Hogan Lovells advises on first UK automotive STS deals, following success in European asset backed securities market

25 April 2019 –The international law firm Hogan Lovells has advised Volkswagen Financial Services (UK) Limited in the first STS verifications by Prime Collateralised Securities (UK) Limited (PCS) of UK automotive deals in respect of its GBP 10,000,000,000 Driver UK Master C2 Programme and its GBP 2,000,000 Driver UK Master C3 Programme. The firm has also recently completed VCL 28, where it advised Volkswagen Leasing GmbH in the first public STS securitization transaction in the European asset backed securities market.

The UK transactions were led by London based partner Julian Craughan and Frankfurt based partner Sven Brandt, and are expected to close on 28 May 2019.

The transactions have been amended to comply with the criteria for simple, transparent and standardized (STS) securitization transactions under the Securitisation Regulation (Regulation (EU) 2017/2402) which has applied since 1 January 2019. STS has been introduced in the context of the establishment of the Capital Markets Union with the aim of revitalizing the European securitization market. Compliance of the STS criteria was verified in draft form by PCS which has been admitted as verification entity by the FCA only recently.

In common with many other UK automotive ABS deals, the transactions include a high level of exposure to vehicle residual values. This is a function of the use of PCP contracts on UK consumer vehicle financings. The UK consumer credit regime also allows consumers to return their vehicle without penalty if they have paid half of the financing. These features of the underlying financing market have the potential to cause difficulty under the STS criteria because they do not allow predominant reliance on residual values. To address this concern, Volkswagen Financial Services UK (VWFSUK) will enter into a repurchase agreement to mitigate the exposure of the transaction to residual value risk.

"We are delighted to have supported VWFS on this UK STS designated automotive ABS transaction which is a first for the market and the company in the UK." said Julian Craughan, lead partner advising VWFS in London.

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