July 15 (Reuters) - (The following statement was released by the rating agency)
Fitch Ratings has affirmed Bavarian Sky S.A., Compartment No. 3's notes, as follows:
EUR769.6m class A notes (XS0789919767): affirmed at 'AAAsf'; Stable Outlook
EUR30.4m class B notes (XS0789930145): affirmed at 'AA-sf'; Stable Outlook
KEY RATING DRIVERS
The affirmation reflects the transaction's stable performance, which is better than Fitch's expectations. According to the investor report as of 9 July 2013, the observed cumulative default rate since closing in July 2012 is 0.06%, while the reported loss rate to date is 0.04%.
The transaction benefits from substantial excess spread that exceeds the realised losses.
The deal has been revolving since closing. Therefore the current credit enhancement levels are equal to the initial ones. So far, no early amortisation event has occurred. The replenishment period will end on 15 August 2013, after which the transaction will begin amortising. There have been no significant changes in portfolio composition since closing.
Recent developments in the legal environment of the consumer leasing business in Germany have cast doubt on whether lease receivables arising from private vehicle leasing contracts with kilometre settlement originated on 11 June 2010 or later have been eligible for sale and transfer from BMW Bank GmbH (not rated; the seller) to the issuer. A recent decision of the Higher Regional Court of Duesseldorf has given rise to a risk that lessees have an unconditional right to withdraw from this type of private leasing contracts.
In an effort to address this legal uncertainty regarding the eligibility of receivables, BMW Bank has taken the decision to no longer sell to the issuer any lease receivables arising from private leasing contracts. Furthermore, it has repurchased from the issuer all receivables arising from ongoing private leasing contracts that have been sold so far with effect from 15 July 2013 (this portion made up EUR123.4m, or 15.4% of the initial pool volume).
As a result, EUR169.7m (which includes the repurchased amount, as well as scheduled principal repayments and prepayments during the last reporting period) was deposited in the replenishment fund and not used to purchase new receivables.
At the end of the revolving period, this amount will be distributed to the investors along with other portions of the then available distribution amount in accordance with the priority of payments, ie this amount will be used to redeem the class A notes.
The replenishment fund is at the issuer account bank, BNP Paribas Securities Services, Frankfurt Branch (A+/Stable/F1+), which is an eligible bank in line with Fitch's counterparty criteria. According to the criteria, excessive counterparty exposure is considered over a long term, ie more than 12 months.
This is not the case here, as the money will be held at the eligible account bank for roughly a month and will then be paid to class A investors. Therefore, this situation has no rating impact. Moreover, as a result of this redemption payment, the transaction will amortise faster and credit enhancement will build up rapidly.
RATING SENSITIVITIES
The transaction is sensitive to unexpected performance deterioration in the underlying portfolio.
Fitch expects the transaction to amortise swiftly and credit enhancement to build up, given the pool's relatively short weighted average remaining term (currently 22 months), the strictly sequential amortisation of the notes, as well as the fact that a large class A redemption amount is expected on the next payment date in August 2013.
The agency therefore expects the increase in credit enhancement to compensate any potential increase in portfolio losses. This is reflected by the Stable Outlook on both notes.
The transaction is a securitisation of German auto lease receivables originated by BMW Bank, a wholly owned subsidiary of BMW AG. The lease contracts were granted to commercial (83.5% of pool at closing) and private (16.5% of pool at closing) customers. The transaction refinances lease instalments only; residual values were not transferred to the issuer. The transaction has a 12-month revolving period which ends on 15 August 2013.