NSW 2000 AustraliaCommittee Chairperson Natasha VojvodicSenior Director+ 61 2 8256 0350Media Relations: Leslie Tan, Singapore, Tel: +65 67 96 7234, Email: leslie.tan@fitchratings.com.Additional information is available at www.fitchratings.com.Sources of Information:The source of information used to assess these ratings was Volkswagen Financial Services Australia Pty Ltd. The issuer has informed Fitch that not all relevant information about the rated notes is public.Applicable Criteria Counterparty Criteria for Structured Finance and Covered Bonds (pub. 01 Sep 2016)https://www.fitchratings.com/site/re/886006Counterparty Criteria for Structured Finance and Covered Bonds: Derivative Addendum (pub. 18 Jul 2016)https://www.fitchratings.com/site/re/884964Global Consumer ABS Rating Criteria (pub. 19 Aug 2016)https://www.fitchratings.com/site/re/886466Global Structured Finance Rating Criteria (pub. 27 Jun 2016)https://www.fitchratings.com/site/re/883130Related Research Driver Australia One Trust - Appendixhttps://www.fitchratings.com/site/re/726509Driver Australia Three Trust - Appendixhttps://www.fitchratings.com/site/re/880981Driver Australia Two Trust - Appendixhttps://www.fitchratings.com/site/re/863637Representations, Warranties and Enforcement Mechanisms in Global Structured Finance Transactions https://www.fitchratings.com/site/re/882358Representations, Warranties and Enforcement Mechanisms in Global Structured Finance Transactions (Applicable to Transactions Rated from Sept.26, 2011 until June 15, 2015) https://www.fitchratings.com/site/re/863817Additional Disclosures Dodd-Frank Rating Information Disclosure Form https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr _id=1011629Solicitation Status https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1011629Endorsement 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.