Bavarian Sky S.A. acting in respect of its Compartment German Auto Loans 4

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1 Rating Report Bavarian Sky S.A. acting in respect of its Compartment German Auto Loans 4 Paolo Conti Senior Vice President Global Structured Finance pconti@dbrs.com Matthew Nyong Financial Analyst Global Structured Finance mnyong@dbrs.com Mark Wilder Senior Vice President Global Structured Finance mwilder@dbrs.com Ratings and Issuer s Assets and Liabilities Debt Par Amount 1 Initial Subordination 2 Coupon 3 Rating Rating Action Class A 1,000,000, % One-month Euribor % AAA (sf) Provisional Rating - Finalised Class B 70,000, % NR NA Subordinated Loan 10,700, Initial Amount ( ) Size Asset Portfolio 1,069,999, % Cash % Cash Reserve 4 10,700, % Commingling Reserve Notes: 1 As at the issue date. 2 Subordination is expressed in terms of portfolio overcollateralisation and does not include the reserve. 3 The Class A coupon is subject to a floor at zero. 4 Fully funded on the issue date by the subordinated loan provided from the seller. 5 The commingling reserve will only be funded upon breach of some rating triggers by BMW AG. DBRS Ratings Limited (DBRS) finalised the provisional ratings assigned to the securitisation notes issued by Bavarian Sky S.A. acting in respect of its Compartment German Auto Loans 4 (the issuer), in the context of a securitisation transaction that settled on 20 May 2016 (the transaction). The issuer is a public limited liability company (société anonyme) incorporated under the laws of Luxembourg as a special-purpose entity for the transaction, specifically for the purpose of the transaction. The transaction envisages the issuance of notes backed by a 1.07 billion pool of loan receivables granted to retail and commercial customers (the portfolio) originated in Germany by BMW Bank GmbH (BMW Bank; also the seller or the originator). The Portfolio will be serviced by BMW Bank (also the servicer). Provisional Portfolio Summary Current Aggregate Loan Balance 1,069,999, Asset Class Auto Loans Number of Contracts 61,621 Weighted Average APR 3.85% New / Used 47.61% / 52.39% Asset Governing Jurisdiction Federal Republic of Germany Commercial / Private 28.70% / 71.30% Equal Instalment Loan / Balloon 1.65% / 98.35% Sovereign Rating AAA

2 Rating Report Bavarian Sky S.A. acting in respect of its Compartment German Auto Loans 4 DBRS.COM 2 Table of Contents Ratings and Issuer s Assets and Liabilities 1 Rating Considerations 3 Transaction Structure 4 Origination and Servicing 7 Collateral Summary 7 Rating Analysis 9 Appendix 13 Transaction Parties Role(s) Counterparty Rating Issuer Originator, Seller, Servicer and Subordinate Lender Bavarian Sky S.A. acting in respect of its Compartment German Auto Loans 4 BMW Bank GmbH N.A. Private Rating Servicer s Owner BMW AG (I) A / Positive Back-up Servicer Facilitator Account bank, Paying Agent, Calculation Agent & Interest Determination Agent Structured Finance Management Elavon Financial Services Limited N.A. Private Rating Swap Counterparty Royal Bank of Canada (I)(S) AA/Neg // R-1(high)/Neg Security Trustee and Data Trustee U.S. Bank Trustees Limited N.A. Joint Lead Manager Banco Santander, S.A (S) A(low)/Stable // R-1(low)/Stable (C) A/Stable // R-1(mid)/Stable RAFT Joint Lead Manager Bank of America Merrill Lynch International Ltd Private Rating Co-Manager UniCredit Bank AG Private Rating Co-Manager Bayerische Landesbank N.A. Co-Manager RBC Europe Ltd N.A. Notes: (I) Issuer Rating; (S) Senior or Senior Unsecured Debt Rating; (U) Subordinated Debt Rating; (C) Critical Obligations Rating. Relevant Dates Issue Date 20 May 2016 Portfolio Assignment Date 30 April 2016 Portfolio Valuation Date 30 April 2016 First Payment Date 20 June 2016 Payment Frequency Payment Dates Collection Periods Interest Periods Revolving Period End Date Monthly The first payment date and the 20th calendar day of each month thereafter Each calendar month From the issue date to the first payment date and each monthly period between two consecutive payment dates N.A. Final Maturity Date 20 October 2023

3 Rating Report Bavarian Sky S.A. acting in respect of its Compartment German Auto Loans 4 DBRS.COM 3 Rating Considerations Notes are backed by receivables related to German law auto loans granted for the purchase of new and used vehicles. All the securitised receivables pay fixed interest rate. An interest rate swap based on the Class A Notes outstanding has been put in place to hedge the interest risk existing between the fixed-rate yield of the portfolio and the floating-rate interest payable under the Class A Notes. There is no residual value risk for the issuer. Strengths The originator and servicer is a highly specialised, experienced and financially strong captive auto lender. The securitised pool is static. The amortisation of the Class A Notes will start on the first payment date. The Class A Notes benefit from fully sequential amortisation, and the Class B Notes will not be repaid until full redemption of the Class A Notes. The portfolio is very granular with the provisional pool comprising 61,621 loans with an average outstanding balance of 17,364. Uniform geographical distribution across Germany. The Class A Notes benefit from full trapping of excess that allows all residual funds after the replenishment of the reserve to be used to pay down the notes with no amounts used to pay junior items of the waterfall until their full repayment. The 8 million cash reserve is non-amortising and provides liquidity support to the structure and credit enhancement on the final payment date. Challenges and Mitigating Factors BMW Bank is a deposit-taking financial institution that may hold deposits from securitised borrowers. Upon insolvency of the seller, borrowers may invoke the right to set off their credit against amounts they owe in relation to auto loan contracts even after the assignment of the receivables to the issuer. No specific set-off reserve mechanism is envisaged. Mitigant(s): The transaction eligibility criteria exclude borrowers who hold deposits at transaction closing. Although the eligibility criteria greatly reduce the risk, it is possible that securitised borrowers open and maintain deposits with BMW Bank after their assignment and the indemnification offered is limited to the seller s credit standing. DBRS will consistently monitor the transaction. The servicer receives payments by borrowers on its own accounts and transfers collection on or about each payment date; upon insolvency the issuer s collections may be commingled within the servicer s estate. Mitigant(s): The servicer is financially strong and a commingling reserve will be funded upon the breach of certain triggers of the servicer s holding company, BMW AG.

4 Rating Report Bavarian Sky S.A. acting in respect of its Compartment German Auto Loans 4 DBRS.COM 4 Transaction Structure Transaction summary Currencies Issuer s assets and liabilities are denominated in euros ( ) Relevant Jurisdictions Interest Rate Hedging Loan contracts are ruled by German law. The transaction documents are ruled by German law. The issuer is incorporated under the law of Luxembourg. Interest rate swap in place Issuer Pay: Issuer Receive : Notional: Class A Notes subject to a scheduled maximum Notional: Class A Notes subject to a scheduled maximum -0.37% One-month Euribor Basis Risk Hedging Cash Reserve N.A. Provides liquidity support during the life of the transaction and can be used to pay principal on the Notes at the legal final maturity or when the available funds supplemented by the amounts outstanding to the credit of the cash reserve fund are sufficient to repay the Class A Notes. Initial Amount: 10,700,000 Corresponding to 1.00% of the rated notes Target Amount 10,700,000 Step-up The transaction structure is summarised below: Swap Counterparty Interest Rate Swap Amortisation Bank Account Agreement Account Bank N.A. Does not amortise Trustee Assignment and pledge of Security Servicing Agreement BMW Bank GmbH (Seller and Servicer) Purchase of Receivables Sale Proceeds Collections Bavarian Sky S.A., Compartment German Auto Loans 4 (Issuer) Issue of Notes Principal and Interest Class A Notes Class B Notes Loan Agreement Collections Credit Enhancement Credit Enhancement Funded by Subordinated Loan Debtors Excess Spread Cash Reserve Ledger Subordinated Lender

5 Rating Report Bavarian Sky S.A. acting in respect of its Compartment German Auto Loans 4 DBRS.COM 5 Counterparty Assessment Account Bank Elavon Financial Services Limited, UK Branch (Elavon) is the Account Bank for the transaction. DBRS privately rates Elavon and concluded that it meets DBRS s minimum criteria to act in such capacity. The transaction contains downgrade provisions relating to the account bank consistent with DBRS s criteria. Hedging Counterparties Royal Bank of Canada (RBC) is the hedging counterparty for the transaction. DBRS publically rates RBC s senior debt at AA/R-1(high) with a Negative trend and concluded that it meets DBRS s minimum criteria to act in such capacity. The transaction contains downgrade provisions relating to the hedging counterparty consistent with DBRS s criteria. Servicing of the Portfolio and Collections BMW Bank is the originator and will service the auto loan receivables in accordance with its customary practices. DBRS privately rates BMW Bank and publically rates its ultimate parent company, BMW AG, at A. DBRS concluded that BMW Bank meets DBRS s minimum criteria to act as originator and servicer. Although the documents envisage payment of servicing fees proportional to the aggregate principal balance of the receivables, such fees will not be paid as long as BMW Bank is the servicer. The servicer is mandated by the issuer to collect payments by borrowers and other proceeds related to the receivables (collections). The vast majority of the borrowers pay by direct debit (99.71%) into the servicer s accounts held and maintained in its own name. Each month, prior to each payment date, the servicer remits collections into the issuer s accounts opened and maintained at the account bank. Collections may be further supplemented by payments or indemnifications made by BMW Bank as the transaction originator, seller or servicer, as the case may be, in accordance with the transaction documents. Additional sources of funds available to the issuer are: The liquidity reserve and The net payment when payable by the swap counterparties. The available funds must be disbursed by the issuer, as per the terms of the transaction documents, on specified dates (the payment dates). Funds processed on a given payment date are payments related to a specific monthly period ended prior to the payment date (the collection period) and amounts collected but referred to the following collection period should only be processed on the relevant payment date. The commingling reserve, when funded, does not constitute part of the available funds but is available to the issuer if the servicer fails to transfer collections in whole or in part. Funding of the reserves On or about the issue date BMW Bank, as the subordinated lender, funds the cash reserve. The cash reserve forms part of the available funds on each payment date and may be replenished to its target in accordance with the priority of payments. The reserve does not amortise and provides liquidity support (to pay interest and senior expenses) during the life of the transaction and may also be applied to repay the Class A Notes on the legal maturity or on the payment date when the available funds and the cash reserve are sufficient to repay the notes. The seller will also fund the commingling reserve if the servicer ceases to be fully owned by BMW AG. The reserve is expected to be funded for an amount equal from time to time to the collections made during the previous two collection periods. The servicer can also opt to increase the frequency of the sweeping of collections to every fortnight. In this latter case the commingling reserve is required to be funded only a month of collections. The servicer is required, as the seller, to increase the reserve as required from time to time. The funds standing to the credit of the commingling reserve are not part of the available funds and if the reserve is reduced the relevant amount will be payable back independently from the priority of payments.

6 Rating Report Bavarian Sky S.A. acting in respect of its Compartment German Auto Loans 4 DBRS.COM 6 Priority of Payments The issuer applies all the available funds into a single waterfall. Available funds include: Collections made under the receivables; Proceeds of repurchase of receivables; Interest earned on the issuer s accounts; Net swap payment when payable by the hedging counterparty; The cash reserve. In normal conditions (prior to an Enforcement Event) the applicable waterfall is the Pre-Enforcement Priority of Payments. Pre-Enforcement Priority of Payments: 1. Issuer taxes, fees, costs and expenses (including the transaction counterparties fees, costs and expenses); 2. To pay the swap net flow when payable by the issuer to the swap counterparty (including any swap termination payments due to the swap counterparty except when the swap counterparty is the defaulting party or the sole affected party); 3. Interest on the Class A Notes; 4. Interest on the Class B Notes; 5. Replenish the cash reserve up to its target of 10.7 million; 6. Principal on the Class A Notes, until redeemed in full; 7. Principal on the Class B Notes, until redeemed in full; 8. To pay any amount due to the swap counterparty which is not included in item (2) above; 9. Interest on the subordinated loan; 10. Principal on the subordinated loan; 11. Any other amounts payable to the seller in respect of retained direct debit or tax credit; and 12. Remaining excess to the seller. Following an Enforcement Event the payment priority switches to the Post-Enforcement Priority of Payments. Post-Enforcement Priority of Payments: 1. Issuer taxes, fees, costs and expenses (including the transaction counterparties fees, costs and expenses); 2. To pay the swap net flow when payable by the issuer to the swap counterparty (including any swap termination payments due to the swap counterparty except when the swap counterparty is the defaulting party or the sole affected party); 3. Interest on the Class A Notes; 4. Principal on the Class A Notes, until redeemed in full; 5. Interest on the Class B Notes; 6. Principal on the Class B Notes, until redeemed in full; 7. To pay any amount due to the swap counterparty which is not included in item (2) above; 8. Interest on the subordinated loan; 9. Principal on the subordinated loan; 10. Any other amounts payable to the seller in respect of retained direct debit or tax credit; and 11. Remaining excess to the seller. An Enforcement Event, as defined in the transaction documents, is an event of default of the issuer and actually is aiming to releasing the funds and liquidating the issuer. In particular, an Enforcement Event is envisaged when any payment of interest is missed and not repaired for two business days, other than the situations of illegality and insolvency of the issuer itself. Thus the Post-Enforcement Priority of Payments only applies to scenarios where the issuer is in default, such as insolvency of the Issuer and Issuer default in the payment of the interest on the Notes.

7 Rating Report Bavarian Sky S.A. acting in respect of its Compartment German Auto Loans 4 DBRS.COM 7 Clean-Up Call Option The seller has the option to buy back the residual portfolio at any payment date on which the portfolio outstanding principal is less than 10% of the initial outstanding principal. The aforementioned option is subject to the ability of the issuer to repay the then outstanding notes and pay any outstanding expenses. Origination and Servicing DBRS conducted an updated operational review of BMW Bank s auto financing operation in March 2016 following a review of the lease and auto finance operations in DBRS considers BMW Bank s origination and servicing practices to be consistent with those observed among other auto finance and leasing companies. BMW Bank is a wholly owned subsidiary of BMW AG (the Group). BMW Bank provides financing for the purchase and lease of BMW brands throughout Germany, including MINI, Rolls Royce as well as motorcycles. BMW Bank received its full banking licence from BaFin (the German regulator) in As a regulated bank, BMW Bank holds deposits (a similar approach has been adopted in the United States), and the total deposits from Germany amounted to 8.2 billion at the end of September BMW Bank is headquartered in Munich where all credit, risk management and servicing activities are located. The bank also has branches in Portugal (since 2000), Spain (2009) and Italy (2013). The French operation was integrated as a subsidiary of the bank in The bank also merged with BMW Leasing GmbH in As of the end of September 2015, BMW Bank s German operation included 749 dealerships, with BMW representing 35% of the dealer network, 846 employees and over 613,000 contracts, and the overall portfolio totalled approximately 14.3 billion. DBRS has assigned a private rating to the bank. The public issuer rating for the parent, BMW AG, was confirmed at A in May More information on BMW AG s ratings can be found at Collateral Summary The receivables comprised in the portfolio derive from loans granted to clients for the purpose of purchasing new or used vehicles. Loans granted by BMW Bank are secured by a pledge over the purchased asset where BMW Bank (or its assignees) would be entitled to enforce the sale of the asset in order to offset the related outstanding credit. The right to receive payments from the borrowers and the underlying receivables were assigned to the issuer under the assignment agreement. The receivables arise under fixed interest rate agreements and each instalment comprises interest and principal components (including the optional balloon payment).there are two types of contracts that are included in the collateral pool: (1) standard amortising loans and (2) balloon loans; both envisage equal instalments but the balloon loans have final balloon payment. Payment of the balloon is determined and mandatory for the customer so that there is no residual value risk transferred to the issuer. The transfer price of the receivables is at the principal value of each loan contract at the moment of the assignment, and the principal component for the issuer is the same recognised by the seller and the customers. The financed amount of the loans may include the premium of payment protection insurance (PPI) policies. PPI policies provide relevant payments due under the loans on behalf of borrowers in specific circumstances that may vary from case to case. DBRS has analysed the pool of receivables selected as at 30 April Eligibility Criteria The receivables comprising the collateral portfolio are selected in accordance with eligibility criteria, which are detailed in the transaction documents. The main feature of the eligibility criteria are summarised below: The related auto loan contracts bear fixed interest rate and is fully amortising The contract was originated on or after 1 April 2012 and in ordinary course of business; Is not subject to any right of revocation, set-off or counterclaim or warranty claims of debtors; The debtor of the receivable does not hold deposits with the seller; The related contract has not been terminated (at the time of the assignment);

8 Rating Report Bavarian Sky S.A. acting in respect of its Compartment German Auto Loans 4 DBRS.COM 8 Has a maximum remaining term of 60 months; Has had at least two due loan instalments successfully paid; Is free of any rights of any third party; Is not overdue for more than thirty days (at the time of the assignment); The debtor is not an employee of BMW Bank or an affiliate of BMW AG; The receivables do not exceed any of the following concentration limits: The maximum exposure per debtor is 1 million; Used vehicles concentration may not exceed 60% provided that used vehicles are financed vehicles that were purchased by the borrower 12 months after the date of the first registration. Portfolio Summary DBRS has analysed the Portfolio selected by BMW Bank as at 30 April 2016 (the cut-off date) consisting of 61,621 loans and an aggregate outstanding principal of 1,069,999,877. Provisional Pool Characteristics Current Aggregate Principal Balance ( ) 1,069,999,877 Original Aggregate Principal Balance ( ) 1,266,144,788 Number of Loans 61,621 WA Interest Rate 3.85% Provisional Pool Characteristics (%Aggregate Principal Balance): New / Used 47.61% / 52.39% Commercial / Private / 71.30% Balloon / Equal instalment 98.35% / 1.65% Top 20 Borrowers 0.44% Direct Debit 99.71% Top 5 models BMW 3 Series 16.40% BMW 1 Series 14.19% BMW 5 Series 13.52% MINI 10.25% BMW X1 Series 6.77% Geographic Mix (Top 3 Regions) Post code area [8] 12.87% Post code area [6] 12.67% Post code area [4] 12.24%

9 Rating Report Bavarian Sky S.A. acting in respect of its Compartment German Auto Loans 4 DBRS.COM 9 Original principal balance 18.0% 16.0% 14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% 0.7% , % 5, , Source: BMW Bank GmbH. 16.0% 16.6% 13.9% 12.2% 10.5% 10, , , , , , , , , , % 4.8% 3.4% 2.5% 1.7% 5.1% 35, , , , , , , , , , > 60, Aggregate principal balance 20.0% 18.0% 16.0% 14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% 1.8% , % 5, , % 16.6% 14.6% 12.9% 10, , , , , , , , % 5.6% 3.7% 3.6% 2.6%1.9%1.4% 30, , , , , , , , , , , , > 60, Original Term Remaining Term >53 48 < X <= < X <= < X <= % 0.0% 24 < X <= < X <= 24 6 < X <= 12 0 < X <= 6 0.6% 3.9% 0.1% Source: BMW Bank GmbH. Seasoning >53 48 < X <= < X <= < X <= < X <= < X <= 24 6 < X <= 12 0 < X <= % 20.0% 61.4% 0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% 70.0% 0.0% 0.0% 0.6% 0.9% Source: BMW Bank GmbH. 7.8% 22.2% 30.2% 38.3% 0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0% 35.0% 40.0% 45.0% >53 48 < X <= < X <= < X <= < X <= < X <= 24 6 < X <= 12 0 < X <= 6 BMW 1 Series, BMW 2 Series, BMW 3 Series, BMW 4 Series BMW 5 Series, BMW 6 Series, 0.01 BMW 7 Series, BMW X1 Series, % 6.0% 5.8% 7.8% 4.6% 2.3% 20.9% 46.5% 0.0% 10.0% 20.0% 30.0% 40.0% 50.0% BMW X3 Series, BMW X4 Series, BMW X5 Series, BMW X6 Series, BMW Z Series, MINI, Non BMW Group Models (incl. Motorcycles), Other BMW Group (incl. Motorcycles), Rating Analysis The DBRS rating of the notes addresses the timely payment of interest and full repayment of principal in accordance with the terms of the programme documents and the terms and conditions of the relevant Series Notes. DBRS based the rating primarily on the following: Transaction capital structure, proposed ratings and form and sufficiency of available credit enhancement. Credit enhancement in the form of subordination from, overcollateralisation and a fully funded reserve from the issuance date.

10 Rating Report Bavarian Sky S.A. acting in respect of its Compartment German Auto Loans 4 DBRS.COM 10 Credit enhancement levels are sufficient to support the expected cumulative net loss assumption projected under various stress scenarios at AAA (sf ) standard for the Class A Notes. The ability of the transaction to withstand stressed cash flow assumptions and repay investors according to the terms in 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. BMW s capabilities with regard to originations, underwriting, servicing and the financial strength of the multinational motor company they are a part of. DBRS conducted an operational risk review of BMW s premises in Munich and deems it to be an acceptable servicer. The transaction parties financial strength with regard to their respective roles. The credit quality of the underlying collateral and the ability of BMW to perform collection activities on the collateral. The credit quality and industry diversification of the collateral and historical and projected performance of the seller s portfolio. The sovereign rating of the Federal Republic of Germany, currently at AAA. The transaction s consistency of the 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 BMW Bank. Quarterly gross and net loss data going back to Q and up to Q Monthly arrears data going back to January 2007 and up to December Yearly prepayment data going back to 2007 and up to The data mentioned at the three initial bullets was provided split by finance product and used and new vehicles separately. DBRS was also provided with detailed stratification tables related to the portfolio selected as at 30 April Arrears Data DBRS received the delinquency analysis from January 2007 to December The charts below depict dynamic delinquencies over the entire portfolio, showing the arrears component on the stock averaged over the previous three months. The decline in arrears during is explained by improvements made by BMW Bank in respect of its risk collection strategy that has resulted in an improvement in arrears levels. Since then, BMW delinquency levels remain stable and close to their historical low. Delinquencies 1.0% 0.9% 0.8% 0.7% 0.6% 0.5% 0.4% 0.3% 0.2% 0.1% 0.0% Days Days Days > 120 Days Source: BMW Bank GmbH.

11 Rating Report Bavarian Sky S.A. acting in respect of its Compartment German Auto Loans 4 DBRS.COM 11 Prepayments DBRS received dynamic yearly prepayment from 2007 to 2015 as shown below. Over recent years, prepayment levels have remained stable in a narrow range between 11% and 15%. Prepayments 20% 15% 10% 5% 0% Source: BMW Bank GmbH. Dynamic and Net Loss Data DBRS received quarterly Gross Loss and CNL data per product type, with a further split into used and new vehicles. CNL for amortising and balloon loans are pictured below. Total Portfolio: Net Loss Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q4 Average Average + 1 STDEV Source: BMW Bank GmbH. The definition applied for a default is the termination and write-off of the loan contract in accordance with what is envisaged in the transaction documents. The practice and general operations of the originator envisage that each loan is immediately written off following the sale of the vehicle as soon as is practicable after termination. Late recoveries are then taken into consideration. Separate recovery data was not provided and DBRS identified recovery assumptions from the net loss data based on conservative assumptions derived from sector-specific data.

12 Rating Report Bavarian Sky S.A. acting in respect of its Compartment German Auto Loans 4 DBRS.COM 12 Summary of the Cash Flow Scenarios DBRS undertook a cash flow analysis to ensure timely payment of interest and full payment of principal by the Legal Final Maturity Date at the assigned rating level. The DBRS cash flow model assumptions focused on the amount and timing of defaults and recoveries, prepayment speeds and interest rates. Based on a combination of these assumptions, a total of 24 cash flow scenarios were applied to test the performance of the notes. Base Case Default and recovery Theexpected base case default was calculated as a weighted-average sum of sector-specific adjusted defaults and is approximately 2.40%. DBRS was not provided with separate recoveries information; however, based on historical performance reported for similar assets securitised in existing transactions in Germany, conservative recovery assumption was defined with a three-month recovery lag. Recoveries can also be calculated from Net and Gross Loss figures provided. The expected recovery rate was calculated by averaging the projected recoveries of the various portfolio components and is approximately 60.0%. The average recovery time lag is assumed to be three months. Based on the above, DBRS s base-case (net) loss assumption was set at 0.96%. Prepayment Speeds and Prepayment Stress Four prepayment speeds scenarios have been assumed and range from 0% to 20%. Interest Rate Stresses DBRS applied its standard interest rate stresses as detailed in its Unified Interest Rate Model Methodology for European Securitisations methodology. Timing of Defaults DBRS estimated the default timing patterns and created base, front- and back-loaded default curves. The weighted-average life of the collateral portfolio is expected to be about three years and the front-loaded, base and back-loaded default distributions are listed below. Year Mid Front Back 1 20% 25% 20% 2 35% 50% 30% 3 25% 25% 50% 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 rating. Class A Increase in Default Rate % Increase in LGD Loss % 0 AAA AAA AAA 25 AAA AAA AAA 50 AAA AAA AA(high)

13 Rating Report Bavarian Sky S.A. acting in respect of its Compartment German Auto Loans 4 DBRS.COM 13 Appendix Origination & Underwriting Origination and Sourcing As BMW Bank is the financing arm of the Group in Germany, it is the chief provider of auto financing for BMW and affiliate brands. Monthly origination volumes for new leases reached their peak in 2008 and activity began to rebound in January Through 2015, BMW Bank received approximately 304,000 applications with finance and lease contract conversion rates of 77% and 75%, respectively. The lease conversion rate is down from the 79% average in previous years. Marketing activities are handled primarily through dealers with support from BMW Bank and BMW Financial Services. BMW Bank currently works with 268 dealerships groups with 747 individual dealer outlets with oversight by 23 area managers. There are four area managers to cover Multi-Make dealers which total 481 dealership groups with 512 individual dealer outlets and each area has at least one business manager for motorcycles, an insurance expert and training manager. In addition to the traditional lease products, BMW Bank offers a variety of loan products, including Balloon and Basic Loan. Balloon contracts remain very popular in Germany and represent a significant proportion of contracts in the transaction. Pricing is set centrally at BMW Bank s headquarters, and risk management is involved in developing all new products. The bank also has a range of loyalty schemes for financing and leasing products. Underwriting Process All underwriting activities at BMW Bank are appropriately segregated from marketing and sales. BMW adheres to standard identity and income verification practices including collection of pay slips and tax returns while identity cards, proof of address and utility bills are reviewed. National credit bureau data - Schufa for individuals and Credinfo for corporates - is also assessed and incorporated into the automated scoring models. Applications are analysed through one of five BMW scorecards that assign a rating of 1-6, mapped to a probability of default (PD) level based on the customer type and credit bureau used. The bank has standard service-level agreements (SLA) for the sales network which define the timeframes from inquiry to answer and from documentation receipt and disbursement. SLA s require 15 minutes for auto-decisioning although BMW Bank generally completes the process in less than three minutes. Over the last few years, the percentage of applications subject to automatic decisioning has remained stable at around 55%. The automated application and decisioning process was reviewed and approved by BaFin in The following table shows the approval limits for non-risk and risk-relevant applications requiring manual underwriting and the level of cost of risk taken into account in determining the approval competency. The automatic approval via the scoring system is also dependent on the rating and risk cost ratio. Additional credit risk approval is required for riskier contracts and specifically for those with an exposure over 250,000 or a cost of risk over 7,000. Approving Party Cost of Risk Exposure If exposure under 250,000 (Non-risk) Scoring system Max 7,000 Max 250k Junior Credit Analyst Max 3,000 Max 250k Supervisor/Team leader/head of Application Department Max 7,000 Max 250k Supervisor/Team leader/head of Application Department + Credit Risk Analyst More than 7,000 Max 250k If exposure above 250,000: (Risk relevant) Supervisor/Team leader/head of Application Department + Credit Risk Analyst Up to 2m Supervisor/Team leader/head of Application Department + Team Leader Credit Up to 4m Supervisor/Team leader/head of Application Department + Head of Credit Up to 8m COO + CFO More than 8m The credit risk management department is responsible for underwriting, scorecard development and maintenance. Credit risk analysts average six years experience.

14 Rating Report Bavarian Sky S.A. acting in respect of its Compartment German Auto Loans 4 DBRS.COM 14 Summary strengths Strong global brands with good reputation and luxury element (BMW, MINI) help cushion the bank from the effects of the global recession. Good penetration rate of approximately 42%. Use of credit scoring model with manageable automatic decisioning (54%). Large dealer network across Germany and well-managed including 268 dealer groups overseen by 23 area managers. Centralised credit and risk management functions in Munich. Servicing Servicing begins during the final stages of initial financing with the customer services department reviewing all borrower documents and credit terms including interest rates, loan maturity, insurance and prepayment terms. Nearly all payments are made via direct debit (99%) and have monthly payment frequencies. Servicing is centralised in Munich with a staff of 45 split into three teams including a dedicated quality assurance function and collections team. Approximately 20% of the collections staff have over 14 years experience. The arrears management process is heavily automated and benefits from a workflow system introduced in BMW also employs behavioural scoring which is used to classify arrears cases and set the appropriate strategy. Since 2009, the overall delinquency rate including cases over 120 days has fallen from 1% to 0.22% in 2015, remaining stable since BMW uses dialler technology, linked with the behavioural scoring system, for outbound calling campaigns and initial telephone contactis generally started ten days after themissed payment date and following the second direct debit failure. More personalised borrower contact is initiated for high risk and high amount customers although this only applies to approximately five cases per month. In Germany, loans and leases are classified as defaulted when the contract is formally terminated by the lender. The termination date depends on the borrower type with contracts to individuals typically terminated at the days past due mark and the arrears balance is 5-10% of the contract amount. Corporate contracts are terminated after the second missed payment. BMW averages about ten contact attempts per customer prior to contract termination and will try to execute a voluntary repossession of the vehicle for large contracts. While legal collections including repossession are initiated after termination, approximately 15% of terminated cases return to performing status illustrating BMW s success at managing defaulted accounts through extra-judicial means and viewing repossession as the last resort. All repossessed vehicles are sold through one of two auction houses used by BMW and prior to 2007 dealers were involved in the repossession and sale process. BMW averages approximately 60 days from repossession to auction sale. As all contracts are full recourse to the borrower, payment arrangements for the residual value ranging from months are agreed with the customer. Summary strengths Majority of payments made via direct debit (>99%). Low default rate and stabilised recovery rates. Active early arrears management processes including dialler technology for outbound calling, and behavioural scoring technology used to set strategies. Opinion on Back-Up Servicer: No back-up servicer on the BMW securitisations. DBRS believes that BMW Banks s current financial condition mitigates the risk of a potential disruption in servicing following a servicer event of default including insolvency.

15 Rating Report Bavarian Sky S.A. acting in respect of its Compartment German Auto Loans 4 DBRS.COM 15 Methodologies Applied The principal methodology applicable to assign ratings to the above referenced transaction is Rating European Consumer and Commercial Asset-Backed Securitisations (1 October 2015). Other methodologies referenced in this transaction are listed below. Legal Criteria for European Structured Finance Transactions (19 February 2016); Derivative Criteria for European Structured Finance Transactions (19 February 2016) Operational Risk Assessment for European Structured Finance Servicers (31 December 2015); (15 December 2015). The rating methodologies and criteria used in the analysis of this transaction can be found at: methodologies. Alternatively, please contact info@dbrs.com. Surveillance Methodology The transaction is monitored by DBRS in accordance with its Master European Structured Finance Surveillance Methodology (6 April 2016), which is available at under Methodologies. Alternatively, please contact info@dbrs.com. Notes: All figures are euros unless otherwise noted. This report is based on information as of 18 April 2016, unless otherwise noted. Subsequent information may result in material changes to the rating assigned herein and/or the contents of this report. 2016, DBRS Limited, DBRS, Inc. and DBRS Ratings Limited (collectively, DBRS). All rights reserved. The information upon which DBRS ratings and reports are based is obtained by DBRS from sources DBRS believes to be reliable. DBRS does not audit the information it receives in connection with the rating process, and it does not and cannot independently verify that information in every instance. The extent of any factual investigation or independent verification depends on facts and circumstances. DBRS ratings, reports and any other information provided by DBRS are provided as is and without representation or warranty of any kind. DBRS hereby disclaims any representation or warranty, express or implied, as to the accuracy, timeliness, completeness, merchantability, fitness for any particular purpose or non-infringement of any of such information. In no event shall DBRS or its directors, officers, employees, independent contractors, agents and representatives (collectively, DBRS Representatives) be liable (1) for any inaccuracy, delay, loss of data, interruption in service, error or omission or for any damages resulting therefrom, or (2) for any direct, indirect, incidental, special, compensatory or consequential damages arising from any use of ratings and rating reports or arising from any error (negligent or otherwise) or other circumstance or contingency within or outside the control of DBRS or any DBRS Representative, in connection with or related to obtaining, collecting, compiling, analyzing, interpreting, communicating, publishing or delivering any such information. Ratings and other opinions issued by DBRS are, and must be construed solely as, statements of opinion and not statements of fact as to credit worthiness or recommendations to purchase, sell or hold any securities. A report providing a DBRS rating is neither a prospectus nor a substitute for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the securities. DBRS receives compensation for its rating activities from issuers, insurers, guarantors and/or underwriters of debt securities for assigning ratings and from subscribers to its website. DBRS is not responsible for the content or operation of third party websites accessed through hypertext or other computer links and DBRS shall have no liability to any person or entity for the use of such third party websites. This publication may not be reproduced, retransmitted or distributed in any form without the prior written consent of DBRS. ALL DBRS RATINGS ARE SUBJECT TO DISCLAIMERS AND CERTAIN LIMITATIONS. PLEASE READ THESE DISCLAIMERS AND LIMITATIONS AT ADDITIONAL INFORMATION REGARDING DBRS RATINGS, INCLUDING DEFINITIONS, POLICIES AND METHODOLOGIES, ARE AVAILABLE ON