Press Release

DBRS Morningstar Finalises Provisional Ratings on Red & Black Auto Lease France 2

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June 27, 2023

DBRS Ratings GmbH (DBRS Morningstar) finalised its provisional ratings on the following classes of notes issued by Red & Black Auto Lease France 2 (the Issuer), a French fonds commun de titrisation:

-- Class A Notes at AAA (sf)
-- Class B Notes at BBB (high) (sf)

DBRS Morningstar did not assign a ratings to the Class C Notes also issued in this transaction. The rating assigned to the Class B Notes differs from the provisional rating previously assigned (BBB (sf)), due to the lower Class A margin and fixed swap payment, which resulted in higher available funds and improved the cash flow analysis of the Class B Notes in its rating stress scenario.

RATING RATIONALE
The ratings on the Class A Notes and the Class B Notes (together, the Rated Notes and, collectively with the unrated Class C Notes, the Notes) address the timely payment of scheduled interest and the ultimate repayment of principal by the final maturity date, in accordance with the terms of the Notes.

This transaction represents the issuance of Notes backed by a portfolio of receivables related to vehicle lease agreements, including the residual value (RV) component of the leases, granted by Temsys S.A., whose commercial name is ALD Automotive (ALD France or the Seller) to commercial lessees residing or incorporated in the Republic of France.

The Seller granted a pledge without dispossession (gage sans dépossession) over the leased cars in favour of the Issuer to guarantee any and all of the Seller’s present and future payment obligations under the master receivables transfer agreement and the servicing agreement. France Titrisation SA manages the transaction and ALD France services the receivables. ALD France is a majority-owned subsidiary of Société Générale, SA. (Société Générale).

The transaction incorporates a 12-month revolving period, during which the Seller may offer additional receivables and their related RV receivables that the Issuer will purchase subject to eligibility criteria, replenishment criteria, performance triggers, and other conditions set out in the transaction documents.

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, excess spread, and the availability of the liquidity reserve. Credit enhancement levels are sufficient to support DBRS Morningstar-projected expected cumulative net losses and RV losses under various stress scenarios;
-- The ability of the transaction to withstand stressed cash flow assumptions and repay investors according to the terms under which they have invested;
-- ALD France’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 portfolios;
-- The sovereign rating on the Republic of France, currently at AA (high) with a Stable trend by DBRS Morningstar; 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 incorporates a single waterfall that facilitates the distribution of the available distribution amount. The notes will amortise sequentially, subject to required principal redemption amounts, and funds are not allocated to the redemption of principal of the Class B Notes until after the Class A Notes have been redeemed in full.

An amortising liquidity reserve, initially set at 1.5% of the Class A Notes, Class B Notes, and Class C Notes, is available to the structure. The transaction documents foresee no floor for the liquidity reserve. The reserve provides liquidity to the Rated Notes and also ultimately provides credit enhancement. The reserve is available to repay principal on the Notes when the outstanding principal balance of the portfolio reaches zero.

All lease receivables are sold using a fixed discount rate while the Class A Notes are indexed to one-month Euribor. Interest rate risk for the Class A Notes is mitigated through an interest rate swap provided by the Royal Bank of Canada (RBC).

COUNTERPARTIES
The Issuer bank account is held at Société Générale. DBRS Morningstar’s public Long-Term Issuer Rating on Société Générale is A (high) with a Stable trend and its Long Term Critical Obligations Rating is AA with a Stable trend. The transaction contains downgrade provisions relating to the account bank consistent with DBRS Morningstar’s criteria.

RBC is the swap counterparty for the transaction. DBRS Morningstar’s public Long-Term Issuer Rating on RBC is AA (high) with a Stable trend. The hedging documents contain downgrade provisions consistent with DBRS Morningstar’s criteria.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
Environmental (E) Factors

The line-by-line sale proceeds data, which is used to derive the RV loss assumption, includes a high number of observations related to older diesel engine vehicles, which do not reflect the securitised pool composition. DBRS Morningstar considered the relatively higher exposure to hybrid-plug, hybrid and electric vehicles, which show favourable past RV performance and represent 68.3% of the final pool, in deriving its RV loss assumption. DBRS Morningstar considers that this exposure combined with a potential increase during the revolving period is a credit positive significant environmental factor within its analysis, more specifically the E Factor “Carbon and Greenhouse Gas (GHG) Costs”.

Had DBRS Morningstar not positively considered such higher exposure to hybrid-plug, hybrid and electric vehicles compared with line-by-line proceeds data, the rating assigned to the Class B Notes would have been one notch lower.

The effect of the E Factor “Carbon and Greenhouse Gas (GHG) Costs” changed from the previous rating disclosure when it was relevant. The change was driven by the finalisation of other transaction terms (including the final pool and the issuance spread), providing more certainty about the magnitude of the effect the E Factor has on the credit analysis and ultimately, the rating.

There were no Social or 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/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 methodology applicable to the ratings is: 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.

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.

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:
-- Dynamic delinquency, prepayment, and origination data from Q1 2014 to Q1 2023;
-- Static gross loss default and recovery data from Q1 2014 to Q1 2023;
-- Lease-level vehicle realisation proceeds from 2014 to 2023;
-- Portfolio lease-by-lease data and stratification tables as at 31 May 2023; and
-- A theoretical amortisation of the selected pool.

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

DBRS Morningstar was supplied with one or more 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 rating, DBRS Morningstar considered the following stress scenarios as compared with the parameters used to determine the rating (the base case):

-- Expected default: 8.1%.
-- Expected recovery rate: 66.9%.
-- Loss given default (LGD): 50.1% for the AAA (sf) scenario and 41.1% for the BBB (sf) scenario.
-- RV loss: 37.4% for the AAA (sf) scenario and 20.8% for the BBB (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 25% increase in the expected LGD
Scenario 5: A 50% increase in the expected PD and 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 50% increase in the expected LGD
Scenario 8: A 50% increase in the expected PD and 50% increase in the expected LGD

DBRS Morningstar concludes that the expected ratings under the eight stress scenarios are:
-- Class A Notes: AA (high) (sf), AA (high) (sf), AA (high) (sf), AA (sf), AA (low) (sf), AA (sf), AA (low) (sf), A (high) (sf)
-- Class B Notes: BBB (low) (sf), BB (high) (sf), BBB (sf), BBB (low) (sf), BB (high) (sf), BBB (low) (sf), BB (high) (sf), BB (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. For further information on DBRS Morningstar historical default rates published by the Financial Conduct Authority (FCA) in a central repository, see https://data.fca.org.uk/#/ceres/craStats.

This rating is endorsed by DBRS Ratings Limited for use in the United Kingdom.

Lead Analyst: Ricardo Garcia, Vice President
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: 31 May 2023

DBRS Ratings GmbH, Sucursal en España
Paseo de la Castellana 81
Plantas 26 & 27 28046 Madrid, Spain
Tel. +34 (91) 903 6500
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.

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].

ALL MORNINGSTAR DBRS RATINGS ARE SUBJECT TO DISCLAIMERS AND CERTAIN LIMITATIONS. PLEASE READ THESE DISCLAIMERS AND LIMITATIONS AND ADDITIONAL INFORMATION REGARDING MORNINGSTAR DBRS RATINGS, INCLUDING DEFINITIONS, POLICIES, RATING SCALES AND METHODOLOGIES.

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