DBRS Morningstar Assigns AAA (sf) Ratings to Cars Alliance Auto Leases France Master

DBRS Ratings Limited (DBRS Morningstar) assigned AAA (sf) ratings to the Class A 2020-1 Notes, Class A 2020-2 Notes and the Class A 2020-3 Notes (collectively the Class A Notes) issued by Cars Alliance Auto Leases France Master, (the Issuer). The Issuer is the second compartment of a French Fonds Commun de Titrisation (FCT), in the context of a securitisation transaction that follows a standard structure under French securitisation law.

DBRS Morningstar does not rate the Class B Notes issued in this transaction.

The ratings on the Class A Notes address the timely payment of scheduled interest and the ultimate repayment of principal by the legal maturity date in October 2038.

The Class A 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 includes a four-year revolving period where additional receivables may be added to the pool until October 2024, subject to the occurrence of a revolving termination event.

DBRS Morningstar based its ratings on a review of the following analytical considerations:
-- The transaction’s capital structure, including form and sufficiency of available credit enhancement;
-- Relevant credit enhancement in the form of subordination, a 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 Class A 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 Republic of France, currently at AA (high) with a Stable trend; and
-- The 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 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). 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. All underlying contracts are fixed rate while the Notes attract a fixed rate coupon. Hence, there is no interest rate mismatch inherent in the transaction.

The transaction is subject to a revolving period of four years during which the Issuer is expected to purchase additional receivables that DIAC may offer. Additional receivables must meet the eligibility and portfolio limits outlined in the transaction documents. The Issuer can issue further series of notes to fund the purchase of additional receivables up to an aggregate amount of EUR 5.0 billion. The revolving period can be extended once for a maximum period of four years, subject to conditions.

The level of subordination afforded to the Class A Notes is dynamic and based on the mix of receivables associated with new and used cars in the portfolio and the corresponding subordination ratios that are required for the Class B Notes. Considering the Class B subordination ratios of 10.5% for new car receivables and 17.0% for used car receivables, the higher the percentage of used car receivables the higher the required subordination levels are for the Class A Notes.

The transaction benefits from a fully funded 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.

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

COUNTERPARTIES
The Issuer collection account, revolving account, general reserve account, commingling reserve account, and the performance reserve account are held at BNP Paribas Securities Services SCA (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.

CORONAVIRUS CONSIDERATIONS
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 and adjustments 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 and consumer focused. It has a low exposure to self-employed customers.

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 last 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 commentary: 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 ratings 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: 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 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 sources of data and information used for these ratings include the Seller and the arrangers, Crédit Agricole CIB and Société Générale.

DBRS Morningstar received the following data and information:
-- Dynamic receivables balance, delinquency, origination and prepayment data for new and used vehicles.
-- Static default and recovery data.
-- Portfolio stratification tables as at 30 September 2020, and;
-- A theoretical amortisation profile of the selected pool with a cut-off date as at 30 September 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 does not audit or independently verify the data or information it receives in connection with the rating process.

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

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 two pool compositions, one pool composed of 100% new vehicles and one pool composed of 100% used vehicles as compared to the parameters used to determine the ratings:

Pool with 100% new vehicles
-- Expected default: 3.3%
-- Expected recovery rate: 51%
-- Loss given default (LGD): 67% for the AAA (sf) scenario

Pool with 100% used vehicles
-- Expected default: 5.0%.
-- Expected recovery rate: 47%.
-- Loss given default (LGD): 69% for the AAA (sf) scenario

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:

Pool with 100% new vehicles
-- Class A Notes: AA (sf), AA (low) (sf), AA (sf), AA (low) (sf), A (high) (sf), AA (sf), A (high) (sf), A (low) (sf)

Pool with 100% used vehicles
-- Class A Notes: AA (sf), AA (low) (sf), AA (sf), AA (low) (sf), A (high) (sf), AA (sf), A (high) (sf), A (low) (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: Alex Garrod, Senior Vice President
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: 28 October 2020

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

-- 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/357428/rating-european-structured-finance-transactions-methodology.
-- Legal Criteria for European Structured Finance Transactions (11 September 2019),
https://www.dbrsmorningstar.com/research/364305/rating-european-structured-finance-transactions-methodology.
-- Operational Risk Assessment for European Structured Finance Originators (30 September 2020), https://www.dbrsmorningstar.com/research/367603/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 (28 September 2020), https://www.dbrsmorningstar.com/research/367292/interest-rate-stresses-for-european-structured-finance-transactions.

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].