Press Release

DBRS Morningstar Confirms Credit Ratings on Cars Alliance DFP Germany 2017

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October 17, 2023

DBRS Ratings GmbH (DBRS Morningstar) confirmed its AA (sf) credit ratings on the Class A 2022-1 Notes and Class A 2022-2 Notes (the Notes) issued by Cars Alliance DFP Germany 2017 (the Issuer).

The credit ratings on the Notes address the timely payment of interest and the ultimate payment of principal on or before the legal final maturity date.

The confirmation follows an annual review of the transaction and is based on the following analytical considerations:
-- Portfolio performance, in terms of realised losses, principal payment rates, and yield, as of the September 2023 payment date.
-- Current available credit enhancement to the Notes to cover the expected losses at the AA (sf) credit rating level in various dealer concentration and liquidation scenarios.
-- No early amortisation events have occurred.

The transaction is a securitisation of auto wholesale receivables originated in Germany by RCI Banque S.A. Niederlassung Deutschland (RCI Germany), a subsidiary of RCI Banque S.A. and part of the automobile group Renault S.A. The portfolio consists of term loans and revolving credit lines to Renault, Nissan, Dacia, and Alpine dealers in Germany, which are secured by new vehicles (including demonstration vehicles), used vehicles, and spare parts.

The transaction is currently in its revolving period, scheduled to terminate in September 2027, and its legal maturity date is on the payment date in August 2031.

PORTFOLIO PERFORMANCE
As of the September 2023 payment date, the three-month average principal payment rate was 41.0% and cumulative defaults represented 0.1% of the total receivables purchased since closing. However, as of the September 2023 payment date, RCI Germany has repurchased all the defaulted receivables.

The collateral is subject to certain concentration limits on the product type securing the receivables (spare parts, second-hand vehicles). As of the September 2023 payment date, no limit has been breached. DBRS Morningstar has addressed the concentration risk in its analysis.

PORTFOLIO ASSUMPTIONS AND KEY DRIVERS
The key credit rating drivers are the base case probability of default of 5.2%, an increase in default rate up to 55.0% at the AA (sf) credit rating level, and a decline of the payment rate by 55.0% at the AA (sf) credit rating level.

CREDIT ENHANCEMENT
Credit enhancement to the Notes consists of subordination provided by a Class B loan and the general reserve. The subordination level is fixed at 19.5% of the portfolio target balance, or EUR 130.9 million as of the September 2023 payment date.

The general reserve provides liquidity support to the Notes as well as credit support from the payment date when either the outstanding portfolio balance is zero or the general reserve balance is sufficient to repay the principal onthe Notes. As of the September 2023 payment date, the general reserve was at its target balance of EUR 10.8 million, with the target set at 2.0% of the aggregate balance of the series of Class A Notes with a EUR 2.0 million floor.

Commingling risk in the transaction is limited, as the collections are transferred to the account bank on a daily basis. Set-off risk in the transaction is mitigated by a minimum credit enhancement level, one component of which is determined by the amounts standing in the dealers’ accounts held at the seller.

Société Générale, S.A. acts as the account bank for the transaction. Based on DBRS Morningstar’s account bank reference rating of Société Générale, S.A. at AA (low), which is one notch below the DBRS Morningstar Long Term Critical Obligations Rating of AA, 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 credit ratings assigned to the Notes, as described in DBRS Morningstar's "Legal Criteria for European Structured Finance Transactions" methodology.

DBRS Morningstar’s credit ratings on the Notes addresses the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents.

DBRS Morningstar’s credit ratings do not address non-payment risk associated with contractual payment obligations contemplated in the applicable transaction document(s) that are not financial obligations.

DBRS Morningstar’s long-term credit ratings provide opinions on risk of default. DBRS Morningstar considers risk of default to be the risk that an issuer will fail to satisfy the financial obligations in accordance with the terms under which a long-term obligation has been issued.

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/416784/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 credit ratings is: “Master European Structured Finance Surveillance Methodology” (6 October 2023) https://www.dbrsmorningstar.com/research/421598/master-european-structured-finance-surveillance-methodology.

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. 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 credit rating action.

For a more detailed discussion of the sovereign risk impact on Structured Finance credit 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/421590/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.

The sources of data and information used for these credit ratings include investor reports provided by Eurotitrisation and loan-level data provided by European DataWarehouse.

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

At the time of the initial credit ratings of the Notes, DBRS Morningstar was supplied with third-party assessments. However, this did not impact the credit rating analysis.

DBRS Morningstar considers the data and information available to it for the purposes of providing these credit ratings to be of satisfactory quality.

DBRS Morningstar does not audit or independently verify the data or information it receives in connection with the credit rating process.

The last credit rating action on this transaction took place on 17 October 2022, when DBRS Morningstar assigned credit ratings of AA (sf) to the Class A 2022-1 Notes and Class A 2022-2 Notes.

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

Class A 2022-1 Notes and Class A 2022-2 Notes Sensitivity:
-- Loss rate (LR): base case of 5.2%, stressed with a 25% and 50% increase
-- Monthly principal payment rate (MPPR): base case of 25% (in line with the payment rate early amortisation trigger), stressed with a 25% and 50% decrease
-- Yield: base case of 0.0%, stressed with a 25% and 50% decrease

While holding the MPPR and the yield constant:
-- 25% increase in loss rate, expected credit rating of AA (sf)
-- 50% increase in loss rate, expected credit rating of AA (sf)

While holding the LR and the yield constant:
-- 25% decrease in MPPR, expected credit rating of AA (sf)
-- 50% decrease in MPPR, expected credit rating of BB (high) (sf)

While holding the MPPR and the LR constant:
-- 25% decrease in yield, expected credit rating of AA (sf)
-- 50% decrease in yield, expected credit rating of AA (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://registers.esma.europa.eu/cerep-publication. 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.

These credit ratings are endorsed by DBRS Ratings Limited for use in the United Kingdom.

Lead Analyst: Guglielmo Panizza, Vice President
Rating Committee Chair: Alfonso Candelas, Senior Vice President
Class A 2017-1 Initial Rating Date: 25 July 2017
Class A 2022-1 Notes and Class A 2022-2 Notes Initial Rating Date: 17 October 2022

DBRS Ratings GmbH
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60311 Frankfurt am Main Deutschland
Tel. +49 (69) 8088 3500
Geschäftsführer: Detlef Scholz
Amtsgericht Frankfurt am Main, HRB 110259

The credit 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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