DBRS Morningstar Assigns Provisional Ratings to Cars Alliance Auto Leases France V 2020-1

DBRS Ratings Limited (DBRS Morningstar) assigned provisional ratings to the following classes of notes to be issued by Cars Alliance Auto Leases France V 2020-1 (the Issuer), a French Fonds Commun de Titrisation (FCT).

-- Class A Notes at AAA (sf)
-- Class B Notes at AA (low) (sf)

DBRS Morningstar did not assign provisional ratings to the Class C Notes expected to be issued in this transaction.

The ratings on the Class A Notes and Class B Notes (collectively, the Rated Notes) address the timely payment of scheduled interest and the ultimate repayment of principal by the legal final maturity date.

DBRS Morningstar based its provisional ratings on information provided by the Issuer and its agents as of the date of this press release. The ratings will be finalised upon receipt of an execution version of the governing transaction documents. To the extent that the documents and information provided to DBRS Morningstar as of this date differ from the executed version of the governing transaction documents, DBRS Morningstar may assign different final ratings to the Rated Notes.

The Rated Notes are collateralised by lease receivable instalments and specifically exclude, among others, the residual value (RV) component. The receivables relate to auto lease agreements (contrats de location avec option d'achat) granted by Diffusion Industrielle et l’Automobile par le Credit SA (DIAC or the Seller) to private lessees resident in France.

DIAC is a wholly owned subsidiary of RCI Banque (RCI), which is a wholly owned subsidiary of Renault S.A.S. The security granted to the Issuer includes a first-ranking pledge without dispossession (gage sans dépossession) over the leased vehicles, which is subject to an intercreditor agreement that references specific allocations to more than one securitisation creditor. The transaction is managed by Eurotitrisation and the receivables are serviced by DIAC (the Servicer).

The transaction is subject to a revolving period of [21] months during which time the Seller may offer additional lease receivables that the Issuer will purchase subject to the eligibility criteria, portfolio limits, performance triggers, and other conditions set out in the transaction documents.

KEY RATING CONSIDERATIONS
DBRS Morningstar based its ratings on a review of the following analytical considerations:
-- The transaction capital structure, including form and sufficiency of available credit enhancement;
-- Relevant credit enhancement in the form of subordination, a general reserve fund, and excess spread. Credit-enhancement levels are sufficient to support DBRS Morningstar’s projected cumulative net loss assumption under various stressed cash flow assumptions for the Rated Notes;
-- The ability of the transaction to withstand stressed cash flow assumptions and repay investors according to the terms under which they have invested;
-- DIAC’s capabilities with regard to originations, underwriting, and servicing;
-- The transaction parties’ financial strength with regard to their respective roles;
-- The credit quality of the collateral and historical and projected performance of the Seller’s portfolio;
-- The sovereign rating of the Republic of France, currently at AAA with a Negative trend; and
-- The expected consistency of the transaction’s legal structure with DBRS Morningstar’s “Legal Criteria for European Structured Finance Transactions” methodology and the presence of legal opinions that are expected to address the true sale of the assets to the Issuer.

TRANSACTION STRUCTURE
The transaction incorporates a single waterfall that facilitates the distribution of the available distribution amount (including lessee collections representing interest, principal, and recoveries). During the amortisation period, the Notes amortise sequentially subject to a note-specific target principal redemption amount that allows for the application of any available excess spread.

Funds available to repay the notes represent monthly instalments from lessees that include interest and principal components but exclude the RV. Other excluded amounts include any amounts related to VAT, insurance premia, and any fees payable under any services and/or maintenance contracts. The transaction benefits from the funding of a general reserve on the closing date. Upon the downgrade of the Seller or Servicer below investment grade, a performance and commingling reserve will also be funded.

The underlying agreements yield a contract-specific fixed interest rate while floating-rate notes have been issued. Interest rate risk is mitigated through interest rate swaps provided by DIAC with Société Générale, S.A. (Société Générale), providing support as the standby swap counterparty.

DBRS Morningstar analysed the transaction cash flow structure in Intex DealMaker.

COUNTERPARTIES
The Issuer collection account, revolving account, general reserve account, commingling reserve account, performance reserve account, and the swap cash collateral accounts are held at BNP Paribas Securities Services (BP2S). DBRS Morningstar privately rates BP2S and concluded that it meets the minimum criteria to act in its capacity as the account bank. The transaction contains downgrade provisions relating to the account bank consistent with DBRS Morningstar criteria.

DIAC is the swap counterparty and Société Générale is the standby swap counterparty for the transaction. DBRS Morningstar privately rates DIAC. The DBRS Morningstar public Long-Term Issuer Rating of Société Générale is at A (high) with a Stable trend. The hedging documents are expected to contain downgrade provisions consistent with DBRS Morningstar criteria with respect to the respective roles of DIAC and Société Générale.

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 asset-backed security (ABS) transactions, some meaningfully. The ratings are based on additional analysis to expected performance as a result of the global efforts to contain the spread of the coronavirus. For this transaction, DBRS Morningstar assumed a moderate decline in the expected recovery rate. DBRS Morningstar considers the portfolio to be granular, consumer focused, and has a low exposure to self-employed customers.

CORONAVIRUS CONSIDERATIONS
On 16 April 2020, the DBRS Morningstar Sovereign group released a set of macroeconomic scenarios for the 2020-22 period in select economies. These scenarios were updated on 10 September 2020. For details, see the following commentaries: https://www.dbrsmorningstar.com/research/366543/dbrs-morningstar-global-macroeconomic-scenarios-september-update and https://www.dbrsmorningstar.com/research/359903/global-macroeconomic-scenarios-application-to-credit-ratings. The DBRS Morningstar analysis considered impacts consistent with the moderate scenario in the referenced reports.

For more information on DBRS Morningstar considerations for European ABS transactions and Coronavirus Disease (COVID-19), please see the following commentaries: https://www.dbrsmorningstar.com/research/360734 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.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the rating is “Rating European Consumer and Commercial Asset-Backed Securitisations” (3 September 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 is based on the worst-case replenishment criteria set forth in the transaction legal documents.

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 Morningstar Credit Ratings” of the “Global Methodology for Rating Sovereign Governments” at:https://www.dbrsmorningstar.com/research/364527/global-methodology-for-rating-sovereign-governments. .

The primary sources of information used for this rating include the Seller and the arrangers, Crédit Agricole CIB and Société Générale.

DBRS Morningstar received the following data and information:
-- Dynamic delinquency, prepayment, and origination data;
-- Static default and recovery data; and
-- Portfolio stratification tables as at 31 July 2020.

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

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

DBRS Morningstar considers the 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.

These ratings concern a newly issued financial instrument. These are the first DBRS Morningstar ratings on these financial instruments.

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 for a worst case pool composition, as compared to the parameters used to determine the ratings:
-- Expected default: 3.5%.
-- Expected recovery rate: 50%.
-- Loss given default (LGD): 67% and 64% for the AAA (sf) and AA (low) scenarios.

Scenario 1: A 25% increase in the expected default rate.
Scenario 2: A 50% increase in the expected default rate.
Scenario 3: A 25% increase in the LGD.
Scenario 4: A 25% increase in the expected default rate and a 25% increase in the LGD.
Scenario 5: A 50% increase in the expected default rate and a 25% increase in the LGD.
Scenario 6: A 50% increase in the LGD.
Scenario 7: A 25% increase in the expected default rate and a 50% increase in the LGD.
Scenario 8: A 50% increase in the expected default rate and a 50% increase in the LGD.

DBRS Morningstar concludes that the expected ratings under the eight stress scenarios will be:
-- Class A Notes: AAA, AA, AA (low), AA, AA (low), A (high), AA, A (high), A (low).
-- Class B Notes: AA (low), A (high), A (low), A (high), A (low), BBB (high), A (low), BBB (high), BBB.

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: Alex Garrod, Senior Vice President
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: 23 September 2020

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-- Rating European Consumer and Commercial Asset-Backed Securitisations (3 September 2020), https://www.dbrsmorningstar.com/research/366294/rating-european-consumer-and-commercial-asset-backed-securitisations.
-- Rating European Structured Finance Transactions Methodology (21 July 2020),
https://www.dbrsmorningstar.com/research/364305/rating-european-structured-finance-transactions-methodology.
-- Legal Criteria for European Structured Finance Transactions (11 September 2019),
https://www.dbrsmorningstar.com/research/350234/legal-criteria-for-european-structured-finance-transactions.
-- Derivative Criteria for European Structured Finance Transactions (26 September 2019),
https://www.dbrsmorningstar.com/research/350907/derivative-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.
-- 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.

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