OREANDA-NEWS. Fitch Ratings has affirmed Bavarian Sky Europe S.A., Compartment 1 Switzerland's CHF220.5m class A notes at 'AAAsf' with Stable Outlook.

The transaction is a securitisation of lease receivables originated in Switzerland by BMW (Schweiz) AG (BMWS) and associated residual value (RV) claims. The originator is a wholly-owned subsidiary of BMW AG. The leases are granted to Swiss commercial and private customers.

KEY RATING DRIVERS
The affirmation reflects the transaction's stable performance since our last review, in line with Fitch's expectations.

The transaction features a three-year revolving period. Thus, it will continue replenishing until May 2016 unless early amortisation is triggered. In Fitch's view, the early amortisation triggers, together with replenishment criteria, protect the transaction from performance deterioration.

To capture potential pool deterioration over the revolving period, Fitch constructed a worst-case portfolio subject to the underlying pool at closing and the replenishing criteria. The current portfolio composition as of the January 2016 payment date is commensurate with the replenishing criteria.

The rated notes benefit from credit enhancement consisting of overcollateralisation through subordination (26.5%) and a non-amortising reserve fund (1%). Credit enhancement has not changed during the revolving period. Additionally, the transaction benefits from substantial excess spread that has been sufficient to cover defaults so far.

The transaction also securitises the RV. This component of the leases is currently 57% of the outstanding balance and could increase up to 60% during the revolving period. The share of RV claims could further increase during the amortisation phase as the RV is only due at maturity. RV risk would only transfer to the issuer if the car dealers who are committed to repurchase the vehicle at an agreed price default. At closing, leases were originated through about 90 BMWS-franchised dealers, with significant dealer concentration. As of January 2016 payment date, the top 20 dealers (by RV exposure) accounted for 45.7% of the total RV.

RATING SENSITIVITIES
Expected impact upon the note rating of increased defaults and decreased recoveries:

Current rating for class A: 'AAAsf'
Increase base case defaults by 25%: 'AA+sf'; decrease recoveries by 25%: 'AA+sf'

DUE DILIGENCE USAGE
No third party due diligence was provided or reviewed 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. There were no findings that were material to this analysis. 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's closing, Fitch reviewed the results of a third party assessment conducted on the asset portfolio information, which indicated no adverse findings material to the rating analysis. Further, 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, 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.