DBRS Morningstar Confirms Ratings on Notes Issued by Cars Alliance Auto Loans France Master Following Amendment

DBRS Ratings GmbH (DBRS Morningstar) confirmed its AAA (sf) ratings on the following remaining outstanding series of Class A Notes (the Rated Notes) issued by Cars Alliance Auto Loans France Master (the Issuer):

-- EUR 103.6 million Series 2019-12, Class A
-- EUR 55.6 million Series 2019-13, Class A
-- EUR 49.9 million Series 2019-14, Class A
-- EUR 60.6 million Series 2019-15, Class A
-- EUR 179.6 million Series 2019-16, Class A

The ratings address the timely payment of interest and the ultimate payment of principal on or before the Legal Final Maturity Date in August 2034.

The confirmations follow an entire review of the transaction and are based on the following analytical considerations:
-- An amendment to the transaction executed on 14 April 2020 (the Amendment);
-- The portfolio performance, in terms of level of delinquencies and cumulative net losses, as of the March 2020 payment date;
-- Updated probability of default (PD), loss given default (LGD), and expected loss assumptions for the remaining collateral pool, considering the updated quarterly vintage performance data received in the context of the Amendment;
-- No Revolving Period Termination Events have occurred;
-- The levels of credit enhancement (after taking into consideration the Amendment) to the Rated Notes to cover their expected losses at their AAA (sf) rating level.

The Issuer is a master trust securitisation backed by a pool of auto loan receivables related to new and used motor vehicles originated and serviced by Diac S.A., a French subsidiary of RCI Banque SA. The transaction’s revolving period has been extended by four more years following the Amendment, until the July 2024 payment date. During the revolving period, subject to certain portfolio conditions being met, the Issuer may acquire additional receivables and issue a further series of Class A notes with a different expected maturity date.

The transaction closed on 25 May 2012. Since closing, replenishment of the underlying receivables has met the portfolio’s revolving conditions on each payment date.

AMENDMENT
The following amendments to the transaction were executed on 14 April and are expected to be effective from 21 April 2020:
-- An extension of the revolving period for an additional 48 months until July 2024;
-- The commingling reserve rating condition will be based on the rating of RCI Banque SA instead of Diac S.A.;
-- Switch to a dynamically determined level of subordination based on the portfolio composition;
-- Update to the concentration limits for the used balloon car ratio and the used car ratio to 20% and 80%, from 5% and 50%, respectively ;
-- Decrease of the discount rate and weighted-average interest rate condition to predetermined levels, simultaneously during the lifespan of the transaction;
-- Introduction of a Cumulative Gross Loss Ratio, which cannot be greater than 8.0%;
-- Maximum period of no transfer of new Receivables extended to four consecutive Monthly Payment Dates, from two before the Amendment;
-- RCI Banque’s ability to request and subscribe Class B Notes in excess of the required level of subordination; and
-- Société Générale, acting through its Securities Services Department, to replace RCI Banque as the custodian.

PORTFOLIO PERFORMANCE
As of the March 2020 payment date, loans that were 30 to 60 days delinquent and 60 to 90 days delinquent represented 0.5% and 0.1% of the portfolio net discounted balance, respectively. The cumulative gross default ratio was 1.6% of the aggregate original portfolios, with cumulative principal recoveries of 78.5% to date.

PORTFOLIO ASSUMPTIONS AND KEY RATING DRIVERS
DBRS Morningstar received updated vintage performance data, split according to product type. DBRS Morningstar recalibrated its base case assumptions on gross default and recovery rate for each product type and noted an overall improvement in the performance. The updated base case PD and LGD assumptions, based on the worst-case portfolio composition, are 3.1% and 51.8%, respectively.

CREDIT ENHANCEMENT
Credit enhancement to the Class A notes – estimated at 12.6% -- is provided by the subordination of the Class B notes (estimated at 11.6% based on the securitised pool as at 31 January 2020 and taking into account the Amendment) and the cash reserve.

The structure includes an amortising cash 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 5.2 million, with a target balance equal to 1.0% of the aggregate notes’ balance. In a stressed scenario where we assume no collections, the cash reserve would cover approximately six months of senior fees and interest payments on the Class A notes.

Société Générale, S.A. acts as the account bank for the transaction. Based on the reference rating of Société Générale, S.A. at AA (low), one notch below its DBRS Morningstar Long-Term Critical Obligations Rating of AA, 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 Société Générale, S.A. to be consistent with the rating assigned to the notes, as described in DBRS Morningstar’s “Legal Criteria for European Structured Finance Transactions” methodology.

For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.

For more information regarding structured finance rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/358308.

DBRS Morningstar analysed the transaction structure in Intex DealMaker.

ESG CONSIDERATIONS
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework and its methodologies can be found at: https://www.dbrsmorningstar.com/research/357792.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the ratings is the “Master European Structured Finance Surveillance Methodology” (13 December 2019).

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.

DBRS Morningstar conducted a review of the amended transaction documents including the Custodian Agreement, the Amendment Agreement, the Master Definition Agreement, the Master Receivables Transfer Agreement, the Servicing Agreement, Class A Notes Subscription Agreement, Class B Notes Subscription Agreement, the Commingling Reserve Deposit Agreement, the General Reserve Deposit Agreement, FCT Regulations, Paying Agency Agreement, FCT Account and Cash Management Agreement and Substitution and the Termination Agreement. A review of any other transaction’s legal documents was not conducted as these 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 at: https://www.dbrsmorningstar.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.dbrsmorningstar.com/research/350410/global-methodology-for-rating-sovereign-governments.

The sources of data and information used for these ratings include monthly investor reports provided by Eurotitrisation. In the context of the Amendment, RCI Banque provided DBRS Morningstar with historical performance data dating from Q1 2015 to Q4 2019 for defaults, recovery, prepayments, and delinquencies.

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

At the time of the initial ratings, DBRS Morningstar was not 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 23 March 2020, when DBRS Morningstar assigned a AAA (sf) rating to the Series 2019-16, Class A notes. Additionally, DBRS Morningstar discontinued its rating of the Series 2019-11, Class A notes.

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

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

-- DBRS Morningstar expected a base case PD and LGD for the portfolio 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 receivables are 3.1% and 51.8%, respectively.

-- The Risk Sensitivity overview below illustrates the ratings expected if the PD and LGD increase by a certain percentage over the base case assumption. For example, if the LGD increases by 50%, the rating on the Class A notes would be expected to decrease to AA (sf), ceteris paribus. If the PD increases by 50%, the rating of the 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 on the 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: https://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml.

Ratings assigned by DBRS Ratings GmbH are subject to EU and U.S. regulations only.

Lead Analyst: Petter Wettestad, Senior Analyst
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: 25 May 2012

DBRS Ratings GmbH
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Tel. +49 (69) 8088 3500

Geschäftsführer: Detlef Scholz
Amtsgericht Frankfurt am Main, HRB 110259

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

-- Master European Structured Finance Surveillance Methodology (13 December 2019).
https://www.dbrsmorningstar.com/research/354616/master-european-structured-finance-surveillance-methodology.
-- Legal Criteria for European Structured Finance Transactions (11 September 2019).
https://www.dbrsmorningstar.com/research/350234/legal-criteria-for-european-structured-finance-transactions.
-- Operational Risk Assessment for European Structured Finance Servicers (28 February 2020).
https://www.dbrsmorningstar.com/research/357429/operational-risk-assessment-for-european-structured-finance-servicers.
-- Operational Risk Assessment for European Structured Finance Originators (28 February 2020).
https://www.dbrsmorningstar.com/research/357430/operational-risk-assessment-for-european-structured-finance-originators.
-- Rating European Consumer and Commercial Asset-Backed Securitisations (13 January 2020).
https://www.dbrsmorningstar.com/research/355533/rating-european-consumer-and-commercial-asset-backed-securitisations.
-- Rating European Structured Finance Transactions Methodology (28 February 2020).
https://www.dbrsmorningstar.com/research/357428/rating-european-structured-finance-transactions-methodology.

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

For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at [email protected].