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

DBRS Ratings GmbH (DBRS Morningstar) assigned a AAA (sf) rating to the EUR 71.2 million Series 2023-03, Class A Notes issued by Cars Alliance Auto Loans Germany Master (the Issuer) following the note issuance on the 20 March 2023 payment date. Additionally, DBRS Morningstar discontinued its AAA (sf) rating on the EUR 57.0 million Series 2022-08, EUR 203.2 million Series 2022-11, EUR 119.2 million Series 2022-12, EUR 320.1 million Series 2023-01, and EUR 137.7 million Series 2023-02, Class A Notes as a result of the notes’ full repayment and confirmed its AAA (sf) ratings on the following remaining outstanding series (collectively, the Class A Notes):

-- EUR 132.6 million Series 2022-09, Class A Notes
-- EUR 169.5 million Series 2022-10, Class A Notes

The ratings on the Class A Notes address the timely payment of interest and the ultimate repayment of principal on or before the legal final maturity date in March 2039.

The rating actions follow a review of the entire transaction and are based on the following analytical considerations:
-- The portfolio performance, in terms of delinquencies and defaults, as of the March 2023 payment date;
-- Probability of default (PD), loss given default (LGD), and expected loss assumptions on the remaining receivables;
-- No revolving period termination events; and
-- The levels of credit enhancement to the Class A Notes to cover their expected losses at their AAA (sf) rating level.

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 2023 payment date, the aggregate balance of the outstanding series of the Class A Notes was EUR 373.3 million and the balance of the Class B Notes was EUR 27.6 million. The EUR 393.3 million securitised portfolio (excluding defaulted receivables) consisted of auto loans granted to finance the purchase of new (76.0%) and used vehicles (24.0%).

REVOLVING PERIOD
At its setup date on 18 March 2014, the transaction featured a four-year revolving period, which was extended twice by four years each: during the first amendment in 2018, when the revolving period was extended until March 2022 and during the second amendment in March 2022 when the revolving period was extended 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 2023 payment date, loans that were one to two months and two to three months in arrears both represented 0.1% of the outstanding portfolio balance while loans more than three months delinquent accounted for 0.05%. Gross cumulative defaults amounted to 0.7% of the aggregate initial portfolio balance, with cumulative recoveries of 83.4% to date.

PORTFOLIO ASSUMPTIONS AND KEY DRIVERS
DBRS Morningstar updated its base case PD and LGD assumptions to 1.6% and 38.9%, respectively, based on updated historical gross loss and net loss data ranging from Q1 2010 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 the derived adjusted multiple is above the higher range used at the AAA (sf) level.

CREDIT ENHANCEMENT AND RESERVES
The subordinations of the Class B Notes and the general reserve account provide credit enhancement to the Class A Notes. As of the March 2023 payment date, credit enhancement to the Class A Notes stands at 7.6%.

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 3.0 million and its target balance is equal to 0.75% of the notes’ aggregate 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 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 analysed the transactions structures in Intex DealMaker.

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.

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.

A review of the transaction legal documents was not conducted as the legal 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 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 and net loss data from Q1 2012 to Q4 2022; and
-- Dynamic monthly delinquency and prepayments data from January 2016 to December 2022.

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 20 February 2023, when DBRS Morningstar assigned a AAA (sf) rating to the Series 2023-02, Class A Notes and discontinued its rating on the Series 2022-07, Class A 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 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 (high) (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 AA (low) (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 AAA (sf)
-- 50% increase in PD, expected rating of AA (high) (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of AA (high) (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 (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of AA (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: Preben Cornelius Overas, Assistant Vice President
Rating Committee Chair: Alfonso Candelas, Senior Vice President
Initial Rating Date: 18 March 2014

DBRS Ratings GmbH
Neue Mainzer Straße 75
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 (19 October 2022), https://www.dbrsmorningstar.com/research/404212/rating-european-consumer-and-commercial-asset-backed-securitisations.
-- 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 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.
-- Interest Rate Stresses for European Structured Finance Transactions (22 September 2022), https://www.dbrsmorningstar.com/research/402943/interest-rate-stresses-for-european-structured-finance-transactions.

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].