DBRS Morningstar Assigns Rating to Cars Alliance Auto Leases France Master Class A 2023-31 Notes and Discontinues Rating on Class A 2022-26 Notes

DBRS Ratings GmbH (DBRS Morningstar) assigned a AAA (sf) rating to the EUR 330.8 million Class A 2023-31 Notes (the Class A Notes) issued by Cars Alliance Auto Leases France Master (the Issuer). DBRS Morningstar assigned the rating following the issuance of the notes on the 21 February 2023 payment date. As of the payment date, all portfolio revolving conditions had been met. Additionally, DBRS Morningstar discontinued its AAA (sf) rating on the EUR 289.6 million Class A 2022-26 Notes because of their full repayment.

DBRS Morningstar does not rate the Class B Notes also issued in this transaction.

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 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 Automobile par le Crédit SA (DIAC; the seller or the service) 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 billion. The revolving period can be extended once for a maximum period of four years, subject to conditions.

PORTFOLIO PERFORMANCE
As of the February 2023 payment date, loans that were 30 to 60 days and 60 to 90 days delinquent represented 0.20% and 0.04% of the discounted portfolio balance, respectively. The cumulative gross default ratio was 0.64% of the aggregate original balance, with cumulative principal recoveries of 30.66% to date.

PORTFOLIO ASSUMPTIONS AND KEY RATING DRIVERS
DBRS Morningstar maintained stress scenarios for two pool compositions: one pool composed of 100% new vehicles and another composed of 100% used vehicles:

Pool with 100% new vehicles:
-- Expected default: 3.3%
-- Expected recovery rate: 53.6%
-- Loss given default (LGD): 65.2% for the AAA (sf) scenario

Pool with 100% used vehicles:
-- Expected default: 5.0%
-- Expected recovery rate: 49.6%
-- LGD: 67.8% 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 February 2023 payment date, credit enhancement to the Class A Notes stood at 11.07%.

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 12.56 million, with a target balance equal to 1.0% of the notes’ aggregate 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 a downgrade of the seller or the servicer below investment grade, a performance and commingling reserve will also be funded.

BNP Paribas SA acts as the account bank for the transaction. Based on BNP Paribas SA’s reference rating of AA, which is one notch below its DBRS Morningstar Long Term Critical Obligations Rating of AA (high), 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.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factors 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.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the ratings is: “Master European Structured Finance Surveillance Methodology” (7 February 2023), https://www.dbrsmorningstar.com/research/409485/master-european-structured-finance-surveillance-methodology.

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.

In DBRS Morningstar’s opinion, the changes under consideration do not warrant the application of the entire principal methodology. Given the master trust structure, no asset or cash flow analysis was conducted, as the asset portfolio complies with the composition limits set forth in the transaction legal documents and current transaction performance is within expectations.

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 a monthly investor report provided by EuroTitrisation.

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 considers the data and information available to it for the purposes 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.

This rating 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 23 January 2023, when DBRS Morningstar assigned a AAA (sf) rating to the Class A 2023-30 Notes and discontinued its rating on the Class A 2022-25 Notes.

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 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 rating, DBRS Morningstar considered the following stress scenarios for two pool compositions, one pool composed of 100% new vehicles and the other composed of 100% used vehicles, as compared with the parameters used to determine the rating:

Pool with 100% new vehicles:
-- Expected default: 3.3%
-- Expected recovery rate: 53.6%
-- LGD: 65.2% for the AAA (sf) scenario

Pool with 100% used vehicles:
-- Expected default: 5.0%
-- Expected recovery rate: 49.6%
-- LGD: 67.8% 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 (sf), AA (high) (sf), AA (low) (sf), A (high) (sf), AA (sf), A (high) (sf), A (sf)

Pool with 100% used vehicles:
-- Class A Notes: AA (sf), AA (sf), AA (sf), AA (low) (sf), A (high) (sf), AA (sf), A (high) (sf), A (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.

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: 28 October 2020

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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 (7 February 2023), https://www.dbrsmorningstar.com/research/409485/master-european-structured-finance-surveillance-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 Originators (15 September 2022), https://www.dbrsmorningstar.com/research/402773/operational-risk-assessment-for-european-structured-finance-originators.
-- 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.
-- 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.
-- 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].