DBRS Morningstar Confirms Rating on Cars Alliance Auto Loans Italy 2015 S.r.l. Following Amendment

DBRS Ratings GmbH (DBRS Morningstar) confirmed its AAA (sf) rating on the Class A Notes issued by Cars Alliance Auto Loans Italy 2015 S.r.l. (the Issuer) following a transaction amendment (the Amendment).

The rating on the Class A Notes addresses the timely payment of interest and the ultimate repayment of principal on or before the legal final maturity date in December 2031.

The rating confirmation follows a review of the entire transaction and is based on the following analytical considerations:
-- An amendment to the transaction executed on 23 January 2023;
-- Portfolio performance, in terms of delinquencies, defaults, and losses, as of the January 2023 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;-- Current available credit enhancement to the Class A Notes to cover the expected losses at the AAA (sf) rating level; and
-- Absence of revolving termination events.

The transaction is a securitisation of Italian auto loan receivables originated by RCI Banque S.A., Italian Branch (RCI Italy or the seller). The EUR 1,821.5 million portfolio, as of the January 2023 payment date, consisted of loans granted to both private (95.3% of the discounted collateral balance) and corporate (4.7%) clients for the purchase of new (90.4%) and used (9.6%) vehicles. Most of the receivables have equal monthly instalments, although, 23.8% of loans include a final balloon payment.

The transaction was established in July 2015. In March 2021, an amendment to the transaction was executed, including: a renewal of the revolving period for 36 additional months until March 2024; an increase in the portfolio size, partially financed by a new issuance of Class A Notes; an increase in the cash reserve amount; a reduction in the coupon for the Class A Notes to 0.75% from 1.0%; an introduction of an optional redemption by the Class A Noteholders in the event that the excess cash trigger is breached; and some adjustments to the concentration limits to allow loans with a balloon instalment to make up a greater proportion of the pool.

AMENDMENT
On 23 January 2023, the Issuer entered into an amendment to the transaction. The Amendment entails the following changes:
-- Removal of the balloon concentration limits, set at 25% prior to the Amendment.
-- In alignment with other DBRS Morningstar-rated transactions from the Seller, change in the definition of the balloon loan instalment ratio such that it will be based on vehicle price instead of the total amount granted to the borrower.

REVOLVING PERIOD & CONCENTRATION LIMITS
The transaction has a revolving period currently scheduled to finish in March 2024, following several extensions since closing. The revolving period will end prematurely if certain performance triggers are breached. To further mitigate the deterioration of the pool, the transaction permits certain concentration limits on the additional portfolios purchased on each payment date. To date, the concentration limits and performance triggers in place have been satisfied. Due to the inclusion of a revolving period in the transaction, DBRS Morningstar’s analysis considered potential portfolio migration based on the replenishment criteria set forth in the transaction legal documents.

PORTFOLIO PERFORMANCE
As of the January 2023 payment date, one- to two-month and two- to three-month delinquencies were 0.2% and 0.1% of the portfolio’s net discounted balance, respectively, while delinquencies greater than three months were 0.1%. Gross cumulative defaults as a percentage of the original portfolio and cumulative transferred receivables were both 1.0%, with cumulative recoveries of 58.4%.

PORTFOLIO ASSUMPTIONS AND KEY DRIVERS
DBRS Morningstar updated its base case PD and LGD to 1.4% and 74.9%, respectively, based on updated historical gross loss and net loss data ranging from Q1 2012 to Q3 2022 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 that the derived adjusted multiple is above the higher range at the AAA (sf) level.

CREDIT ENHANCEMENT
The portion of the Class J Notes not used to fund the cash reserve provides credit enhancement to the Class A Notes. As of the January 2023 payment date, the credit enhancement remained stable at 13.0% since the amendment in March 2021.

The transaction benefits from a cash reserve funded through part of the proceeds from the Class J Notes, which is available to cover senior fees and the interest due on the Class A Notes. This reserve has an amortising target equal to 1.0% of the aggregate Class A and Class J Notes’ balance floored at EUR 1.0 million. The reserve is currently at its target amount of EUR 21.3 million.

Crédit Agricole Corporate and Investment Bank, Milan Branch (CACIB-Milan) acts as the account bank for the transaction. Based on DBRS Morningstar’s private rating on CACIB-Milan, the downgrade provisions outlined in the transaction documents, and structural mitigants, DBRS Morningstar considers the risk arising from the exposure to CACIB-Milan to be consistent with the rating assigned to the Class A Notes, as described in DBRS Morningstar’s “Legal Criteria for European Structured Finance Transactions” methodology.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factors that had a significant or relevant impact 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.

DBRS Morningstar analysed the transaction structure in Intex DealMaker.

Notes:
All figures are in euros unless otherwise noted.

The principal methodologies applicable to the rating are the “Master European Structured Finance Surveillance Methodology” (21 December 2022), https://www.dbrsmorningstar.com/research/407695/master-european-structured-finance-surveillance-methodology, and the “Rating European Consumer and Commercial Asset-Backed Securitisations” (19 October 2022), https://www.dbrsmorningstar.com/research/404212/rating-european-consumer-and-commercial-asset-backed-securitisations.

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 Amendment. 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/401817/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 this rating 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 the seller:
-- Static quarterly gross loss data from Q1 2012 to Q3 2022;
-- Static quarterly net loss data from Q1 2012 to Q3 2022;
-- Dynamic monthly delinquency data from September 2016 to September 2022; and
-- Dynamic monthly prepayments data from September 2016 to September 2022.

DBRS Morningstar did not rely upon third-party due diligence in order to conduct its analysis.

At the time of the initial rating and in the context of a restructuring in April 2018, 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 purpose 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 2 March 2022, when DBRS Morningstar confirmed its rating on the Class A Notes at AAA (sf).

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

Sensitivity Analysis: 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 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 1.4% and 74.1%, 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 on the Class A Notes would be expected to remain at AAA (sf), assuming no change in the PD. If the PD increases by 50%, the rating on the Class A Notes would be expected to remain at AAA (sf), assuming no change in the LGD. Furthermore, if both the PD and LGD increase by 50%, the rating on the Class A Notes would be expected to fall to AA (high) (sf).

Class A Notes Risk Sensitivity:
-- 25% increase in LGD, expected rating of AAA (sf).
-- 50% increase in LGD, expected rating of AAA (sf).
-- 25% increase in PD, expected rating of AAA (sf).
-- 50% increase in PD, expected rating of AAA (sf).
-- 25% increase in PD and 25% increase in LGD, expected rating of AAA (sf).
-- 25% increase in PD and 50% increase in LGD, expected rating of AAA (sf).
-- 50% increase in PD and 25% increase in LGD, expected rating of AA (high) (sf).
-- 50% increase in PD and 50% increase in LGD, expected rating of AA (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: 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: Preben Cornelius Overas, Assistant Vice President
Rating Committee Chair: Alfonso Candelas, Senior Vice President
Initial Rating Date: 23 July 2015

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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 (21 December 2022), https://www.dbrsmorningstar.com/research/407695/master-european-structured-finance-surveillance-methodology.
-- Rating European Consumer and Commercial Asset-Backed Securitisations (19 October 2022), https://www.dbrsmorningstar.com/research/404212/rating-european-consumer-and-commercial-asset-backed-securitisations.
-- Rating European Structured Finance Transactions Methodology (15 July 2022), https://www.dbrsmorningstar.com/research/399899/rating-european-structured-finance-transactions-methodology.
-- Legal Criteria for European Structured Finance Transactions (22 July 2022), https://www.dbrsmorningstar.com/research/400166/legal-criteria-for-european-structured-finance-transactions.
-- Operational Risk Assessment for European Structured Finance Servicers (15 September 2022), https://www.dbrsmorningstar.com/research/402774/operational-risk-assessment-for-european-structured-finance-servicers.
-- Operational Risk Assessment for European Structured Finance Originators (15 September 2022), https://www.dbrsmorningstar.com/research/402773/operational-risk-assessment-for-european-structured-finance-originators.
-- 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: 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].