DBRS Morningstar Takes Rating Actions on Cars Alliance Auto Loans Germany Master

DBRS Ratings GmbH (DBRS Morningstar) assigned a AAA (sf) rating to the EUR 203.0 million Series 2018-24, Class A Notes issued by Cars Alliance Auto Loans Germany Master (the Issuer), discontinued the AAA (sf) rating on the EUR 208.1 million Series 2018-15, Class A Notes as result of its full repayment, and confirmed the following remaining outstanding series at AAA (sf):

-- EUR 281.8 million Series 2018-16, Class A Notes
-- EUR 122.4 million Series 2018-17, Class A Notes
-- EUR 122.4 million Series 2018-18, Class A Notes
-- EUR 233.5 million Series 2018-19, Class A Notes
-- EUR 229.3 million Series 2018-20, Class A Notes
-- EUR 251.6 million Series 2018-21, Class A Notes
-- EUR 109.8 million Series 2018-22, Class A Notes
-- EUR 254.6 million Series 2018-23, Class A Notes

The ratings address the timely payment of interest and ultimate payment of principal payable on or before the Final Legal Maturity Date in March 2035.

The rating actions reflect the issuance of the Series 2018-24, Class A Notes and an annual review of the transaction, and are based on the following analytical considerations:
-- No Revolving Period Termination Events have occurred;
-- Portfolio performance, in terms of delinquencies, defaults and losses;
-- Probability of default (PD), loss given default (LGD), and expected loss assumptions on the remaining receivables;
-- Current available credit enhancement to the notes to cover the expected losses at their respective rating levels.

The Issuer is a French securitisation fund (fonds commun de titrisation) operating as a master trust in the context of a securitisation programme established on 18 March 2014. The securitised portfolio consists of auto loan receivables related to new and used motor vehicles originated in Germany by RCI Banque S.A. Niederlassung Deutschland (the Seller), a German subsidiary of RCI Banque.

As of the February 2020 payment date, the aggregate balance of the outstanding series of Class A Notes was EUR 1,808.4 million, the balance of the Class B Notes was EUR 157.1 million, and the balance of the Residual Units was EUR 300. The EUR 1,963.7 million securitised portfolio (excluding defaulted receivables) consisted of auto loans granted to finance the purchase of new (89.4%) and used (10.6%) vehicles.

REVOLVING PERIOD
The transaction closed in March 2014 and had an original revolving period of four years, which was extended for an additional four years to March 2022. During the revolving period, the Issuer may acquire additional receivables and issue further series of notes with different expected maturities based on the amortisation profile of the additional receivables. The purchase of new receivables and the issuance of new series of notes is subject to certain conditions and limitations, including certain concentration limits in the portfolio and a minimum subordination ratio for the outstanding notes. The revolving period will end prematurely if these conditions are not met or if other events occur, such as the insolvency of the Seller.

PORTFOLIO PERFORMANCE
As at the February 2020 payment date, one-to two-month and two-to three-month delinquencies represented 0.5% and 0.2% of the portfolio net discounted balance, respectively, while loans more than three months delinquent represented 0.2%. Gross cumulative defaults amounted to 0.7% of the aggregate initial portfolio balance, with cumulative recoveries of 70.6% to date.

PORTFOLIO ASSUMPTIONS
DBRS Morningstar conducted a loan-by-loan analysis of the remaining pool of receivables and updated its base case PD and LGD assumptions to 3.3% and 61.5%, respectively.

CREDIT ENHANCEMENT
The subordination of the Class B Notes and the General Reserve Account provide credit enhancement to the Class A Notes. As of the February 2020 payment date, credit enhancement to the Class A Notes remained at 9.0%.

The transaction benefits from an amortising General Reserve Account, which is available to cover senior expenses and missed interest payments on the Class A Notes. This account is currently funded with EUR 19.7 million, and its target balance is equal to 1.0% of the aggregate notes’ balance.

The structure also includes a Commingling Reserve Account and a Set-Off Reserve Account, which will be funded if certain triggers are breached.

HSBC France S.A. acts as the account bank for the transaction. Based on the DBRS Morningstar private rating of HSBC France S.A., the downgrade provisions outlined in the transaction documents, and other mitigating factors inherent in the transaction structure, DBRS Morningstar considers the risk arising from the exposure to the account bank to be consistent with the ratings assigned to the Class A Notes, as described in DBRS Morningstar's "Legal Criteria for European Structured Finance Transactions" methodology.

DBRS Morningstar analysed the transaction structure in Intex DealMaker.

Notes:
All figures are in euros unless otherwise noted.

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

DBRS Morningstar 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.

A review of the transaction legal documents was not conducted as the legal documents have remained unchanged since the most recent rating action.

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 “Global Methodology for Rating Sovereign Governments” at: https://www.dbrs.com/research/350410/global-methodology-for-rating-sovereign-governments.

The sources of data and information used for these ratings include investor reports provided by EuroTitrisation SA (the Management Company), and loan-level data provided by the European DataWarehouse GmbH.

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

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

DBRS Morningstar considers the data and information available to it for the purposes of providing these ratings to be of satisfactory quality.

DBRS Morningstar 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 20 January 2020, when DBRS Morningstar assigned a rating of AAA (sf) to the Series 2018-23 Class A Notes and discontinued its rating on the Series 2018-13 Class A Notes.

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

To assess the impact of changing the transaction parameters on the rating, DBRS Morningstar considered the following stress scenarios as compared with the parameters used to determine the rating (the base case):

-- DBRS Morningstar expected a lifetime base case PD and LGD for the pool based on a review of the current assets. 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 loans for the Issuer are 3.3% and 61.5%, respectively.
-- The risk sensitivity below illustrates the ratings expected for each series of Class A Notes if the PD and LGD increase by a certain percentage over the base case assumptions. For example, if the LGD increases by 50%, the rating for each series of Class A Notes would be expected to decrease to AA (sf), ceteris paribus. If the PD increases by 50%, the rating for each series of Class A Notes would be expected to decrease to AA (sf), ceteris paribus. Furthermore, if both the PD and LGD increase by 50%, the rating for each series of Class A Notes would be expected to decrease to A (sf), ceteris paribus.

Class A Notes risk sensitivity:
-- 25% increase in LGD, expected rating of AA (high) (sf) -- 50% increase in LGD, expected rating of AA (sf) -- 25% increase in PD, expected rating of AA (high) (sf) -- 50% increase in PD, expected rating of AA (sf) -- 25% increase in PD and 25% increase in LGD, expected rating of AA (sf) -- 25% increase in PD and 50% increase in LGD, expected rating of A (high) (sf) -- 50% increase in PD and 25% increase in LGD, expected rating of A (high) (sf) -- 50% increase in PD and 50% increase in LGD, expected rating of A (sf)
For further information on DBRS Morningstar 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 GmbH are subject to EU and US regulations only.

Lead Analyst: Petter Wettestad, Senior Financial Analyst
Rating Committee Chair: Alfonso Candelas, Senior Vice President
Initial Rating Date: 18 March 2014

DBRS Ratings GmbH
Neue Mainzer Straße 75
60311 Frankfurt am Main Deutschland

Geschäftsführer: Detlef Scholz
Amtsgericht Frankfurt am Main, HRB 110259

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

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

A description of how DBRS Morningstar 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.dbrsmorningstar.com or contact us at [email protected].