Fitch Ratings has affirmed the ratings of Driver China nine Trust's auto loan-backed fixed-rate notes.

The issuance consists of notes backed by Chinese automotive loan receivables originated by Volkswagen Finance (China) Co., Ltd. (VWFC), which is indirectly wholly owned by Volkswagen AG (A-/Stable/F1).

RATING ACTIONS

Entity / Debt

Rating

Prior

Driver China nine Trust

A CNM100004K11

LT

AA+sf

Affirmed

AA+sf

Page

of 1

VIEW ADDITIONAL RATING DETAILS

KEY RATING DRIVERS

Obligor Default Risk within Expectation (Positive): Driver China nine Trust had a cumulative default rate of 0.54% as of the end-March 2022 reporting period, 29 months after closing. This was lower than our assumption of 1.5% cumulative life-time base-case default at closing. The asset performance was resilient amid the Covid-19 pandemic with no material deterioration during this period nor significant hardship support requested from borrowers.

The transaction entered into an amortisation period in December 2020 after a 12-month revolving period. The pool factor of the transaction was at 13.9% as of the end-March 2022 reporting period.

Sequential Structure Aids CE Build-Up (Positive): Driver China nine Trust is following sequential payment structure, as the target overcollateralisation (OC) levels are met for class A notes and aggregate discounted receivables balance is less than 10% of the aggregated cut-off date balance, including additional purchase. The target OC for class A notes if no triggers are breached is 24%. At end-March 2022, the credit enhancement (CE) for class A notes was 36.1%, increased from 10.5% since closing.

Counterparty Risks, Rating Cap (Neutral): There have been no changes to the counterparties since the closing of the transaction. The rating of the account bank, China Construction Bank Corporation (A/Stable/F1+), have not breached the account bank replacement triggers.

The transaction has structural mechanisms that ensure remedial action takes place should the account bank's rating fall below Fitch's rating of 'A-' and 'F1'. Fitch uses the rating of the servicer's ultimate parent, Volkswagen AG, as a reference rating for servicer counterparty assessment for commingling risk. The rating threshold and conditions for replacement of the account bank can only support ratings up to 'AA+sf'.

Servicer, Operational Risks (Neutral): Fitch found that the operation, underwriting, risk management, and servicing procedures are comparable with those of other auto finance companies. The transaction has a cash-collateral account to mitigate potential payment-interruption risk, covering around 18.5 months of senior fees and interests. This mitigates the lack of a back-up servicer being named at closing. The servicing and collection has not been significantly affected by recent Covid-related lockdowns in various cities in China, based on discussions with the servicer.

Economic Growth Tampered (Negative): Fitch forecasts that China's GDP will expand by a lacklustre 4.3% in 2022, and periodic travel restrictions and lockdowns will probably result in volatility in borrowers' incomes. However, the negative effect on asset performance is offset by a low pool factor, satisfactory performance and CE built-up when the notes pay down, providing significant buffers to any further potential asset deterioration.

RATING SENSITIVITIES

Factors that could, individually or collectively, lead to negative rating action/downgrade:

An unexpected significant increase in default rates could result in a negative rating action. However, we consider the prospects of downgrades as remote in light of the stable asset performance and CE buffers.

Factors that could, individually or collectively, lead to positive rating action/upgrade:

We envisage remedial action will take place in the event the account bank's ratings fall below a Fitch rating of 'A-' and 'F1'. Notwithstanding the asset performance and CE accumulation, the materiality of the counterparty dependency limits the ratings at 'AA+sf'.

Best/Worst Case Rating Scenario

International scale credit ratings of Structured Finance transactions have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of seven notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of seven notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAAsf' to 'Dsf'. Best- and worst-case scenario credit ratings are based on historical performance. For more information about the methodology used to determine sector-specific best- and worst-case scenario credit ratings, visit https://www.fitchratings.com/site/re/10111579.

USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10

Form ABS Due Diligence-15E was not provided to, or reviewed by, Fitch in relation to this rating action.

DATA ADEQUACY

Fitch has checked the consistency and plausibility of the information it has received about the performance of the asset pool and the transaction. Fitch has not reviewed the results of any third-party assessment of the asset portfolio information or conducted a review of origination files as part of its ongoing monitoring.

Prior to the transaction closing, Fitch reviewed the results of a third-party assessment conducted on the asset portfolio information and concluded that there were no findings that affected the rating analysis.

Prior to the transaction closing, Fitch conducted a review of a small targeted sample of the originator's origination files and found the information contained in the reviewed files to be adequately consistent with the originator's policies and practices and the other information provided to the agency about the asset portfolio.

Overall, and together with any assumptions referred to above, Fitch's assessment of the information relied upon for the agency's rating analysis, according to its applicable rating methodologies, indicates that it is adequately reliable.

REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING

The principal sources of information used in the analysis are described in the Applicable Criteria.

The issuer has informed Fitch that not all relevant underlying information used in the analysis of the rated notes is public.

ESG Considerations

Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg

Additional information is available on www.fitchratings.com

PARTICIPATION STATUS

The rated entity (and/or its agents) or, in the case of structured finance, one or more of the transaction parties participated in the rating process except that the following issuer(s), if any, did not participate in the rating process, or provide additional information, beyond the issuer's available public disclosure.

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