DBRS Takes Rating Action on Cars Alliance Auto Loans Italy 2015 S.r.l. Following Transaction Restructuring

DBRS Ratings Limited (DBRS) downgraded its rating on the Class A Notes issued by Cars Alliance Auto Loans Italy 2015 S.r.l. to AA (sf) from AAA (sf) following a full review of the transaction and considering a transaction restructuring (the Amendment):

The above-mentioned rating action is based on the following analytical considerations:
-- The Amendment to the transaction becoming effective on 9 May 2018;
-- Updated base case assumptions considering the most recent vintage data received;
-- The portfolio performance, in terms of level of delinquencies and cumulative net losses, as of the May 2018 payment date;
-- No purchase termination event has occurred;
-- The reduced level of credit enhancement (CE) available to cover expected losses.

The rating of the Class A Notes addresses the timely payment of interest and the ultimate repayment of principal on or before the Legal Final Maturity Date in December 2031.

Cars Alliance Auto Loans Italy 2015 S.r.l. is a securitisation of Italian auto loan receivables originated by RCI Banque S.A., Italian Branch (RCI Banque-Italy). The EUR 1,578.4 million portfolio, as of the May 2018 payment date, consisted of loans granted to both private (92.1% of the discounted collateral balance) and corporate (7.9%) clients for the purchase of new (95.6%) and used (4.4%) vehicles. Most of the receivables have equal monthly instalments; however, 10.5% of loans include a final balloon payment.

The following amendments, executed on 24 April 2018, will become effective on the 9 May 2018 payment date:

-- Renewal of the revolving period; lasting 30 additional months and finishing in November 2020;
-- Increase in the portfolio size to EUR 1,578.4 million, partially financed by issuing EUR 513.8 million of new Class A Notes;
-- Increase of the cash reserve to EUR 16.0 million from EUR 11.9 million – maintaining the target balance equal to 1% of the Class A and J Notes;
-- The concentration limits have been adjusted to allow loans with a balloon instalment to make up a greater proportion of the pool.

BASE CASE ASSUMPTIONS
DBRS has received updated vintage performance data, split by product type. With the updated data, DBRS recalibrated its base case assumptions of gross default and recovery for each loan type. Excluding sovereign stress, the probability of default (PD) assumption has been updated to 2.8%, and the recovery rate assumption to 9.5%.

REVOLVING PERIOD & CONCENTRATION LIMITS
The first revolving period finished on the February 2018 payment date and subsequently the Class A Notes have partially amortised by EUR 111.4 million. As part of the renewal of the revolving period, this amortised amount was replenished and the notional balance of the Class A Notes increased to EUR 1,357.4 million from EUR 955.0 million. Additionally, the Class J Notes have been partially repaid by EUR 53.3 million to EUR 238.2 million.

The extended revolving period will prematurely end if certain performance triggers are breached; these trigger limits have remained unchanged from the initial revolving period. To further mitigate the deterioration of the pool, the transaction permits certain concentration limits on the additional portfolios purchased on each payment date. The Amendment increases the limit of balloon loans permitted in the pool (to 15% from 10%). DBRS considered an updated worst-case portfolio composition in its cash flow analysis.

PORTFOLIO PERFORMANCE
The portfolio is performing in line with DBRS’s expectations. The gross cumulative default ratio (as a percentage of the original portfolio plus all additional receivables) is 0.5% as of May 2018, of which 46.8% has been recovered. The 90+ delinquency ratio is 0.1%.

CREDIT ENHANCEMENT
CE for the Class A Notes is provided by subordination of the portion of the Class J Notes not used to fund the cash reserve. This has reduced to 14.0% from 22.6% at closing, reflecting the increased size of the Class A Notes and the partial repayment of the Class J Notes.

The transaction benefits from a cash reserve funded through part of the proceeds from the Class J Notes, which is available to cover senior fees and the interest due on the Class A Notes. This reserve has an amortising target equal to 1.0% of the aggregate Class A and Class J Notes balance floored at EUR 1.0 million. It has remained at its target amount since closing, and as a result of the Amendment it was increased to EUR 16.0 million from EUR 11.9 million.

Since the portfolio receivables and the Notes pay a fixed coupon, there is a natural hedge in the transaction structure. Further, the eligibility criteria permit only fixed-rate-paying loan receivables to be purchased in each subsequent portfolio.

Crédit Agricole Corporate and Investment Bank, Milan Branch (CACIB-Milan) acts as the account bank for the transaction. The DBRS private rating of CACIB-Milan is consistent with the Minimum Institution Rating, given the rating assigned to the Class A Notes, as described in DBRS's "Legal Criteria for European Structured Finance Transactions" methodology.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the rating is: “Master European Structured Finance Surveillance Methodology”.

DBRS has applied the principal methodology consistently and conducted a review of the transaction in accordance with the principal methodology.

An asset and a cash flow analysis were both conducted. Due to the inclusion of a revolving period in the transaction, the analysis continues to be based on the worst-case replenishment criteria set forth in the transaction legal documents.

DBRS has reviewed the amended transaction documents including the Master Amendment Agreement, the Increase Additional Portfolio Receivables Transfer Agreement, the amended Master Receivables Transfer Agreement, and the amended Master Definitions Agreement.

Other methodologies referenced in this transaction are listed at the end of this press release.

These may be found on www.dbrs.com at: http://www.dbrs.com/about/methodologies.

For a more detailed discussion of the sovereign risk impact on Structured Finance ratings, please refer to “Appendix C: The Impact of Sovereign Ratings on Other DBRS Credit Ratings” of the “Rating Sovereign Governments” methodology at: http://dbrs.com/research/319564/rating-sovereign-governments.pdf.

The sources of data and information used for this rating include investor reports provided by Zenith Service S.p.A. and loan-by-loan data from the European DataWarehouse GmbH. DBRS received historical cumulative gross loss and recovery performance data relating to RCI Banque-Italy’s originations by quarterly vintage from Q1 2006 to Q1 2017. Related delinquency and prepaymanent data as well as portfolio stratification tables as at 10 April 2018 were also provided.

DBRS did not rely upon third-party due diligence in order to conduct its analysis.

At the time of the initial rating and in April 2018, DBRS was supplied with third-party assessments. However, this did not impact the rating analysis.

DBRS considers the data and information available to it for the purposes of providing this rating to be of satisfactory quality.

DBRS does not audit or independently verify the data or information it receives in connection with the rating process.

The last rating action on this transaction took place on 7 July 2017, when DBRS confirmed its rating of the Class A Notes at AAA (sf).

The lead analyst responsibilities for this transaction have been transferred to Matt Albin.

Information regarding DBRS ratings, including definitions, policies and methodologies, is available on www.dbrs.com.

To assess the impact of changing the transaction parameters on this rating, DBRS considered the following stress scenarios, as compared to the parameters used to determine the rating (the “Base Case”):

-- DBRS expected a base case probability of default (PD) and loss given default (LGD) for the portfolio based on a review of the current assets and the transaction’s replenishment criteria. Adverse changes to asset performance may cause stresses to base case assumptions and, therefore, have a negative effect on credit ratings.

-- The Base Case PD and LGD of the current pool of receivables, excluding sovereign stress are 2.8% and 90.5%, respectively.

For example, if the LGD increases by 50%, the rating of the Class A Notes would be expected to remain at AA (sf), ceteris paribus. If the PD increases by 50%, the rating of the Class A Notes would be expected to decrease to A (low) (sf), ceteris paribus. Furthermore, if both the PD and LGD increase by 50%, the rating of the Class A Notes would be expected to decrease to A (low) (sf), ceteris paribus.

Class A Notes risk sensitivity:
-- 25% increase in LGD, expected rating of AA (sf)
-- 50% increase in LGD, expected rating of AA (sf)
-- 25% increase in PD, expected rating of A (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of A (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of A (sf)
-- 50% increase in PD, expected rating of A (low) (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of A (low) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of A (low) (sf)

For further information on DBRS historical default rates published by the European Securities and Markets Authority (ESMA) in a central repository, see: http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml.

Ratings assigned by DBRS Ratings Limited are subject to EU and US regulations only.

Lead Analyst: Matt Albin, Financial Analyst
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: 23 July 2015

DBRS Ratings Limited
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Registered in England and Wales: No. 7139960

The rating methodologies used in the analysis of this transaction can be found at: http://www.dbrs.com/about/methodologies.

-- Master European Structured Finance Surveillance Methodology
-- Legal Criteria for European Structured Finance Transactions
-- Operational Risk Assessment for European Structured Finance Servicers
-- Operational Risk Assessment for European Structured Finance Originators
-- Rating European Consumer and Commercial Asset-Backed Securitisations

A description of how DBRS analyses structured finance transactions and how the methodologies are collectively applied can be found at: http://www.dbrs.com/research/278375.

For more information on this credit or on this industry, visit www.dbrs.com or contact us at info@dbrs.com.