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Bavarian Sky French Auto Leases 4 -- Moody's assigns definitive ratings to ABS issued by Bavarian Sky French Auto Leases 4

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Rating Action: Moody's assigns definitive ratings to ABS issued by Bavarian Sky French Auto Leases 4Global Credit Research - 20 Apr 2021EUR 505.9 million ABS notes rated, relating to a portfolio of French auto leasesMadrid, April 20, 2021 -- Moody's Investors Service ("Moody's") has assigned the following definitive ratings to Notes issued by Bavarian Sky French Auto Leases 4:....EUR 450M Class A Floating Rate Notes due April 2029, Definitive Rating Assigned Aaa (sf)....EUR 55.9M Class B Fixed Rate Notes due April 2029, Definitive Rating Assigned Aa3 (sf)Moody's has not assigned a rating to the Class C Fixed Rate Notes due April 2029 amounting to EUR 82.3M.RATINGS RATIONALEThe Notes are backed by a static pool of French auto lease receivables and residual value receivables originated by BMW Finance S.N.C. This represents the fourth public securitization of BMW Finance S.N.C.The portfolio of assets amount to approximately EUR 588.2M as of the pool cut-off date 31 March 2021. The reserve fund will be funded to 0.5% of the total Notes balance at closing and the credit enhancement provided by subordination for the Class A Notes will be 23.5%.The ratings are primarily based on the credit quality of the portfolio, the structural features of the transaction and its legal integrity.According to Moody's, the transaction benefits from credit strengths such as the granularity of the portfolio, a conditional RV guarantee, financial strength of the originator's ultimate parent and stable historical performance. However, Moody's notes that the transaction features some credit weaknesses such as residual value risk and commingling risk. Various mitigants have been put in place in the transaction structure, such as credit enhancement and a Conditional RV Guarantee to cover residual value risk, and a reserve to be funded upon rating trigger breach of Bayerische Motoren Werke Aktiengesellschaft ("BMW AG") (A2/P-1, Stable outlook) to mitigate commingling risk. Commingling risk is also mitigated by automatic lessee and dealer notification in case of a servicer insolvency.The portfolio consists of lease agreements and the related residual values (RV) receivables. Lease contracts are distributed through BMW and MINI auto dealers in France. These lease contracts finance new cars (86.43%) and used cars (13.57%) to private customers (76.30%), commercial customers (16.43%), and self-employed (7.27%). As at 31 March 2021, the portfolio consists of 23,007 contracts with a weighted average seasoning of 8.9 months.We have received a breakdown of vehicles by engine type and emission standard. A high percentage of the portfolio (86.76%) adhere to Euro 6 standards. Diesel cars have a share of 38.00% of the outstanding portfolio balance, petrol cars 45.09%, and AFVs/ Hybrids 15.42%.Portfolio cash flows result from fixed lease instalment cash flows (41.7%) and residual value ("RV") cash flows (58.3%). If obligors choose to return the vehicle at contract maturity and the contract does not have a related dealer buy-back agreement that guarantees the RV cash flow (80.83% of the lease contracts), RV cash flows come from the sale of the car and are subject to market value fluctuations. However, the seller guarantees to repurchase the RV cash flows at the securitized value if a specified performance trigger event is hit ("the Conditional RV Guarantee").Moody's determined the portfolio lifetime expected defaults of 2.4%, expected recoveries of 50.0% and Aaa portfolio credit enhancement ("PCE") of 8.5% related to the lease receivables. The expected defaults and recoveries capture our expectations of performance considering the current economic outlook, while the PCE captures the loss we expect the portfolio to suffer in the event of a severe recession scenario. Expected defaults and PCE are parameters used by Moody's to calibrate its lognormal portfolio loss distribution curve and to associate a probability with each potential future loss scenario in the ABSROM cash flow model to rate Auto ABS.Portfolio expected defaults of 2.4% are lower than the EMEA Auto Loan ABS average and are based on Moody's assessment of the lifetime expectation for the pool taking into account (i) historic performance of the book of the originator; (ii) benchmark transactions, and (iii) other qualitative considerations.Portfolio expected recoveries of 50.0% are higher than the EMEA Auto Loan ABS average and are based on Moody's assessment of the lifetime expectation for the pool taking into account (i) historic performance of the book of the originator; (ii) benchmark transactions, and (iii) other qualitative considerations.PCE of 8.5% is lower than the EMEA Auto Loan ABS average and is based on Moody's assessment of the pool which is mainly driven by (i) the historical performance; (ii) strength of the originator, and (iii) the relative ranking to originator peers in the EMEA auto loan market. The PCE level of 8.5% results in an implied coefficient of variation ("CoV") of 59.2%.Moody's determined the Aaa RV CE of 20.1% to account for the residual value market risk taking into account the conditional RV guarantee provided by the seller and the dealer buy-back guarantees for 19.17% of the pool. RV CE captures additional portfolio losses which would arise on the securitised RV receivables following a decline in the market prices of used cars in a severe recession environment in case payments from the guarantor are not available (e.g. originator insolvency). The contracts permit lessees to return their vehicle at the end of the lease in lieu of the final payment, which is not a default and thus is not captured in the loss assumptions for the lease receivables described in the previous section. The sum of the RV CE and the credit enhancement for the lessee receivables, as described above, determines the total credit enhancement that is needed to be consistent with each Note's rating.In deriving the RV CE, Moody's assumes a haircut to the portfolios forecasted used car prices of 41.5% for the Aaa (sf) rated Notes taking into account (i) robustness of RV setting; (ii) good track record of car sales, and (iii) comparatively low diversification of brands in the RV portfolio. The haircut is lower than the EMEA Auto ABS average and is based on Moody's assessment of the pool which is mainly driven by: (i) the originator's quality to set residual values; (ii) the financial strength of the manufacturer, and (iii) portfolio composition.For the Aa3 (sf) rated Notes, the haircut assumption is 30.0%, while the RV analysis results in a residual value credit enhancement (RV CE) of 13.3%.CURRENT ECONOMIC UNCERTAINTY:The coronavirus pandemic has had a significant impact on economic activity. Although global economies have shown a remarkable degree of resilience to date and are returning to growth, the uneven effects on individual businesses, sectors and regions will continue throughout 2021 and will endure as a challenge to the world's economies well beyond the end of the year. While persistent virus fears remain the main risk for a recovery in demand, the economy will recover faster if vaccines and further fiscal and monetary policy responses bring forward a normalization of activity. As a result, there is a heightened degree of uncertainty around our forecasts. Our analysis has considered the effect on the performance of consumer assets from a gradual and unbalanced recovery in French economic activity.We regard the coronavirus outbreak as a social risk under our ESG framework, given the substantial implications for public health and safety.The principal methodology used in these ratings was "Moody's Global Approach to Rating Auto Loan- and Lease-Backed ABS" published in December 2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBS_1202515. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.Factors that would lead to an upgrade or downgrade of the ratings:Factors that would lead to an upgrade of the Class B Notes rating include a significantly better than expected performance of the pool.Factors that may cause a downgrade of the Class A and B Notes ratings include a decline in the overall performance of the pool or a significant deterioration of the credit profile of the originator's parent, BMW AG (A2/P-1).REGULATORY DISCLOSURESFor further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.The analysis relies on an assessment of collateral characteristics to determine the collateral loss distribution, that is, the function that correlates to an assumption about the likelihood of occurrence to each level of possible losses in the collateral. As a second step, Moody's evaluates each possible collateral loss scenario using a model that replicates the relevant structural features to derive payments and therefore the ultimate potential losses for each rated instrument. The loss a rated instrument incurs in each collateral loss scenario, weighted by assumptions about the likelihood of events in that scenario occurring, results in the expected loss of the rated instrument.Moody's quantitative analysis entails an evaluation of scenarios that stress factors contributing to sensitivity of ratings and take into account the likelihood of severe collateral losses or impaired cash flows. Moody's weights the impact on the rated instruments based on its assumptions of the likelihood of the events in such scenarios occurring.For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.These ratings are solicited. . Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1243406.At least one ESG consideration was material to the credit rating action(s) announced and described above.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating. Juan Miguel Martin-Abde Asst Vice President - Analyst Structured Finance Group Moody's Investors Service Espana, S.A. Calle Principe de Vergara, 131, 6 Planta Madrid 28002 Spain JOURNALISTS: 44 20 7772 5456 Client Service: 44 20 7772 5454 Armin Krapf VP - Senior Credit Officer Structured Finance Group JOURNALISTS: 44 20 7772 5456 Client Service: 44 20 7772 5454 Releasing Office: Moody's Investors Service Espana, S.A. 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