DBRS Morningstar Finalises Provisional Ratings on Cars Alliance Auto Loans France V 2022-1

DBRS Ratings GmbH (DBRS Morningstar) finalised its provisional ratings of AAA (sf) and AA (low) (sf) on the Class A Notes and Class B Notes, respectively (together, the Rated Notes), issued by Cars Alliance Auto Loans France V 2022-1 (the Issuer). The Issuer is a French Fonds Commun De Tritrisation (FCT), acting as a special purpose entity specifically for the purpose of this transaction.

DBRS Morningstar does not rate the Class C Notes (together with Class A Notes and Class B Notes, the Notes) issued in this transaction.

The ratings assigned to the Rated Notes address the timely payment of scheduled interest and the ultimate repayment of principal by the legal maturity date.

The Rated Notes are collateralised by a portfolio of fixed-rate auto loan receivables granted to private individuals and commercial clients in France for the purchase of new or used cars originated by DIAC S.A. (DIAC or the Seller). DIAC is a wholly owned subsidiary of RCI Banque, which is a wholly owned subsidiary of Renault S.A. The transaction is managed by Eurotitrisation and the receivables are serviced by DIAC (the Servicer).

DBRS Morningstar based its ratings on a review of the following analytical considerations:
-- The transaction capital structure, including form and sufficiency of available credit enhancement;
-- Relevant credit enhancement in the form of subordination, a general reserve fund, and excess spread;
-- Credit enhancement levels that are sufficient to support DBRS Morningstar’s projected cumulative net loss assumption under various stressed cash flow assumptions for the Rated Notes;
-- The ability of the transaction to withstand stressed cash flow assumptions and repay investors according to the terms under which they have invested;
-- DIAC’s capabilities with regard to originations, underwriting, servicing, and its financial strength;
-- The transaction parties’ financial strength with regard to their respective roles;
-- The credit quality of the collateral and historical and projected performance of the Seller’s portfolio;
-- The sovereign rating of the Republic of France, currently at AA (high) with a Stable trend; and
-- 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
The transaction includes an 18-month revolving period during which the Seller may offer additional auto loan receivables that the Issuer will purchase subject to eligibility criteria, portfolio limits, performance triggers, and other conditions set out in the transaction documents. The transaction incorporates a single waterfall that facilitates the distribution of the available distribution amount. During the amortisation period, the Notes amortise sequentially subject to a note-specific target principal redemption amount that allows for the use of available excess spread to repay principal.

The transaction benefits from a general reserve fully funded by the Seller available to cover senior expenses, net swap payments, and interest shortfalls on the Rated Notes during both the revolving and normal amortisation periods. The general reserve is made available in full to the priority of payments on the legal maturity date and is set at 0.75% of the outstanding balance of the Rated Notes.

The transaction is exposed to interest rate risk due to the mismatch between the fixed-rate assets and the floating-rate liabilities, and the risk is mitigated by an interest rate swap provided by DIAC as the swap counterparty alongside Crédit Agricole CIB (CA-CIB) in its role as the standby swap counterparty.

DBRS Morningstar analysed the transaction structure in Intex DealMaker.

COUNTERPARTIES
BNP Paribas Securities Services (BP2S) is the account bank for the transaction. Based on DBRS Morningstar’s private rating on BP2S, 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 Rated Notes, as described in DBRS Morningstar’s "Legal Criteria for European Structured Finance Transactions" methodology.

DIAC is the swap counterparty alongside Crédit Agricole CIB (CA-CIB) in its role as the standby swap counterparty for the transaction. DBRS Morningstar privately rates DIAC and CA-CIB. The hedging documents include downgrade provisions consistent with DBRS Morningstar's criteria.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
General Considerations
There were no Environmental/ Social/ Governance factor(s) that had a significant or relevant effect on the credit analysis.

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/396929/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the rating is: “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: 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 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 these ratings include DIAC and its agents, CA-CIB, and BNP Paribas.

DBRS Morningstar received quarterly static default and recovery data from Q1 2015 to Q4 2021 and quarterly dynamic delinquency, prepayment, and origination data from Q1 2015 to Q4 2021. DBRS Morningstar also received stratification tables for the loan pool as of 30 April 2022 and its related contractual amortisation profile.

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.

This is the first rating action since the Initial Rating Date.

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

Sensitivity Analysis: 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):

-- Probability of default (PD) used: Expected PD of 3.5%
-- Loss given default (LGD) used: Expected LGD of 55.2% (68.6% for the AAA (sf) scenario and 65.9% for the AA (low) (sf) scenario)

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 a 25% increase in the expected LGD.
Scenario 5: A 50% increase in the expected PD and a 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 a 50% increase in the expected LGD.
Scenario 8: A 50% increase in the expected PD and a 50% increase in the expected LGD.

DBRS Morningstar concludes that the expected ratings under the eight hypothetic scenarios are:
-- Class A Notes: AA (high) (sf), AA (sf), AA (high) (sf), AA (sf), A (high) (sf), AA (sf), A (high) (sf), A (sf).
-- Class B Notes: A (sf), A (low) (sf), A (sf), BBB (high) (sf), BBB (sf), A (low) (sf), BBB (sf), BBB (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: 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: Xiaoxi Sun, Assistant Vice President
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: 21 April 2022

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The rating methodologies used in the analysis of this transaction can be found at: http://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.
-- 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 (17 May 2022), https://www.dbrsmorningstar.com/research/396929/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].