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 217.7 million Series 2021-02, Class A Notes issued by Cars Alliance Auto Loans Germany Master (the Issuer). DBRS Morningstar assigned the rating following the note issuance on the 18 February 2021 payment date. Additionally, DBRS Morningstar discontinued its AAA (sf) rating on the EUR 194.3 million Series 2020-04, Class A Notes as a result of the notes’ full repayment, and confirmed the following remaining outstanding series (all together, the Class A Notes) at AAA (sf):

-- EUR 81.1 million Series 2020-05, Class A Notes
-- EUR 117.6 million Series 2020-06, Class A Notes
-- EUR 196.0 million Series 2020-07, Class A Notes
-- EUR 248.9 million Series 2020-08, Class A Notes
-- EUR 127.9 million Series 2020-09, Class A Notes
-- EUR 274.6 million Series 2020-10, Class A Notes
-- EUR 250.2 million Series 2020-11, Class A Notes
-- EUR 120.8 million Series 2020-12, Class A Notes
-- EUR 378.7 million Series 2021-01, Class A Notes

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

The rating actions follow an annual review of the transaction and are based on the following analytical considerations:
-- Portfolio performance, in terms of level of delinquencies and defaults, as of the February 2021 payment date.
-- No Revolving Period Termination Events have occurred;
-- Probability of default (PD), loss given default (LGD), and expected loss assumptions on the remaining receivables.
-- Current available credit enhancement to the outstanding series of the Class A Notes to cover the expected losses assumed in line with their AAA (sf) rating level.
-- Current economic environment and an assessment of sustainable performance, as a result of the Coronavirus Disease (COVID-19) pandemic.

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 2021 payment date, the aggregate balance of the outstanding series of Class A Notes was EUR 2,013.5 million, and the balance of the Class B Notes was EUR 176.5 million. The EUR 2,205.3 million securitised portfolio (excluding defaulted receivables) consisted of auto loans granted to finance the purchase of new (80.1%) and used vehicles (19.9%).

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 prematurely end if these conditions are not met or in other events, such as the insolvency of the Seller.

PORTFOLIO PERFORMANCE
As of the February 2021 payment date, loans that were 30 to 60 days, and 60 to 90 days delinquent represented 0.9%, and 0.2% of the outstanding portfolio balance, respectively, while loans more than 90 days delinquent amounted to 0.7%. The gross cumulative defaults amounted to 0.7% of the aggregate initial portfolio balance, with cumulative recoveries of 71.8% to date.

PORTFOLIO ASSUMPTIONS AND KEY DRIVERS
DBRS Morningstar updated its base case PD and LGD to 1.6% and 44.9%, respectively, based on updated historical gross loss and net loss data ranging from Q1 2009 to Q4 2020 that DBRS Morningstar received from the Seller, the worst-case portfolio composition, and following the aforementioned coronavirus adjustments.

DBRS Morningstar opted to elect mid-range core multiples. The inclusion of incremental balloon stresses means the derived adjusted multiple is above the higher range used at a AAA (sf) level.

CREDIT ENHANCEMENT AND RESERVES
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 21.9 million, and its target balance is equal to 1.0% of the aggregate notes’ balance.

The subordination of the Class B Notes and the General Reserve Account provide credit enhancement to the Class A Notes. As of the February 2021 payment date, credit enhancement to the Class A Notes remained at 9.1%.

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.

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 continue to increase in the coming months for many ABS transactions, some meaningfully. The ratings are based on additional analysis and, where appropriate, adjustments to expected performance as a result of the global efforts to contain the spread of the coronavirus. For this transaction, DBRS Morningstar applied an additional haircut to its base case recovery rate and conducted additional sensitivity analysis to determine that the transaction benefits from sufficient liquidity support to withstand high levels of payment holidays in the portfolio.

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 28 January 2021. For details, see the following commentaries: https://www.dbrsmorningstar.com/research/372842/global-macroeconomic-scenarios-january-2021-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.

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 the structured finance rating approach and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/359905.

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 can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at: https://www.dbrsmorningstar.com/research/373262.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the ratings is the “Master European Structured Finance Surveillance Methodology” (8 February 2021).

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: 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 sources of data and information used for this rating include investor reports provided by EuroTitrisation SA (the Management Company), loan-level data provided by the European DataWarehouse GmbH, and the following historical information received from the Seller:
-- Static monthly origination and cumulative gross and net loss data from Q1 2009 to Q4 2020.

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 18 January 2021, when DBRS Morningstar assigned AAA (sf) ratings to the Series 2021-01 Class A Notes and discontinued its rating on the Series 2018-26 Class A Notes.

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

To assess the impact of changing the transaction parameters on the ratings, DBRS Morningstar considered the following stress scenarios as compared with the parameters used to determine the ratings (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 1.6% and 44.9%, 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 of the Class A Notes would be expected to fall to AA (sf), assuming no change in the PD. If the PD increases by 50%, the rating of the Class A Notes would be expected to fall to AA (sf), assuming no change in the LGD. Furthermore, if both the PD and LGD increase by 50%, the rating of the Class A Notes would be expected to fall to A (high) (sf).

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 AA (low) (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of AA (low) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of A (high) (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. DBRS Morningstar understands further information on DBRS Morningstar historical default rates may be published by the Financial Conduct Authority (FCA) on its webpage: https://www.fca.org.uk/firms/credit-rating-agencies.

These ratings are endorsed by DBRS Ratings Limited for use in the United Kingdom.

Lead Analyst: Petter Wettestad, Senior 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
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.

-- Legal Criteria for European Structured Finance Transactions (11 September 2019),
https://www.dbrsmorningstar.com/research/350234/legal-criteria-for-european-structured-finance-transactions.
-- Master European Structured Finance Surveillance Methodology (8 February 2021),
https://www.dbrsmorningstar.com/research/373435/master-european-structured-finance-surveillance-methodology.
-- Operational Risk Assessment for European Structured Finance Servicers (19 November 2020), https://www.dbrsmorningstar.com/research/370270/operational-risk-assessment-for-european-structured-finance-servicers.
-- 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.
-- 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.
-- DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (3 February 2021),
https://www.dbrsmorningstar.com/research/373262/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings.

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].