DBRS Morningstar Assigns Ratings to Retail Automotive CP Germany 2021 UG (Haftungsbeschränkt)

DBRS Ratings GmbH (DBRS Morningstar) assigned ratings to the following classes of notes (the Rated Notes) issued by Retail Automotive CP Germany 2021 UG (Haftungsbeschränkt) (the Issuer):

-- Class A Notes at AAA (sf)
-- Class B Notes at AA (high) (sf)
-- Class C Notes at A (high) (sf)
-- Class D Notes at BBB (high) (sf)
-- Class E Notes at BBB (low) (sf)
-- Class F Notes at BB (sf)

DBRS Morningstar did not assign ratings to the Class G Notes (together with the Rated Notes, the Notes) issued in this transaction.

The ratings of the Class A Notes, Class B Notes, and Class C Notes address the timely payment of scheduled interest and ultimate repayment of principal by the legal maturity date. The ratings of the Class D Notes, Class E Notes, and Class F Notes address the ultimate payment of interest and the ultimate repayment of principal by the legal maturity date while junior to other outstanding classes of notes, but the timely payment of interest when they are the senior-most tranche, in accordance with the Issuer’s default definition provided in the transaction documents.

The Notes are backed by a pool of retail auto loan receivables associated with a portfolio of new and used vehicle loans granted by CreditPlus Bank AG (CreditPlus, the Seller and Servicer) to private individual borrowers residing in Germany.

The transaction includes a 21-month revolving period, during which time the Seller may offer additional receivables that the Issuer may purchase, provided that eligibility criteria and concentration limits set out in the transaction documents are satisfied. The revolving period may end earlier than scheduled if certain events occur, such as a breach of performance triggers, an insolvency of the Seller, or default of the Servicer.

DBRS Morningstar based its ratings on the following analytical considerations:
-- The transaction capital structure, including form and sufficiency of available credit enhancement.
-- Credit enhancement levels that are sufficient to support DBRS Morningstar’s projected expected net losses under various stress scenarios.
-- The ability of the transaction to withstand stressed cash flow assumptions and repay investors according to the terms under which they have invested.
-- CreditPlus’s capabilities with respect to originations, underwriting, servicing, and financial strength.
-- The transaction parties’ financial strength with regard to their respective roles.
-- The credit quality, diversification of the collateral, and historical and projected performance of the Seller’s portfolio.
-- The sovereign rating on the Federal Republic of Germany, currently rated AAA with a Stable trend by DBRS Morningstar.
-- 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
During the revolving period, and prior to the fulfillment of the enforcement conditions or an optional redemption event, the Issuer applies the available funds in accordance with two separate principal and interest priority of payments. Prior to a sequential redemption event, principal is allocated to the Notes on a pro rata basis. Following a sequential redemption event, principal is allocated on a sequential basis. Once the amortisation becomes sequential it cannot be switched to pro rata.

The transaction benefits from liquidity support provided by a liquidity reserve, funded to an amount equal to 0.7% of the initial principal amount of the Class A Notes, Class B Notes, and Class C Notes. The liquidity reserve is available to the Issuer only in a restricted scenario where the principal collections are not sufficient to cover the shortfalls in senior costs (servicer fees and operating expenses), interests on the liquidity reserve itself, swap payments, and interest on the Class A Notes, the Class B Notes, and Class C Notes. The liquidity reserve required amount is equal to 0.7% of the outstanding principal balance of the Class A Notes, Class B Notes, and Class C Notes. Any excess amounts above the target level will be returned directly to the Seller outside of the priority of payments.

COUNTERPARTIES
The Bank of New York Mellon, Frankfurt branch (BNYM) is the account bank for the transaction. DBRS Morningstar has a private rating on BNYM, which meets DBRS Morningstar’s criteria to act in such capacity. The transaction documents contain downgrade provisions consistent with DBRS Morningstar’s criteria with respect to BNYM’s role as account bank.

The transaction is exposed to interest rate risk because of the mismatch between the fixed-rate assets and the floating-rate liabilities. The risk is mitigated by two different interest rate swap agreements for the Class A Notes and the Class B to F Notes. CreditPlus is the swap counterparty for the transaction. Its obligations under the swap agreements are guaranteed by Credit Agricole Consumer Finance, S.A. (CACF). DBRS Morningstar has a private rating on CACF and the hedging documents include downgrade provisions consistent with DBRS Morningstar's criteria.

DBRS Morningstar analysed the transaction structure in Intex DealMaker.

CORONAVIRUS DISEASE (COVID-19) CONSIDERATIONS
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 asset-backed securities (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 haircut to its expected recovery rate.

The DBRS Morningstar Sovereign group releases baseline macroeconomic scenarios for rated sovereigns. These scenarios were last updated on 8 September 2021. 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 “Rating European Consumer and Commercial Asset-Backed Securitisations” (3 September 2020).

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.

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 considers 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 the ratings include CreditPlus, provided through the transaction arranger, Landesbank Baden-Württemberg.

DBRS Morningstar received the following data and information:
-- Static monthly gross loss and recovery vintage from January 2009 to September 2021, and
-- Dynamic monthly prepayments, delinquencies, and originations from January 2009 to September 2021.

DBRS Morningstar was also provided with detailed stratification tables as of 30 September 2021.

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 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.

These ratings concern newly issued financial instruments. 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 rating, DBRS Morningstar considered the following stress scenarios, as compared to the parameters used to determine the rating (the base case):

-- Expected Default Rate (PD): 1.5 %, a 25% and 50% increase on the applicable PD.
-- Recovery Rate: 56.3%.
-- Loss Given Default (LGD): 43.7%, a 25% and 50% increase in the applicable LGD.

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

DBRS Morningstar concludes that the expected ratings under the eight stress scenarios are:
-- Class A Notes: AAA (sf), AA (high) (sf), AAA (sf), AA (high) (sf), AA (sf), AA (high) (sf), AA (sf), AA (low) (sf)
-- Class B Notes: AA (high) (sf), AA (sf) ,AA (low) (sf), AA (sf), AA (low) (sf), A (sf), A (sf), A (sf), A (low) (sf)
-- Class C Notes: A (high) (sf), A (low) (sf), BBB (high) (sf), BBB (high) (sf), BBB (sf), BB (high) (sf), BBB (low) (sf), BB (high) (sf), BB (low) (sf)
-- Class D Notes: BBB (high) (sf), BBB (sf), BB (high) (sf), BBB (low) (sf), BB (high) (sf), BB (low) (sf), BB (high) (sf), BB (low) (sf), B (high) (sf)
-- Class E Notes: BBB (low) (sf), BB (high) (sf), BB (low) (sf), BB (sf), B (high) (sf), B (high) (sf), BB (low) (sf), B (high) (sf), B (sf)
-- Class F Notes: BB (sf), B (high) (sf), B (high) (sf), B (low) (sf), Below B (low) (sf), Below B (low) (sf), Below B (low) (sf), Below B (low) (sf), Below B (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: Guglielmo Panizza, Assistant Vice President
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: 29 October 2021

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.

-- 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.
-- 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.
-- Interest Rate Stresses for European Structured Finance Transactions (24 September 2021), https://www.dbrsmorningstar.com/research/384920/interest-rate-stresses-for-european-structured-finance-transactions.
-- Derivative Criteria for European Structured Finance Transactions (20 September 2021), https://www.dbrsmorningstar.com/research/384624/derivative-criteria-for-european-structured-finance-transactions.
-- 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].