DBRS Morningstar Takes Rating Actions on Cars Alliance Auto Loans Germany Master Following Amendment

DBRS Ratings GmbH (DBRS Morningstar) assigned a AAA (sf) rating to the EUR 171.0 million Series 2022-03, Class A Notes issued by Cars Alliance Auto Loans Germany Master (the Issuer) following the note issuance on the 18 March 2022 payment date. Additionally, DBRS Morningstar discontinued its AAA (sf) rating on the EUR 178.8 million Series 2021-05, Class A Notes as a result of the notes’ full repayment and confirmed the following remaining outstanding series (collectively, the Class A Notes) at AAA (sf):

-- EUR 237.2 million Series 2021-06, Class A Notes
-- EUR 114.9 million Series 2021-07, Class A Notes
-- EUR 310.4 million Series 2021-10, Class A Notes
-- EUR 81.5 million Series 2021-11, Class A Notes
-- EUR 72.7 million Series 2022-01, Class A Notes
-- EUR 118.9 million Series 2022-02, 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 2039.

The rating actions follow a review of the entire transaction and are based on the following analytical considerations:
-- An amendment to the transaction executed on 15 March 2022 (the Amendment);
-- The portfolio performance, in terms of delinquencies and defaults, as of the March 2022 payment date;
-- Updated probability of default (PD), loss given default (LGD), and expected loss assumptions for the remaining collateral pool, considering the updated quarterly vintage performance data received in the context of the Amendment;
-- No revolving period termination events;
-- The levels of credit enhancement (after taking into consideration the Amendment) to the Class A Notes to cover their expected losses at their AAA (sf) rating level; and
-- 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 (RCI Germany or the Seller), the German branch of RCI Banque SA.

As of the March 2022 payment date, the aggregate balance of the outstanding series of Class A Notes was EUR 1,106.6 million and the balance of the Class B Notes was EUR 83.3 million. The EUR 1,189.8 million securitised portfolio (excluding defaulted receivables) consisted of auto loans granted to finance the purchase of new (77.6%) and used vehicles (22.4%).

AMENDMENT
The following amendments to the transaction took effect on 18 March 2022:
-- Extension of the revolving period to March 2026 from March 2022;
-- Extension of the legal final maturity date by four years to March 2039 from March 2035;
-- Decrease in the subordination of the Class B Notes to 7.0% from 8.0%;
-- Decrease in the reserve fund target amount to 0.75% from 1.0%;
-- Update in the eligibility criteria to allow for the acquisition of receivables associated with electric cars;
-- Inclusion of a cumulative gross loss ratio trigger for the revolving period termination event; and
-- Further amendments that follow the Simple, Transparent, and Standardised securitisation criteria.

REVOLVING PERIOD
At its setup date on 18 March 2014, the transaction envisaged a four-year revolving period, which was extended twice by another four more years: during the first amendment in 2018 with a revolving period extension until March 2022 and during the second amendment in March 2022, with a revolving period extension until March 2026. 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 and performance triggers in the portfolio and a minimum subordination ratio for the outstanding notes. The revolving period will end prematurely if these conditions are not met or in other events, such as the insolvency of the Seller.

PORTFOLIO PERFORMANCE
As of the March 2022 payment date, loans that were one to two months and two to three months in arrears represented 0.8% and 0.05% of the outstanding portfolio balance while loans more than three months delinquent represented 0.0%. Gross cumulative defaults amounted to 0.7% of the aggregate initial portfolio balance, with cumulative recoveries of 83.1% to date.

PORTFOLIO ASSUMPTIONS AND KEY DRIVERS
DBRS Morningstar updated its base case PD and LGD to 1.6% and 38.9%, respectively, based on updated historical gross loss and net loss data ranging from Q1 2010 to Q3 2021 that DBRS Morningstar received from the Seller. The portfolio composition continues to consider potential portfolio migration based on replenishment criteria set forth in the transaction legal documents.

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 subordination of the Class B Notes and the general reserve account provide credit enhancement to the Class A Notes. As of the March 2022 payment date, credit enhancement to the Class A Notes stands at 7.8%.

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 8.9 million and its target balance is equal to 0.75% of the aggregate notes’ balance.

The structure also includes a commingling reserve account and a set-off reserve account, which will be funded if certain triggers are breached. To date, these reserves continue to be unfunded.

HSBC Continental Europe acts as the account bank for the transaction. Based on DBRS Morningstar’s private rating on HSBC Continental Europe, 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 had caused an immediate economic contraction, leading in some cases to increases in unemployment rates and income reductions for many borrowers.

The DBRS Morningstar Sovereign group releases baseline macroeconomic scenarios for rated sovereigns. These scenarios were last updated on 9 December 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/389454/baseline-macroeconomic-scenarios-for-rated-sovereigns-december-2021-update and https://www.dbrsmorningstar.com/research/384482/baseline-macroeconomic-scenarios-application-to-credit-ratings.

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 methodologies applicable to the ratings are the “Master European Structured Finance Surveillance Methodology” (8 February 2022) and the Rating European Consumer and Commercial Asset-Backed Securitisations (29 October 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.

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.

DBRS Morningstar has conducted a review of the transaction’s legal documents provided in the context of the aforementioned amendments. A review of any other transaction’s legal documents was not conducted as the documents have remained unchanged since the most recent rating action.

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 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 RCI Germany:
-- Static quarterly gross loss data from Q1 2010 to Q3 2021;
-- Static quarterly net loss data from Q1 2010 to Q3 2021;
-- Dynamic monthly delinquency data from December 2014 to September 2021; and
-- Dynamic monthly prepayments data from January 2016 to September 2021.

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 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 February 2022, when DBRS Morningstar assigned a AAA (sf) rating to the Series 2022-02, Class A Notes and discontinued its rating on the Series 2021-04, Class A 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 ratings, DBRS Morningstar considered the following stress scenarios, as compared to 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 38.9%, 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 (high) (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 AAA (sf) -- 50% increase in LGD, expected rating of AA (high) (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 (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: Preben Cornelius Overas, Senior Analyst
Rating Committee Chair: Alfonso Candelas, Senior Vice President
Initial Rating Date: 18 March 2014

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 (29 October 2021),
https://www.dbrsmorningstar.com/research/387042/rating-european-consumer-and-commercial-asset-backed-securitisations.
-- Legal Criteria for European Structured Finance Transactions (29 July 2021), https://www.dbrsmorningstar.com/research/382171/legal-criteria-for-european-structured-finance-transactions.
-- Master European Structured Finance Surveillance Methodology (8 February 2022), https://www.dbrsmorningstar.com/research/392000/master-european-structured-finance-surveillance-methodology.
-- 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.
-- 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.
-- 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].