OREANDA-NEWS. S&P Global Ratings today raised to 'AA+ (sf)' from 'A+ (sf)' and removed from CreditWatch positive its credit rating on VCL Multi-Compartment S. A., Compartment VCL 20's class B notes. At the same time, we have affirmed our 'AAA (sf)' rating on the class A notes (see list below). Today's rating actions follow our review of the transaction's performance since closing in October 2014 and the application of our criteria (see "Related Criteria").

On May 10, 2016, we placed on CreditWatch positive our rating on the class B notes due to improved performance and increased credit enhancement (see "Ratings On Five German VW Auto ABS Transactions' Class B Notes Placed On CreditWatch Positive Due To Performance").

We have analyzed credit risk under our European auto asset-backed securities (ABS) criteria, using the transaction's historical net loss data (see "Methodology And Assumptions For European Auto ABS," published on Oct. 15, 2015). The data show that the default level is lower than our expectations at closing. In our base-case scenario, we forecast that Germany will record GDP growth of 1.7% in 2016, 1.5% in 2017, and 1.4% in 2018, compared with 1.5% in 2015. At the same time, we expect unemployment rates to stabilize at historically low levels. We have therefore lowered our net loss base-case assumptions. We have also adjusted our recovery assumptions in line with other recent German auto loan and leasing ABS deals issued by Volkswagen Bank GmbH and Volkswagen Leasing GmbH.

The available credit enhancement for the class A and B notes has increased since closing. This is because the notes have amortized sequentially until they reached their overcollateralization targets (12.25% for the class A notes and 7.5% for the class B notes). Once the transaction reached these targets, the issuer began paying principal pro rata to the class A and B noteholders.

We also believe that the buildup of credit enhancement through deleveraging is likely to outweigh any potential negative effect on collateral performance caused by the emission manipulations.

We believe that Volkswagen AG's (VW) admission on Sept. 22, 2015, that it installed software designed to manipulate diesel engine exhaust emissions in relation to nitrogen oxides (NOx) in 11 million passenger cars and commercial vehicles could ultimately affect the transaction in a number of areas: potential declines in the realization proceeds if borrowers/lessees default, potential dilution of the receivables backing the transaction as a result of vehicle owner claims against VW, and potential increase in the operational risk associated with VW. Based on VW's public announcements, we assume that the proposed remediation actions will not result in a change to the fuel economy figures, performance figures, or CO2 or noise emissions, and that the vehicles will remain roadworthy until and after a recall. Hence, based on the currently available information, we do not assume potential dilution of the receivables backing the transaction as a result of vehicle owner claims against the seller.

As a result of our revised net loss expectations, revised recovery rate assumptions, and the transaction's increased credit enhancement, we have raised to 'AA+ (sf)' from 'A+ (sf)' and removed from CreditWatch positive our rating on the class B notes. At the same time, we have affirmed our 'AAA (sf)' rating on the class A notes because we consider that the available credit enhancement is commensurate with the currently assigned rating.

Our counterparty, operational, and legal risk analysis remains unchanged since closing.

VCL 20's notes are backed by a portfolio of German auto lease receivables, which Volkswagen Leasing GmbH originated to its mostly commercial retail customer base in the ordinary course of its business.