DBRS Morningstar Confirms Rating of FCT Cars Alliance DFP France

DBRS Ratings Limited (DBRS Morningstar) confirmed its AA (sf) rating on the Series 2018-1 FCT Notes (the Notes) issued by FCT Cars Alliance DFP France (CA France or the Issuer).

The rating on the Notes addresses the timely payment of interest and ultimate payment of principal on or before the legal final maturity date on the payment date in July 2028.

The confirmation follows an annual review of the transaction and is based on the following analytical considerations:
-- Portfolio performance, in terms of realised losses, principal payment rates, and yield, as of the June 2020 payment date.
-- Current available credit enhancement to the Notes to cover the expected losses at the AA (sf) rating level in various dealer concentration and liquidation scenarios.
-- No early amortisation events have occurred.

CA France is a securitisation of auto wholesale receivables originated in France by Diac S.A., a subsidiary of RCI Banque S.A. and part of the automobile group Renault S.A. The portfolio consists of term loans and revolving credit lines to Renault, Nissan, and Infiniti (the luxury segment of Nissan) dealers in France, which are secured by new vehicles (including demonstration vehicles), used vehicles, and spare parts. The transaction is currently in its revolving period, scheduled to terminate in July 2023. On 20 May 2020, the transaction was amended in the context of the Coronavirus Disease (COVID-19) and entered a waiver period, where certain early amortisation triggers were suspended. For further information, please see the press release published on 20 May 2020: https://www.dbrsmorningstar.com/research/361228/dbrs-morningstar-comments-on-fct-cars-alliance-dfp-france-following-amendment.

PORTFOLIO PERFORMANCE
As of the June 2020 payment date, the three-month average principal payment rate was 21.9% and the annualised portfolio yield was 4.0% (including additional interest income generated through the discount mechanism). Realised losses were zero. As the transaction is in its waiver period, the three-month average payment rate can be below 25.0% without triggering an early amortisation. As of the June 2020 payment date, the subordination to the Notes was 21.0%.

The collateral is subject to certain concentration limits on the product type securing the receivables (spare parts, second-hand vehicles) and on the exposure to Renault-branded dealers. As of the June 2020 payment date, all the limits had been met. The limit of the concentration to a dealer group has increased to 4.0% from to 2.5% of the portfolio balance, during the waiver period. DBRS Morningstar has addressed the concentration risk in its analysis.

PORTFOLIO ASSUMPTIONS AND KEY DRIVERS
The key rating drivers are the base case probability of default (PD) of 8.0%, a yield of 0.0%, an increase in the default rate up to 41.7% at the AA (sf) rating level, and a decline of the payment rate by 53.3% at the AA (sf) rating level. DBRS Morningstar increased its base case PD to 8.0% from 5.8% since last rating action to account for the increase in dealer concentration during the waiver period. DBRS Morningstar also considered in its cash flow analysis a yield of 0.0% on the portfolio to account for a potential lack of receivables purchased during the waiver period, because of the coronavirus environment, leading to negative carry of nonreinvested cash standing at transaction account bank.

CREDIT ENHANCEMENT
The subordination to the Notes is subject to a minimum level, calculated as a percentage of the Notes balance, and is variable according to the three-month average payment rate on the portfolio. As of the June 2020 payment date, the required subordination represents 26.6% of the Notes balance. The general reserve provides liquidity support and can be used to repay the Notes principal at the legal final maturity date. The general reserve is amortising and is currently at its target amount of EUR 12.7 million.

Commingling risk in the transaction is limited, as the collections are transferred to the account bank on a daily basis. A minimum overcollateralisation level driven by the amounts standing in the dealers’ factory accounts held at the manufacturer acts as a mitigant for the set-off risk in the transaction. As of the June 2020 payment date, the portfolio balance is EUR 1,334 million, which is above the required portfolio balance of EUR 1,332 million.

Société Générale acts as the account bank for the transaction. Based on the account bank reference rating of Société Générale at AA (low), which is one notch below the 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 the account bank to be consistent with the rating assigned to the Notes, as described in DBRS Morningstar's "Legal Criteria for European Structured Finance Transactions" methodology.

DBRS Morningstar analysed the transaction using its proprietary Excel-based cash flow engine.

The Coronavirus Disease (COVID-19) and the resulting isolation measures have caused an economic contraction, leading to sharp increases in unemployment rates and income reductions for many borrowers. DBRS Morningstar anticipates that delinquencies may arise in the coming months for many ABS transactions, some meaningfully. The rating is based on additional analysis as a result of the global efforts to contain the spread of the coronavirus. More information about DBRS Morningstar’s view on the impact of the coronavirus pandemic on auto-wholesale securitisations can be found at: https://www.dbrsmorningstar.com/research/359606/the-impact-of-covid-19-on-global-auto-wholesale-transactions.

The DBRS Morningstar Sovereign group released on 16 April 2020 a set of macroeconomic scenarios for the 2020-22 period in select economies. These scenarios were last updated on 22 July 2020. For details see the following commentaries: https://www.dbrsmorningstar.com/research/364318/global-macroeconomic-scenarios-july-update and https://www.dbrsmorningstar.com/research/359903/global-macroeconomic-scenarios-application-to-credit-ratings. DBRS Morningstar analysis considered impacts consistent with the moderate scenario in the referenced reports. DBRS Morningstar notes that the rating would likely be negatively impacted when considering the adverse scenario in the referenced reports.

On 8 May 2020, DBRS Morningstar published a commentary outlining how the coronavirus crisis is likely to affect DBRS Morningstar-rated ABS transactions in Europe. For more details, please see: https://www.dbrsmorningstar.com/research/360734/european-abs-transactions-risk-exposure-to-coronavirus-covid-19-effect and https://www.dbrsmorningstar.com/research/362712/european-structured-finance-covid-19-credit-risk-exposure-roadmap.

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.

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.

DBRS Morningstar notes that the above press release was amended on 12 July 2021 to correct the default rate at the AA (sf) rating level to 41.7% from 47.7%.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the rating is the “Master European Structured Finance Surveillance Methodology” (22 April 2020).

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 at: http://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 this rating include monthly investor reports provided by Eurotitrisation as well as loan-level data from 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 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 this rating 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 July 2019, when DBRS Morningstar confirmed the rating on the Notes at AA (sf).

The lead analyst responsibilities for this transaction have been transferred to Natalia Coman.

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 rating, DBRS Morningstar considered the following stress scenarios, as compared to the parameters used to determine the rating (the Base Case):

Separate stresses were applied in its analysis of dealer concentration and liquidation scenarios.

-- Default Rate: base case of 8.0%, stressed with a 25% and 50% increase
-- Monthly Principal Payment Rate (MPPR): base case of 25% (in line with the payment rate early amortisation trigger), stressed with a 25% and 50% decrease
-- Yield: base case of 0.0%, stressed with a 25% and 50% decrease

Whilst holding the MPPR and the yield constant:
-- 25% increase in default rate, expected rating of AA (sf)
-- 50% increase in default rate, expected rating of AA (sf)

Whilst holding the default rate and the yield constant:
-- 25% decrease in MPPR, expected rating of AA (sf)
-- 50% decrease in MPPR, expected rating of BB (sf)

Whilst holding the MPPR and the default rate constant:
-- 25% decrease in yield, expected rating of AA (sf)
-- 50% decrease in yield, expected rating of AA (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 Limited are subject to EU and U.S. regulations only.

Lead Analyst: Natalia Coman, Senior Analyst
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: 23 July 2018

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

--Master European Structured Finance Surveillance Methodology (22 April 2020) https://www.dbrsmorningstar.com/research/359884/master-european-structured-finance-surveillance-methodology
--Rating European Auto Wholesale Securitisations (19 November 2019) https://www.dbrsmorningstar.com/research/352957/rating-european-auto-wholesale-securitisations
--Rating European Structured Finance Transactions Methodology (21 July 2020) https://www.dbrsmorningstar.com/research/364305/rating-european-structured-finance-transactions-methodology
--Interest Rate Stresses for European Structured Finance Transactions (10 October 2019) https://www.dbrsmorningstar.com/research/351557/interest-rate-stresses-for-european-structured-finance-transactions
--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 Originators (28 February 2020) https://www.dbrsmorningstar.com/research/357430/operational-risk-assessment-for-european-structured-finance-originators
--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

A description of how DBRS Morningstar analyses structured finance transactions and how the methodologies are collectively applied can be found at: http://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].