DBRS Morningstar Confirms Rating of FCT Cars Alliance DFP France

DBRS Ratings GmbH (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.

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 2021 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.
-- The current economic environment and an assessment of sustainable performance, as a result of the Coronavirus Disease (COVID-19) pandemic.

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, and its legal maturity date is on the payment date in July 2028. On 6 November 2020, the transaction was further amended following the end of a waiver period of the three-month average payment date in the context of the coronavirus pandemic. Please see for details: https://www.dbrsmorningstar.com/research/369742/dbrs-morningstar-comments-on-fct-cars-alliance-dfp-france-following-amendment.

PORTFOLIO PERFORMANCE
As of the June 2021 payment date, the three-month average principal payment rate was 62.7% and the annualised portfolio yield was 5.8% (including additional interest income generated through the discount mechanism). Realised losses were zero. As of the June 2021 payment date, the subordination factor to the Notes was 17.5%.

The collateral is subject to certain concentration limits on the product type securing the receivables (spare parts, second-hand vehicles). As of the June 2021 payment date, all the limits had been met. The limit option for the dealer group concentration was 3.5% of the portfolio balance. 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 5.8%, a yield of 3.0%, 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 decreased its base case PD to 5.8% from 8.0% since the last rating action, which corresponds to the most constraining dealer group concentration limit option of 2.5% for the transaction cash flow analysis, following the last amendment. DBRS Morningstar also increased the yield in its cash flow analysis to 3.0% from 0.0% on the portfolio since the last rating action to reflect the improvement of the performance back to pre-pandemic levels after the end of the waiver period at the October 2020 payment date.

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 and the dealer group concentration limit option used. As of the June 2021 payment date, the required subordination represents 21.2% 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 6.1 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 2021 payment date, the portfolio balance is EUR 1,273 million, which is at the required portfolio balance level.

Société Générale, S.A. acts as the account bank for the transaction. Based on DBRS Morningstar’s account bank reference rating of Société Générale, S.A. 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 in some cases to increases in unemployment rates and income reductions for borrowers. DBRS Morningstar anticipates that delinquencies may continue to increase in the coming months for many structured finance transactions, some meaningfully.

The rating is 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. 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.

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 18 June 2021. For details, see the following commentaries: https://www.dbrsmorningstar.com/research/380281/global-macroeconomic-scenarios-june-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. DBRS Morningstar notes that the rating would likely be negatively affected 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 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 rating is “Master European Structured Finance Surveillance Methodology” (8 February 2021).

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.

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 consider potential portfolio migration based on replenishment criteria set forth in the transaction legal documents.

A review of the transaction legal documents was conducted in the context of the November 2020 amendment.

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 and loan-level data provided by European DataWarehouse.

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 2020, when DBRS Morningstar confirmed its AA (sf) rating on the Notes.

The lead analyst responsibilities for this transaction have been transferred to Petter Wettestad.

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

Separate stresses were applied in DBRS Morningstar’s analysis of dealer concentration and liquidation scenarios.
-- Default Rate: base case of 5.8%, stressed with a 25% and 50% increase
-- Monthly Principal Payment Rate (MPPR): base case of 15% (in line with the payment rate early amortisation trigger), stressed with a 25% and 50% decrease
-- Yield: base case of 3.0%, 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 BBB (sf)
-- 50% decrease in MPPR, expected rating of B (high) (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. 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.

This rating is 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: 23 July 2018

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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 (8 February 2021), https://www.dbrsmorningstar.com/research/373435/master-european-structured-finance-surveillance-methodology.
-- 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.
-- 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.
-- Legal Criteria for European Structured Finance Transactions (6 April 2021), https://www.dbrsmorningstar.com/research/376314/legal-criteria-for-european-structured-finance-transactions.
-- 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.
-- 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].