BMW AG
Fitch Ratings has upgraded Bavarian Sky
The Outlooks on both notes are Stable.
RATING ACTIONS
Entity / Debt
Rating
Prior
A XS2362979184
LT
AAAsf
Affirmed
AAAsf
B XS2362980513
LT
AAAsf
Upgrade
AAsf
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VIEW ADDITIONAL RATING DETAILS
Transaction Summary
The transaction is a securitisation of auto loan receivables to private customers in
KEY RATING DRIVERS
Good Performance: The transaction has had good performance since closing in
Turbo Amortisation Accelerates Notes' Repayment: The transaction structure features a turbo amortisation mechanism, where all available funds after paying senior costs, swap and interest payments and the reserve fund replenishment are allocated to pay down the class A and B notes, until redeemed in full. This mechanism leads to a faster amortisation than in comparable transactions, where notes often only amortise to target balances. The deleveraging of the transaction has led to increased credit enhancement to 80.4% for the class A notes from 24.5% and 46% for the class B notes from 11.1%, leading to the upgrade of the class B notes.
Liquidity Risk Mitigated: The transaction includes a non-amortising cash reserve available to cover senior expenses, the issuer's payment obligations on a swap and interest on the class A, B and C notes. The reserve provides sufficient coverage of more than a payment interruption period of six months. We thus believe the structure to be sufficiently covered in the event of liquidity stress.
Residual Value Risks: The transaction is exposed to both residual value (RV) and voluntary termination (VT) risks for all assets. Fitch has modelled the assets in its loan-by-loan VT model to derive a rating-specific RV and VT loss. The RV and VT haircuts have been left unchanged since closing. We estimate a 'AAAsf' RV loss of 24.8% and VT loss of 1.8% across the current portfolio, versus 17.4% RV loss and 4.3% VT loss at closing.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade
Ratings may be adversely affected by unforeseen economic downturns, resulting in a marked escalation in default rates. Furthermore, a pronounced shrinkage of the used-car market than currently anticipated may affect both secured recoveries, which are the main source of cash flow after borrower defaults, and vehicle sale proceeds.
Current Ratings (class A/B): 'AAAsf'/'AAAsf'
Expected impact on the notes' ratings of a 50% increase in base-case defaults:
Class A/B: 'AAAsf'/'AAAsf'
Expected impact on the notes' ratings of a 50% decrease in base-case recoveries:
Class A/B: 'AAAsf'/'AAAsf'
Expected impact on the notes' ratings of a 50% decrease in net sale proceeds:
Class A/B: 'AAAsf'/'AA-sf'
Expected impact on the notes' ratings of a 50% decrease in recoveries and net sale proceeds and a 50% increase in defaults:
Class A/B: 'AAAsf'/'A+sf'
Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade
Both notes are rated at the highest level on Fitch's scale and therefore cannot be upgraded.
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 action.
DATA ADEQUACY
Fitch has checked the consistency and plausibility of the information it has received about the performance of the asset pool and the transaction. Fitch has not reviewed the results of any third-party assessment of the asset portfolio information or conducted a review of origination files as part of its ongoing monitoring.
Prior to the transaction closing, 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.
Overall, and together with any assumptions referred to above, Fitch's assessment of the information relied upon for the agency's rating analysis according to its applicable rating methodologies indicates that it is adequately reliable.
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
ESG Considerations
The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. For more information on Fitch's ESG Relevance Scores, visit https://www.fitchratings.com/topics/esg/products#esg-relevance-scores.
Additional information is available on www.fitchratings.com
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