VCL Master Residual Value S.A., acting through its Compartment 2

Transcription

1 Rating Report VCL Master Residual Value S.A., acting through its Compartment 2 Matthew Nyong Senior Financial Analyst Global Structured Finance mnyong@dbrs.com Paolo Conti Senior Vice President Global Structured Finance pconti@dbrs.com Mark Wilder Senior Vice President Global Structured Finance mwilder@dbrs.com Ratings and Issuer s Assets and Liabilities Series Debt Initial Amount (EUR) 1 Maximum Amount (EUR) Minimum Subordination 2 Coupon Rating Rating Action Class A 352,300, ,700, ,000, ,700, ,300, ,600, ,600,000 50,000, ,600, ,000, ,000, ,200, ,100, ,700, ,000, ,000, ,000, ,600, ,500,000 50,000, ,600, ,000, ,000, ,200, % One-month Euribor % 3 AAA (sf) New Rating New Rating Class B 74,500, ,900, ,400,000 45,000, ,500,000 74,400,000 13,300,000 85,900, ,800, ,000,000 76,100, ,600,000 74,400,000 65,000, % One-month Euribor % 3 A (high) (sf) New Rating N/A Subordinated Loan 4 1,812,087, One-month Euribor + Margin N/A Overcollateralisation 438,983, N/A Notes: 1 As at 25 September Further Notes have been issued under Class A Series , , , , , , , and Class B Series , , , and , while new Notes have been issued under Class A Series , , and Class B following the repurchase of VCL Master Residual Value S.A., acting through its Compartment 1 2 Subordination is expressed in terms of portfolio overcollateralisation and does not include the reserves. 3 The Class A and Class B Notes coupon is subject to a floor at zero. 4 The proceeds of the subordinated loan will be used to fund the acquisition of leased vehicles. Initial Amount (EUR) Asset Portfolio 1 6,410,070, % Liquidity Reserve 2, 3 179,668, % Note: 1 As at the collection period end date, 31 August The EUR 179,68,800 liquidity reserve represents 4.32% of the notes. 3 The liquidity reserve is fully funded by the seller on the renewal date. DBRS Ratings Limited (DBRS) confirmed the above ratings previously assigned to the Class A and Class B Notes and issued new ratings to the Series and Class A Notes, and Series Class B Notes issued by VCL Master Residual Value S.A., acting through its Compartment 2 (the issuer), in the context of a securitisation programme that was established in 2015 (the programme). The issuer is a private company with limited liability (société anonyme) incorporated under the law of the Principality of Luxembourg as a special-purpose entity, specifically for the purpose of the programme. DBRS confirmed the ratings in the context of the programme renewal concluded on 25 September 2018, which envisaged, among other resolutions, the extension of the revolving period for the outstanding series until 25 September Size Continued on P.3.

2 Rating Report VCL Master Residual Value S.A., acting through its Compartment 2 DBRS.COM 2 Table of Contents Ratings and Issuer s Assets and Liabilities 1 Transaction Parties and Relevant Dates 2 Rating Considerations 3 Transaction Structure 4 Origination and Servicing 9 Collateral Summary 9 Rating Analysis 11 Appendix 16 Methodologies Applied 18 Surveillance Methodology 18 Transaction Parties and Relevant Dates Transaction Parties Roles Counterparty DBRS Ratings Issuer VCL Master Residual Value S.A., acting through its Compartment 2 Originator, Seller, Servicer Volkswagen Leasing GmbH Private Rating Servicer s Ultimate Parent Company Back-up Servicer Subordinate Lender Swap Counterparty Volkswagen AG N/A Volkswagen Financial Services AG Credit Agricole Corporate & Investment Bank DZ Bank AG Deutsche Zentral-Genossenschaftsbank Skandinaviska Enskilda Banken AB ING Bank N/A BBB (high)/stb // R-2 (high)/ Stb Private Rating Private Rating A (high)/stb // R-1 (mid)/stb A (high)/stb // R-1 (mid)/stb AA (low)/stb // R-1 (mid)/stb Account Bank/ Cash Administrator Registrar/Paying Agent/ Calculation Agent Listing Agent Corporate Services Provider Expectancy Rights Trustee Data Protection Trustee The Bank of New York Mellon, Frankfurt Branch The Bank of New York Mellon Banque Internationale à Luxembourg Circumference FS (Luxembourg) S.A. Wilmington Trust (London) Limited Amsterdamsch Trustee's Kantoor B.V * AA/Stb // R-1 (high)/stb AA/Stb // R-1 (high)/stb N/A N/A N/A N/A Share Holder Stichting CarLux N/A Arranger and Lead Manager Credit Agricole Corporate and Investment Bank. Private Rating Note: Unless specified public ratings are intended to be Senior Unsecured Debt Ratings or Issuer Ratings. Specifications are marked as follows: (I): Issuer Rating (S): Senior Unsecured Debt Rating (C): Critical Obligations Rating * Rating assigned to Headquarters, but branch does not hold a separate public rating Relevant Dates Set-up Date 25 November 2015 Last Renewal Date 25 September 2018 Next Payment Date 25 October 2018 Payment Dates The 25th calendar day of each month (or following business day) Collection Periods From the portfolio assignment date to the end of September 2018 and each calendar month thereafter. Interest Periods From the issue date to the first payment and each monthly period between two consecutive payment dates thereafter. Revolving Period End Date 25 September 2019 Final Maturity Date 25 September 2025

3 Rating Report VCL Master Residual Value S.A., acting through its Compartment 2 DBRS.COM 3 The programme envisages the issuance of floating-rate notes up to a programme maximum of EUR 6 billion, backed by a pool of receivables related to residual values of motor vehicle lease contracts originated by Volkswagen Leasing GmbH. (VWL; also the originator and the seller). Both the Class A and Class B series of notes were issued within the context of the programme on the set-up date and renewed or tapped-up in 2018; they are currently backed by approximately EUR 6.4 billion of assets, including cash expectancy rights related to residual values of auto lease contracts (discounted at a fixed rate). All the existing series of notes benefit from a one-year revolving period, and the programme allows the issuance of further series of notes of either classes subject to collateralisation levels and performance requirements specified in the transaction documents up to the programme maximum. DBRS may also assign ratings to the further notes of both classes belonging to the new series when issued by VCL Master Residual Value S.A., acting through its Compartment 2, and such ratings will be published on The rating action also follows the EUR 1 billion tap-issuance of the Notes. The updated portfolio includes receivables from another compartment, namely VCL Master Residual Value S.A., acting through its Compartment 1, which was repurchased on the same date and its respective rating discontinued. On the 2018 renewal date, Volkswagen Financial Services AG (the subordinated lender) granted the issuer a subordinated loan that was used to pay part of the additional receivables purchase price. During the programme, the liquidity reserve may be replenished with the available funds in accordance with the applicable priority of payments. On each payment date during the revolving period, funds from the amortisation of the portfolio collateralising the revolving notes will be applied toward payment of the purchase price of additional receivables that the seller may offer and that the issuer will purchase (subject to eligibility criteria, concentration limits and performance conditions set out in the transaction documents). The receivables are serviced by VWL (the servicers). Portfolio Summary Total Discounted Balance EUR 6,410,070,743 Asset Class Auto Lease Residual Values Number of Contracts 423,376 Asset Governing Jurisdiction Federal Republic of Germany New / Used / Demo 95.24% / 2.37% / 2.39% Sovereign Rating AAA Retail / Commercial 71.17% / 28.83% Closed End / Open End 99.43% / 0.57% Top 1 / 10 / % / 0.32% / 0.60% Rating Considerations The notes are backed by the residual value components due upon maturity of lease vehicle contracts. The outstanding series benefit from a one-year revolving period. The transaction has a mixed sequential/pro rata amortisation structure, whereby all collections from lease receivables initially pay down the Class A Notes until Class A overcollateralisation reaches its target (48% during the revolving period and 51% after the revolving period). Once Class B overcollateralisation reaches its target (36% during the revolving period, 39% after), Class A and Class B will receive principal on a pro rata basis unless certain performance triggers are breached (described in more detail in this rating report). The notes and the subordinate loan pay a floating rate indexed to one-month Euribor, while the underlying collateral yields a fixed rate. Interest rate risk is expected to be mitigated by a hedging agreement in place to ensure that the issuer receives the floating index in exchange for a fixed rate. Strengths VWL is a highly experienced, financially strong captive finance servicer. VWL s lease portfolio has experienced low historical credit loss rates with consistently high recoveries. Title to the vehicle is transferred as security to the Issuer following termination of the corresponding lease contract.

4 Rating Report VCL Master Residual Value S.A., acting through its Compartment 2 DBRS.COM 4 The issuer is exposed to both credit risk and residual value. Challenges and Mitigating Factors Mitigant: The credit risk and the residual value risk were addressed in the cash flow modelling in accordance with current DBRS methodologies. The servicer is permitted to commingle collections on the receivables as long as they are not replaced. Mitigant: A mitigating structure is in place that provides for advancement of collections upon breach of rating related triggers. Transaction Structure Transaction summary Currency Relevant Jurisdictions Interest Rate Hedging Basis Risk Hedging N. A. Liquidity Reserve Issuer s assets and liabilities are denominated in euros (EUR) Lease contracts are governed by German law. The swap documents and the English deed of charge are governed by English law, and the rest of the transaction documents are governed by German law (including a German law pledge). The issuer s incorporation is under Luxembourger law and its insolvency is assumed to be treated in accordance with the law of Luxembourg. Interest rate swap in place Issuer Pays: Notional: Aggregated Class A Notes outstanding amount after giving effect to all payments of principal fixed rate of 0.24% Issuer Receives: Issuer Pay: Issuer Receive : Notional: Aggregated Class B Notes outstanding amount after giving effect to all payments of principal fixed rate of 0.72% Provides liquidity support to the structure but does not generally cover credit losses Notional: Aggregated Class A Notes outstanding amount after giving effect to all payments of principal One-month Euribor %, floored to zero Notional: Aggregated Class B Notes outstanding amount after giving effect to all payments of principal One-month Euribor %, floored to zero Initial Amount: EUR 179,668,800 Corresponding to 4.32% of the notes Target Amount EUR 179,668,800 Corresponding to 4.32% of the notes Step-Up Amortisation Floor N.A. Amortises with repayment of the rated notes (to be maintained at 4.32%) 2.5% of the maximum portfolio

5 Rating Report VCL Master Residual Value S.A., acting through its Compartment 2 DBRS.COM 5 The transaction structure is summarised below: Swap counterparties Counterparties Class A Cash Reserve Class B VCL Master SA Compartment 2 Portfolio Sub-loan Sub-lender Sellers Servicers Source: VWL, Transaction documents, DBRS. Counterparty Assessment Account Bank The Bank of New York Mellon, Frankfurt Branch (BNY Mellon) is the account bank and the cash manager for the transaction. DBRS publically rates BNY Mellon s long-term deposit and senior debt at AA with Stable trend and its short-term deposit and senior debt at R-1 (high). DBRS concluded that BNY Mellon meets DBRS s minimum criteria to act in such capacity, and the programme contains downgrade provisions relating to the account bank that are consistent with DBRS s criteria. Hedging Counterparties The hedging counterparties that have been appointed for this transaction are outlined below: Notes Hedged Swap Counterparty Counterparty Rating DBRS Compliant? Series A Series A Series A Series A Series B Series B Series B Series B DZ Bank AG Deutsche Zentral-Genossenschaftsbank Public Rating A (high) (pos) Yes Series A Series A Series A Series A Series A ING Bank N.V. Public Rating AA (low) (stb) Yes Series A Series B Series B Skandinaviska Enskilda Banken AB Public Rating A (high) (stb) Yes Series A Series A Series B Credit Agricole Corporate & Investment Bank Private Rating Yes The transaction contains downgrade provisions relating to the hedging counterparties that are consistent with DBRS s criteria.

6 Rating Report VCL Master Residual Value S.A., acting through its Compartment 2 DBRS.COM 6 Servicing of the Portfolio and Collections Volkswagen Leasing GmbH is the originator and will service the expectancy rights in its capacity as the programme servicer in accordance with its customary practices. DBRS privately rates Volkswagen Leasing GmbH and Volkswagen Financial Services AG (VWFS), financing holding company of Volkswagen group, but maintains a public issuer rating on Volkswagen AG at BBB (high) with a stable trend. DBRS concluded that Volkswagen Leasing GmbH meets the minimum criteria to act as originator and servicer. Volkswagen Leasing GmbH, as the programme servicer, receives a periodic compensation corresponding to 1.0% of the outstanding portfolio (excluding rights related to written off leases). The servicer is appointed by the issuer to manage the disposal of returned vehicles on the vehicle market to the best interest of the issuer, to collect proceeds of sale, and to collect payments from lessees and other proceeds related to the expectancy rights (collections). When the vehicle is returned at contract maturity, proceeds of the sale (net of auction fees) will be entirely allocated to the issuer (after discharge of any right related to lease instalments). In the case of a terminated lease contract, the issuer will receive a portion of the proceeds proportional to its claims compared with the outstanding claim related to the ordinary lease instalments. The servicer is responsible for collecting the proceeds of sale, payments by lessees and other proceeds related to the expectancy rights (altogether collections). The servicer receives all payments into its collection accounts held and maintained in its own name, and the transaction documentation requires Volkswagen Leasing GmbH to remit collections to the issuer s accounts (held and maintained with the account bank) once a month, on or about each payment date. Collections may therefore be commingled with the servicer s estate in case of default. However, if Volkswagen AG ceases to be rated at least BBB (high), or other conditions are not met (e.g., Volkswagen AG ceases to own and control the seller), the servicers have undertaken to advance collections becoming due in the respective period (the Servicer Advance) by remitting on the eleventh business day prior to the start of the period. Volkswagen Leasing GmbH may have to be replaced as servicer in case of a Servicer Replacement Event, which will be recognised should any of the following occur: Insolvency of Volkswagen Leasing GmbH. Failure (not remedied in time) to deliver any required payment to the issuer or the subordinated lender. Failure (not remedied in time) to duly observe or perform in any of its duties. Collections may be further supplemented by payments or indemnifications made by Volkswagen Leasing GmbH as the transaction originator, seller or servicer, as the case may be, in accordance with the transaction documents. In particular, Volkswagen Leasing GmbH has provided some representation and warranties through the eligibility criteria. Additional sources of funds available to the issuer are represented by the reserve fund and the net swap payments when payable by the swap counterparties. The collateral deposited on the swap collateral account(s) by the hedging counterparties is only available to the issuer in case the hedging counterparty fails to comply with its payment obligations under the hedging documents. The available funds (Available Distribution Amount) must be disbursed by the issuer, as per the terms of the transaction documents, on specified dates (the payment dates), with limited exceptions. Funds processed on a given payment date are payments of all kind as summarised above and, with specific reference to collections, related to an identifiable period of time (the collection period) ended prior to the payment date; other payments, and amounts eventually collected but referred to subsequent collection periods should only be processed on the relevant payment date as specified by the transaction documents. Clean-up Call The seller has the right to recall the outstanding notes and repurchase the portfolio when the portfolio has reduced below 10% of the maximum discounted expectancy rights balance. The exercise of the option is subject to full repayment of the notes.

7 Rating Report VCL Master Residual Value S.A., acting through its Compartment 2 DBRS.COM 7 Funding of the Reserves The liquidity reserve was funded by the seller through the initial and subsequent portfolios purchase to meet the then required target on the last renewal date of 25 September On subsequent renewal dates or on tap-up, the seller may be required to increase the reserve upon issuance of further classes or series of notes or tap issuance under the existing series of notes as the case may be. The general reserve increase is expected to be added in a similar way, following the assignment of the accretive portfolios. The reserve is initially required to be at 4.32% of the outstanding balance of the notes and it is allowed to amortise with the amortisation of the notes subject to a floor of 2.50% of the maximum pool balance. The reserve is available to cover interest and senior expenses on each payment date (including swap payments) and may be replenished to its target in accordance with the priority of payments. However, on the earlier of the legal final maturity date and the date which the expectancy rights balance has reduced to zero, any amount left on the general reserve will be made available to pay items 6-9 in the priority of payments below. The Subordinated Loan Volkswagen Finance AG, as the subordinated lender, provided the issuer with EUR 1.8 billion, which the issuer applied toward partial payment of the purchase price of the initial portfolio and of subsequent accretive portfolios that were assigned to the issuer to back issuance of additional series or classes of notes. The issuer pays interest on the sub-loan indexed to one-month Euribor plus a margin, although the payment is junior to the repayment of principal under the notes. Priority of Payments The issuer applies all the available funds in accordance with a unique priority of payments. Available funds include: Collections made under the expectancy rights; Any lease incidental payment by the seller; Interest accrued on some issuer accounts; The liquidity reserve to cover any interest shortfalls (and on the legal final maturity date or in the event of a clean-up call); and The net swap payment when payable by the hedging counterparties. The securitised amounts do not include the following items: Late recoveries other than the relevant component of the proceeds from the sale of the underlying vehicles; Value added tax (VAT) payable by the lessees; The maintenance costs payable under the lease contracts; and The insurance premium payments (when paid by the lessees with the instalments). Pre-enforcement priority of payments 1. Issuer s taxes and expenses; 2. Swap net payment when payable to the hedging counterparties (including any termination payment as long as the relevant hedging counterparty is not defaulted); 3. Class A Notes interest; 4. Class B Notes interest; 5. To top up the liquidity reserve up to its target of 4.32% of the aggregate outstanding balance of the rated notes with a floor at the lower of (1) 2.5% of the maximum discounted receivables balance at any time; 6. To pay pari passu and pro rata (1) the amortisation amount to each amortising series of Class A Notes and (2) the accumulation amount into the accumulation account with respect to each revolving series of Class A Notes to align the outstanding balance of the notes to maintain the Class A overcollateralisation at its target;

8 Rating Report VCL Master Residual Value S.A., acting through its Compartment 2 DBRS.COM 8 7. To pay pari passu and pro rata the amortisation amount to each amortising series of Class B Notes and the accumulation amount into the accumulation account with respect to each revolving series of Class B Notes to maintain the Class B overcollateralisation at its target; 8. Interest under the subordinated loan; 9. Principal under the subordinated loan; 10. Any excess to the sellers. The amounts standing to the credit of the accumulation account can be used to purchase additional portfolios that the seller may offer during the revolving period of some series of notes, subject to the eligibility criteria and the other conditions set out in the transaction documents. The mechanism of repayment of the notes allows pro rata amortisation of the amortising series of notes of all series in accordance with the table below: Target Overcollateralisation During Revolving Period but Prior to a Credit Enhancement Increase Condition After Revolving Period but Prior to a Credit Enhancement Increase Condition Credit Enhancement Increase Condition Is in Effect Class A Notes 48% 51% 100% Class B Notes 36% 39% 100% In case of an occurrence of a Credit Enhancement Increase Condition, the sequential amortisation of the Class A Notes of all series in priority to the Class B Notes of all series will be triggered. The Credit Enhancement Increase Condition definition is summarised below: Dynamic Net Loss Ratio: Dynamic Net Loss Ratio Breach Portfolio Weighted-Average Seasoning 0.4% Less than 12 months (excluded) 1.0% Between 12 months (included) and 24 months (included) 2.0% Between 24 months (excluded) and 36 months (included) 2.8% Greater than 36 months Cumulative Net Loss Ratio: Cumulative Net Loss Ratio Breach Portfolio Weighted-Average Seasoning 0.45% Less than 12 months (excluded) 1.20% Between 12 months (included) and 24 months (included) 1.75% Between 24 months (excluded) and 36 months (included) 2.25% Greater than 36 months Late Delinquency Ratio higher than 2.5%. Servicer replacement. Insolvency of any seller. Liquidity reserve not at its target level. Repurchase price has not been paid.

9 Rating Report VCL Master Residual Value S.A., acting through its Compartment 2 DBRS.COM 9 Early Amortisation Event Termination of the hedging agreement. The Accumulation Account exceeds 10% of the outstanding receivables for three consecutive payment dates. Breach of a Credit Enhancement Increase Condition. The sellers cease to be an affiliate of Volkswagen AG. Default of the issuer. Class A overcollateralisation percentage is lower than 42.8% after six consecutive payment dates. Class B overcollateralisation percentage is lower than 32.3% after six consecutive payment dates. The Revolving Period and Revolving Termination Event All of the outstanding series envisage a 12-month revolving period. Notes of further series that may be issued in future may also benefit from a revolving period. During the revolving period, notes of a specific series will not amortise, and the portion of collections related to the amortisation of that part of the notes may be applied toward purchase of additional expectancy rights offered by the sellers. The amortisation of the notes within the same series or within a series with the same revolving period end date occurs initially on a sequential basis, with the Class A Notes repaid in priority to the Class B Notes. However, notes from a series with an earlier revolving period end date may amortise in priority to notes of a higher class belonging to a series with a later revolving end date as long as the target overcollateralisation is met. Although the revolving period of the relevant series is expected to last for a predetermined number of payment dates after the relevant issue date, the assignment of additional expectancy rights will immediately terminate with the amortisation of the notes even prior to the natural expiry of the revolving period upon (1) insolvency of the issuer, (2) revocation of the servicer or (3) occurrence of other specific events listed in the transaction documents (Early Amortisation Events) and summarised above. Origination and Servicing DBRS conducted an operational review of VWL s auto finance operations in Braunschweig, Germany, in March VWL is a wholly owned subsidiary of Volkswagen Financial Services AG (VWFS), which itself is wholly owned by the Volkswagen Group (the Group or Volkswagen). DBRS considers VWFS s German origination and servicing practices to be consistent with those observed among other auto finance companies. VWL was founded in 1966 and is headquartered in Braunschweig. VWL is part of VWFS, which is responsible for coordinating the worldwide financial services activities of the Group. VWFS provides banking, leasing, insurance and other services to its retail, wholesale and fleet customers. As an operating subsidiary of VWFS, VWL looks to provide its customers with everything they need to achieve financial and mobile flexibility. The product offerings range from the financing of new and pre-owned cars of Group and non-group brands to wholesale financing and direct banking. Within this business model, VWL also supports the sale of the products of the Group and its brands. In addition, dealers receive valuable support from VWL in the form of diverse training measures and extensive marketing support. VWFS is a 100% owned subsidiary of Volkswagen AG and is responsible for coordinating the worldwide financial services activities of the Group. DBRS has assigned a private rating to VWL and publicly rates Volkswagen AG. For further information, please refer to

10 Rating Report VCL Master Residual Value S.A., acting through its Compartment 2 DBRS.COM 10 Collateral Summary The collateral backing the notes consists of expectancy rights to receive residual values and related payments under lease contracts granted to private and commercial customers (individual and corporates or small and medium enterprises) with their registered offices in Germany (altogether, the lessees) mostly for the use of new passenger cars or light commercial vehicles. The underlying lease contracts are operating leases typically envisaging that the leased vehicle will be returned to the lessor upon contract maturity. VWL offers two kinds of lease contract: (1) closed-end contracts (Verträge ohne Gebrauchtwagenabrechnung) or (2) open-end contracts (Verträge mit Gebrauchtwagenabrechnung). In both cases the lessee has to hand the vehicle back upon payment of the final lease instalment. However, open-end contracts have no guaranteed buy-back price, and, subject to condition, care and mileage requirements, the vehicle is remarketed and the lessee bears the risk of a loss and partly participates in a profit upon vehicle sale. Closed-end contracts envisage set residual values based on the contractual mileage and original term of the contract (usually guaranteed by the vehicle dealer) upon return of the vehicle in compliance with the mileage range and in good condition (as per the contract terms). DBRS understands that about 95% of the closed-end contracts benefit from a guarantee by partner dealers of VWL. Since the price of the vehicle is sensitive to mileage upon turn-in, in case of under mileage or if the mileage is exceeded upon turn-in of the car, an adjustment payment may be in place by a mileage rate that has been agreed to at the conclusion of the contract (Mehr- or Minderkilometersatz). The lessee will get charged or will be refunded with the adjustment. The expectancy rights assigned to the issuer (or assignable during the revolving period or upon issuance of further notes of all classes and series) do not include the regular instalments of the related lease contracts (lease receivables). The lease receivables are typically securitised within other programmes established by VWL: VCL Master S.A., Compartment 1 and the VCL standalone issuances. The issuer acquires title over the leased vehicles commensurate to the credit rights it has purchased by means of the assignment agreement, and it acquires the legal right to receive, upon contract termination or repossession of the vehicle, the relevant proceeds of the sale of the vehicle. VWL, as the servicer, shall conduct activities, such as contractual termination or vehicle repossession, in accordance with its customary practices and in the issuer s interest. Once a vehicle is repossessed, it is expected to be sold as soon as practical to satisfy the claims arising under the lease contract. However, since the issuer bears the claims under the expectancy rights but not the rest of the claims under the lease contract that may be held by the seller or by some other of its assignees, the proceeds of sale of the vehicles will be allocated by VWL on a proportionate basis as the transaction documents provide for. The underlying lease contracts pay a fixed interest rate and are governed by German law. The lessees pay monthly instalments (excluding service charges and VAT) that usually include a portion of interest and principal. The purchase price paid by the issuer to the seller for the expectancy rights is calculated on a discounted cash flow basis as the net present value of the theoretical residual value at a fixed rate of 4.34%. Eligibility Criteria Both on the issue date and on the subsequent payment dates during the revolving period, lease expectancy rights can only be assigned to the issuer if the related lease contracts meet some criteria specified in the transaction documents. Some of the criteria required for assignment are summarised below: Lessees are not an affiliate or employee of a seller or of its group; At least two instalments have been paid; Pay fixed interest rate; Require substantially equal monthly payments to be made within 12 to 60 months of the date of origination; Contracts will not mature later than one year prior to the latest occurring legal maturity date under any of the notes of any series;

11 Rating Report VCL Master Residual Value S.A., acting through its Compartment 2 DBRS.COM 11 Lease contracts with a kilometre settlement (Kilometerabrechnung) entered into before 1 October 2013 are excluded if lessees qualify as consumers; Lease contracts are not overdue at the date of assignment; Lease contracts were not terminated as at the date of assignment; Lessees have their registered office or, if they are individuals, have their place of residence in Germany. Concentration Limits The criteria also state some concentration limits to be respected during the revolving period of any series of notes as summarised below: No more than 5% of the vehicles are not Volkswagen, Audi, SEAT, koda or Volkswagen Nutzfahrzeuge; Used vehicles do not exceed 6%; Volkswagen Nutzfahrzeuge vehicles do not exceed 22%. Through the criteria, the seller provides representation and warranties with respect to the contract existence, legal validity (under German law), enforceability and absence of existing conditions that may prevent the validity of the assignment. The criteria also provide further representations that include absence of third-party claims, including set-off claims by lessees. The seller will be required to repurchase securitised contracts that do not meet the criteria within 30 days from the end of the following collection period or otherwise indemnify the issuer. Pool Characteristics DBRS has analysed the securitised pool as at 31 August The main characteristics of the portfolio are summarised below: Total Discounted Balance (EUR) 6,410,070,743 Number of Contracts 423,376 Average Discounted Balance 15,140 Average Principal Balance 16,036 Maximum Principal Balance 92,357 W/A Original Term (Years) 3.25 W/A Seasoning (Years) 2.01 W/A Remaining Term (Years) 1.24 Contract Type Closed End / Open End 99.43% / 0.57% Lessee Concentration Top Lessee 0.04% Top 10 Lessees 0.32% Top 20 Lessees 0.60% Vehicle Brand VW 33.76% VW LCV 13.94% Audi 39.08% SEAT 2.82% koda 10.24% Vehicle Type New / Used / Demo 95.24% / 2.37% / 2.39% Payment Method Direct Debit / Other 93.10% / 6.90% Top Geographycal Concentration North Rhine-Westphalia 22.37% Bavaria 17.72% Baden-Wuerttemberg 15.68% Lower Saxony 8.55% Type of Lessee Retail / Corporate 71.17% / 28.83% Source: VWL, Programme Prospectus, Programme Investor report.

12 Rating Report VCL Master Residual Value S.A., acting through its Compartment 2 DBRS.COM 12 Rating Analysis The ratings are based on a review by DBRS of the following analytical considerations: Programme capital structure, including form and sufficiency of available credit enhancement. Credit enhancement levels are sufficient to support DBRS-projected expected cumulative net losses under various stress scenarios. The ability of the programme structure to withstand stressed cash flow assumptions and repay investors according to the terms under which they have invested. For this transaction, the rating addresses the payment of timely interest on a monthly basis and principal by the legal final maturity date. The transaction parties capabilities with regard to originations, underwriting, servicing and financial strength. DBRS conducted an operational risk review of Volkswagen Leasing GmbH at its premises in Brunswick and deems it to be an acceptable servicer. The parties financial strength with regard to their respective roles. The credit quality and industry diversification of the collateral and historical and projected performance of the seller s portfolio. The sovereign rating of Germany, currently at AAA. The consistency of the programme s legal structure with DBRS s Legal Criteria for European Structured Finance Transactions methodology and the presence of legal opinions that address the true sale of the assets to the issuer and non-consolidation of the special-purpose vehicle with the seller. Portfolio Performance Data DBRS received the following set of data sourced by Volkswagen Leasing GmbH: Static net loss data of the entire leasing portfolio originated by the seller dating back to 2007 and up to June 2018; Monthly residual value aggregated data from 2007; Dynamic arrears data from 2010; Dynamic loss data dating back to DBRS was also provided with a detailed stratification tables related to the portfolio provisionally selected as at 31 August 2018.

13 Rating Report VCL Master Residual Value S.A., acting through its Compartment 2 DBRS.COM 13 Static Net Loss Data and Dynamic Arrears DBRS received monthly vintage net loss data on the entire vehicles portfolio originated by the seller since The picture below shows the received data aggregated on annual vintages for convenience. The default definition applied is write-off following the sale of the vehicle after repossession. DBRS also received dynamic arrears data, pictured below on aggregated basis. Exhibit 1: Net Loss - Total Portfolio 1.2% 1.0% 0.8% 0.6% 0.4% 0.2% 0.0% Source: Volkswagen Leasing GmbH, Programme Prospectus, DBRS. Exhibit 2: Low Arrears 10% 8% 6% 4% 2% 0% Jan-10 Jun-10 Nov-10 Apr-11 Sep-11 Feb-12 Jul-12 Dec-12 May-13 Oct-13 Mar-14 Aug-14 Jan-15 Jun-15 Nov-15 Apr-16 Sep-16 Feb-17 Jul-17 Dec-17 May-18 Exhibit 3: High Arrears 5% 4% 3% 2% 1% 0% Jan-10 Jun-10 Nov-10 Apr-11 Sep-11 Feb-12 Jul-12 Dec-12 May-13 Oct-13 Mar-14 Aug-14 Jan-15 Jun-15 Nov-15 Apr-16 Sep-16 Feb-17 Jul-17 Dec-17 May days delinquent days delinquent days delinquent > 90 days delinquent > 180 days delinquent Source: Volkswagen Leasing GmbH, Programme Prospectus, DBRS. Residual Value Realisation Data DBRS was provided with aggregated monthly realisations from all turned-in vehicles and their related residual values (on an aggregated basis as well). Data provided refers to the entire lease portfolio originated by VWL from January 2011; however, DBRS was not provided with loan-by-loan comparisons of contractual residual values with respect to actual vehicle resale price. DBRS has also independently obtained residual value data to assess the market price volatility. Data provided showed high volatility of profit upon return in 2011, but results have consistently improved ever since, reflecting the steady increase in financed units (typically associated with high demand of new vehicles). Recently, there has been increased political discussion regarding the future of diesel vehicles (namely those in Euro 4, 5 and 6 diesel categories) and their restriction of use in urban areas across Europe. Bans on diesel vehicles may reduce demand for such vehicles, which in turn could lead to downward pressure on residual value (RVs). DBRS notes that as a result of such political discussion, sales in diesel vehicles have faltered slightly in recent months, while sales in petrol and alternative fuel vehicles have been strong. Such developments have been taken into account in DBRS analysis, while data from VWL and external data provided shows RV performance through a full economic cycle. Furthermore, VWL s ability to sell vehicles outside of Germany is also deemed a mitigant to potential volatility of diesel sales in Germany. Set-off Risk In case of the seller s insolvency, the lessees may validly claim set-off against the issuer in respect of amounts the seller may owe them. VWL does not hold deposits, thus removing the main source of set-off risk.

14 Rating Report VCL Master Residual Value S.A., acting through its Compartment 2 DBRS.COM 14 Commingling Risk The servicer receives and holds on its own accounts the collections associated with the credit rights. In accordance with the transaction documents, the sellers may transfer the issuer s collections once a month, on or about the payment date. Although servicing operations are likely to continue even after ordered insolvency of the servicer, the funds payable to the issuer may be commingled within the defaulted entity s estate under some insolvency circumstances. Commingling risk is mitigated by the undertaking to pay expected collections in advance into the issuer s collection accounts upon breach of some triggers, including loss of BBB (high) rating by Volkswagen AG. Prepayment Risk The credit rights are related to lease contracts that do not envisage any prepayment option for the lessees, and the early settlements should be bi-laterally agreed to with the lessor or its assignees, thus limiting the possibility that a loss for the issuer materialises as an effect of an early settlement. Portfolio Amortisation and Interest Rate The portfolio purchase price is calculated on a net present value basis, and each assigned lease expectancy right is discounted by the same fixed rate of 4.34%. DBRS received the run-out schedule of the portfolio as at 31 August Summary of the Cash Flow Scenarios DBRS s cash flow model assumptions focused on the amount and timing of defaults and recoveries, prepayment speeds, interest rates and residual value loss. Several different prepayment scenarios were evaluated when assessing the sufficiency of credit enhancement for the requested rating levels. DBRS evaluated scenarios whereby prepayments were assumed to be between 0% and 15% constant principal repayment (CPR) in conjunction with loss timing curves. Based on a combination of these assumptions, a total of 18 cash flow scenarios were applied to test the performance of the rated notes (please see table below). Interest Rate Risk The expectancy rights are related to the right to receive the residual value of vehicles under lease contracts. Although payments under such rights do not include any contractually defined interest component, the mechanism of assignment envisages that the residual value is funded on a discounted basis, allowing a component to be classified as interest. By effect of the net present value mechanism, the expectancy rights yield the same fixed rate (equal to the discount rate). Since the issuer s liabilities for Class A and Class B are indexed to the one-month Euribor and the expectancy rights yield a fixed interest rate, the transaction benefits from an interest rate swap whereby the issuer pays a fixed rate to the swap counterparties and receives the floating-rate indexed to one-month Euribor (with the relevant margin with a floor at zero). The interest rate swap has a notional amount corresponding to the aggregated outstanding principal of Class A and Class B. The hedging structure, as long as in place, ensures a perfect hedging of the Class A and Class B liabilities against a fixed cost. Interest Rate Stresses DBRS applied its standard interest rate stresses as detailed in its Unified Interest Rate Model Methodology for European Securitisations. Yield Compression The portfolio has an effective fixed yield flat because of the net present value mechanism used for the assignment. Thus compression of the portfolio yield is not applicable. Gross Loss Base Case Assumptions DBRS was only provided with net loss data on the entire lease portfolio originated by VWL, but could review the recovery data provided in connection with the programme. DBRS observed that net losses have consistently improved since 2007.

15 Rating Report VCL Master Residual Value S.A., acting through its Compartment 2 DBRS.COM 15 In order to determine a loss estimate for the current transaction, for vintages that were not fully seasoned, losses and recoveries were projected to the required maturity using historical data relating to loss timing. DBRS considered relevant maturity to be 72 months for net losses (calculated allowing 12 months for write-off after the five-year maturity date of the lease contracts). The available vintages were weighted based on (1) the underlying origination and (2) the distance in time. DBRS further supplemented the analysis with a review of 180+ delinquencies and loan-by-loan recovery data from the investor report of the current programme and of similar portfolios securitised in the latest VCL transactions. Given the extremely low net losses and high recoveries, no volatility stresses were incorporated to derive the expected net and gross loss assumptions, whereas DBRS has applied rating specific recovery rates to different rating scenarios made as part of DBRS s cash flow analysis: Base Assumption Portfolio Gross Loss 1.75% AAA Recovery Rate 40% A (high) Recovery Rate 50% Residual value assumptions DBRS received aggregated realisation data provided by the sellers going back to Data provided by seller, although only available on aggregated basis and without any further split, allowed DBRS to determine the embedded RV loss component in accordance with its methodology. DBRS has also independently gathered market performance data to assess the vehicle price volatility in order to define the RV market loss. The combination of the various RV loss components allowed DBRS to determine the expected RV loss in the relevant rating scenarios as follows: Rating Scenario RV Loss Turn-in rate AAA 41% 100% A (high) 32% 100% The applicable turn-in rate is 100% in all rating scenarios because of the nature of the lease contracts. The RV amount represents 100% of the amount payable to the issuer. Prepayment Speeds and Prepayment Stress As a result of registered early settlement rates, DBRS evaluated scenarios whereby no credit was given to early settlements at each rating level. Higher prepayment scenarios (up to 15% annual CPR) were also run to ensure that any acceleration in collections was offset by reduced RV losses. Prepayment losses are not applicable since the expectancy rights can only be settled through a bilateral agreement with the lessor or its assignees. Although settlement of contracts at or before maturity was not given any credit in the AAA scenario, DBRS determined that approximately 7% of the contracts are expected to be settled on or about maturity in the A (high) scenario. The assumption is compatible with the current rating of the seller and originator, thus reducing the number of vehicles effectively turned in. Timing of Defaults DBRS estimated the default timing patterns and created base, front- and back-loaded default curves. The front-loaded, base and back-loaded default distributions are listed below. Year Mid Front Back 1 20% 50% 20% 2 50% 30% 30% 3 30% 20% 50% Heavily back loaded scenarios were also tested for sensitivity.

16 Rating Report VCL Master Residual Value S.A., acting through its Compartment 2 DBRS.COM 16 Risk Sensitivity DBRS expects a lifetime base case probability of default (PD) and loss given default (LGD) for each rated pool based on a review of historical data. Adverse changes to asset performance may cause stresses to base case assumptions and therefore have a negative effect on credit ratings. The tables below illustrate the sensitivity of the rating to various changes in the base case default rates and loss severity assumptions relative to the base case assumptions used by DBRS in assigning the ratings. Class A Increase in Default Rate & LGD (%) Increase in RV Loss (%) AAA AAA AA (high) 25 AAA AAA AA (high) 50 AAA AAA AA (high) Class B Increase in Default Rate & LGD (%) Increase in RV Loss (%) A (high) A (high) A 25 A (high) A (high) A 50 A (high) A (high) A

17 Rating Report VCL Master Residual Value S.A., acting through its Compartment 2 DBRS.COM 17 Appendix Origination and Underwriting Origination and Sourcing VWL acts under the Audi Leasing, SEAT Leasing, ŠKODA Leasing and AutoEuropa Leasing brands. The objectives of VWL are to lease motor vehicles, especially the following brands: Volkswagen, Audi, SEAT, Škoda and Volkswagen Nutzfahrzeuge. VWL provides a modern and cost-effective alternative to the purchase of vehicles in Germany and for the financing of investments, particularly the latter for the business partners of the Group. In addition to providing leasing for the brands noted above, VWL also offers service leasing to commercial and non-commercial customers and leasing options for used vehicles of all makes. VWL cooperates closely with the approximately 3,700 dealerships of the Group. A dealer can thus offer the customer complete, competent, personal service at one stop and from a single source, including financing. The cooperation between the manufacturer or importer and the dealer-partner is established by a dealer agreement. Under this agreement, the dealer-partner is given the responsibility for marketing the products and services of the Group and to service the trademarked products of the Group. The dealer-partners procure leasing business for VWL against commissions. VWL buys the vehicles from the dealer, finances and administers the vehicles and assumes the credit risk. Each dealer-partner is trained in the leasing business. The dealerpartner is the local contact person and is available to the lessee during the whole life of the leasing contract. Underwriting Process All underwriting activities at VWFS are appropriately segregated from marketing and sales. VWFS adheres to standard identity- and income-verification practices, including collection of income statements while identity cards, proof of address and utility bills are reviewed. External credit data is retrieved from two nationally recognised bureaus Schufa Holding AG and Creditreform & Co. and incorporated into the automated credit scoring models. Prior to acceptance of an application, VWL checks the credit standing of the customer in the form of a credit report that may include information from credit agencies, banks, financial statements and other relevant sources. For private and commercial retail customer contracts, applications are automatically approved by a scoring system if the information on the application demonstrates that the applicant meets VWL s criteria for an automatic approval. Applications are analysed through VWFS s internal credit scoring system, which assigns a band to the loan denoting the risk associated with the borrower and loan. Both retail and commercial retail customers are evaluated under one of 16 risk bands, with 01 representing the best score, and 15 and D representing the worst scores. For large customers where there is a master framework agreement with VWL, the application is evaluated by at least two credit officers. Ongoing checks are then made to ensure that credit limits are respected for any newly leased vehicles. Applications that are not automatically accepted by the scoring system are assessed by an employee of the credit department. The employees of VWL s credit department typically have several years of industry experience and degrees in business administration. Employees are personally assigned a credit ceiling up to which they may underwrite a given loan. Summary Strengths Rising penetration rate over last few years. Use of multiple rules-based credit scoring models incorporating dual credit bureau data and monthly analyses of rules and performance metrics. Centralised and independent credit and risk management functions with underwriting teams split between retail (individuals and business) and corporates.