DBRS Morningstar Takes Rating Actions on Cars Alliance Auto Leases France Master

DBRS Ratings GmbH (DBRS Morningstar) assigned a AAA (sf) rating to the EUR 60.0 million Class A 2021-15 Notes issued by Cars Alliance Auto Leases France Master (the Issuer), discontinued its AAA (sf) rating on the EUR 61.2 million Class A 2021-10 Notes because of their full repayment, and confirmed the following remaining outstanding notes at AAA (sf):

-- Class A 2021-11 Notes
-- Class A 2021-12 Notes
-- Class A 2021-13 Notes
-- Class A 2021-14 Notes

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

The rating actions reflect the issuance of the Class A 2021-15 Notes by the Issuer on the 21 October 2021 payment date, the repayment of the Class A 2021-10 and the annual review of the transaction, and are based on the following analytical considerations:
-- Portfolio performance, in terms of delinquencies, defaults, and losses as of the October 2021 payment date.
-- Probability of default (PD), loss given default (LGD), and expected loss assumptions on the remaining receivables.
-- Current available credit enhancement to the notes to cover the expected losses at the AAA (sf) rating level.
-- No purchase termination events have occurred.
-- Current economic environment and an assessment of sustainable performance, as a result of the Coronavirus Disease (COVID-19) pandemic.
The Class A Notes are collateralised by lease receivable instalments and specifically exclude, among others, the residual value component. The receivables relate to auto lease agreements granted by Diffusion Industrielle et l’Automobile par le Crédit SA (DIAC or the Seller) to private lessees residing in France.

DIAC is a wholly owned subsidiary of RCI Banque SA, which is a wholly owned subsidiary of Renault S.A.S. The security granted to the Issuer includes a first-ranking pledge without dispossession over the leased vehicles, which is subject to an intercreditor agreement that references specific allocations to more than one securitisation creditor. EuroTitrisation manages the transaction and DIAC (the Servicer) services the receivables. The transaction closed in October 2020 and 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. 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.

PORTFOLIO PERFORMANCE
As of the October 2021 payment date, loans that were 30 to 60 days and 60 to 90 days delinquent represented 0.16% and 0.03% of the portfolio discounted balance, respectively. The cumulative gross default ratio was 0.4% of the aggregate original balance, with cumulative principal recoveries of 29.9% to date.

PORTFOLIO ASSUMPTIONS AND KEY RATING DRIVERS
Because of the revolving period of the transaction, DBRS Morningstar maintained stress scenarios for two pool compositions: one pool composed of 100% new vehicles and the other composed of 100% used vehicles:

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%
-- LGD: 69% for the AAA (sf) scenario

CREDIT ENHANCEMENT
The subordination of the Class B Notes provides credit enhancement to the Class A Notes. As of the September 2021 payment date, credit enhancement to the Class A Notes remained stable at 11.0%.

The structure includes an amortising cash 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 6.6 million, with a target balance equal to 1.0% of the aggregate notes’ balance. In a stressed scenario where DBRS Morningstar assumes no collections, the cash reserve would cover approximately six months of senior fees and interest payments on the Class A Notes. Upon the downgrade of the Seller or Servicer below investment grade, a performance and commingling reserve will also be funded.

BNP Paribas Securities Services SCA acts as the account bank for the transaction. Based on the DBRS Morningstar private rating on BNP Paribas Securities Services SCA, 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.

The Coronavirus Disease (COVID-19) and the resulting isolation measures have caused an immediate economic contraction, leading in some cases to 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. 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 applied a moderate decline in the expected recovery rate and conducted additional sensitivity analysis to determine that the transaction benefits from sufficient liquidity support to withstand high levels of payment moratoriums in the portfolio.

DBRS Morningstar analysed the transaction structure in Intex DealMaker.

The DBRS Morningstar Sovereign group releases baseline macroeconomic scenarios for rated sovereigns. These scenarios were last updated on 8 September 2021. The DBRS Morningstar analysis considered impacts consistent with the baseline scenario in the below referenced report. For details, see the following commentaries: https://www.dbrsmorningstar.com/research/384150/baseline-macroeconomic-scenarios-for-rated-sovereigns and https://www.dbrsmorningstar.com/research/384482/baseline-macroeconomic-scenarios-application-to-credit-ratings.

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.

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).

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.

A review of the transaction legal documents was not conducted as the documents have remained unchanged since the most recent rating action.

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.

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/381451/global-methodology-for-rating-sovereign-governments.

The DBRS Morningstar Sovereign group releases baseline macroeconomic scenarios for rated sovereigns. DBRS Morningstar analysis considered impacts consistent with the baseline scenarios as set forth in the following report: https://www.dbrsmorningstar.com/research/384482/baseline-macroeconomic-scenarios-application-to-credit-ratings.

The sources of data and information used for these ratings include a monthly investor report provided by EuroTitrisation (the Management Company) and loan-level data provided by the 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 ratings, DBRS Morningstar was not supplied with third-party assessments. However, this did not impact the rating analysis.

DBRS Morningstar has applied the principal methodology consistently and conducted a review of the transaction in accordance with the principal methodology.

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 rating on the Class A 2021-15 concerns a newly issued financial instrument. This is the first DBRS Morningstar rating on this financial instrument.

The last rating action on this transaction took place on 21 September 2021, when DBRS Morningstar assigned a AAA (sf) rating to the Class A 2021-14 Notes and discontinued its rating on the Class A 2021-9 Notes.

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 with the parameters used to determine the rating (the base case):

-- DBRS Morningstar expected a base case probability of default and loss given default for the portfolio based on a review of the assets. Adverse changes to asset performance may cause stresses to base case assumptions and, therefore, have a negative effect on credit ratings.

To assess the impact of changing the transaction parameters on the ratings, DBRS Morningstar considered the following stress scenarios for two pool compositions, one pool composed of 100% new vehicles and one pool composed of 100% used vehicles as compared with the parameters used to determine the ratings:

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

Pool with 100% used vehicles:
-- Expected default: 5.0%
-- Expected recovery rate: 47%
-- 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: 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: Preben Cornelius Overas, Senior Analyst
Rating Committee Chair: Alfonso Candelas, Senior Vice President
Initial Rating Date: 28 October 2020

DBRS Ratings GmbH
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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.

--Master European Structured Finance Surveillance Methodology (8 February 2021), https://www.dbrsmorningstar.com/research/37343s5/master-european-structured-finance-surveillance-methodology.
-- Legal Criteria for European Structured Finance Transactions (29 July 2021), https://www.dbrsmorningstar.com/research/382171/legal-criteria-for-european-structured-finance-transactions.
-- Operational Risk Assessment for European Structured Finance Servicers (16 September 2021), https://www.dbrsmorningstar.com/research/384513/operational-risk-assessment-for-european-structured-finance-servicers.
-- Operational Risk Assessment for European Structured Finance Originators (16 September 2021), https://www.dbrsmorningstar.com/research/384512/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 (30 July 2021),
https://www.dbrsmorningstar.com/research/382486/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: https://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].