Press Release

DBRS Morningstar Upgrades and Confirms Credit Ratings on Cars Alliance Auto Loans Germany V 2021-1

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October 27, 2023

DBRS Ratings GmbH (DBRS Morningstar) took the following credit rating actions on the Class A and Class B Notes (collectively, the rated notes) issued by Cars Alliance Auto Loans Germany V 2021-1 (the Issuer):

-- Class A Notes confirmed at AAA (sf);
-- Class B Notes upgraded to AAA (sf) from AA (high) (sf).

The credit ratings address the timely payment of interest and the ultimate repayment of principal on or before the legal final maturity date in June 2034.

The credit rating actions follow an annual review of the transaction and are based on the following analytical considerations:

-- The portfolio performance, in terms of the level of delinquencies and defaults, as of the October 2023 payment date;
-- Probability of default (PD), loss given default (LGD), and expected loss assumptions for the remaining collateral pool; and
-- Current available credit enhancement to the rated notes to cover the expected losses at their AAA (sf) credit rating levels.

The transaction is a securitisation collateralised by a portfolio of auto loan receivables granted and serviced by RCI Banque S.A. Niederlassung Deutschland (RCI Germany), the German branch of RCI Group and the captive lender of Renault S.A.S. The transaction closed in October 2021 and had an initial 18-month revolving period, which ended on the March 2023 payment date.

PORTFOLIO PERFORMANCE
As of the October 2023 payment date, loans that were one to two months and two to three months in arrears represented 0.3% and 0.2% of the outstanding portfolio balance, respectively, while loans more than three months delinquent represented 0.1%. Gross cumulative defaults amounted to 0.3% of the aggregate initial portfolio balance, with cumulative recoveries of 71.6% 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, submitted by RCI Germany, and the current portfolio composition following the end of the revolving period on the March 2023 payment date.

DBRS Morningstar adopted mid-range core multiples. The inclusion of incremental balloon stresses means that the derived adjusted multiple is above the higher range used at the AAA (sf) credit rating level.

CREDIT ENHANCEMENT AND RESERVES
The subordination of the respective junior notes provides credit enhancement to the rated notes. As of the October 2023 payment date, subordination available to the Class A and Class B Notes was 9.9% and 6.6%, respectively, up from 7.5% and 5%, respectively, as of the last annual review.

The transaction benefits from an amortising general reserve account, which is available to cover senior expenses, swap payments, and missed interest payments on the rated notes. This account is currently funded with EUR 5.3 million, and its target balance is equal to 1.0% of the rated notes’ 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 are unfunded.

BNP Paribas SA acts as the account bank for the transaction. Based on DBRS Morningstar’s reference rating on BNP Paribas SA 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 credit ratings assigned to the rated notes, as described in DBRS Morningstar's "Legal Criteria for European Structured Finance Transactions" methodology.

The Issuer entered into two swap agreements with RCI Germany to hedge the interest rate mismatch between the Class A Notes, indexed to one-month Euribor, and the fixed interest rate payments from the securitised portfolio. The Issuer standby swap counterparty, Société Générale, S.A. (SocGen), guarantees the financial and operational terms of the swap agreements. If RCI Germany fails to meet its obligations as swap counterparty, SocGen will step in to hedge the Issuer’s exposure. The standby swap agreement defines downgrade provisions in line with DBRS Morningstar’s “Derivative Criteria for European Structured Finance Transactions” methodology.

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

DBRS Morningstar’s credit rating does not address nonpayment risk associated with contractual payment obligations contemplated in the applicable transaction documents 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.

Morningstar DBRS amended the above press release on 24 October 2024 to correct the cited Issuer standby swap counterparty to Société Générale, S.A. (SocGen) from Crédit Agricole Corporate & Investment Bank (CACIB).

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the credit ratings is the “Master European Structured Finance Surveillance Methodology” (22 October 2023), https://www.dbrsmorningstar.com/research/422281/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.

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/baseline-macroeconomic-scenarios-application-to-credit-ratings.
The sources of data and information used for these credit ratings include investor reports provided by EuroTitrisation SA, loan-level data provided by the European DataWarehouse GmbH, and static quarterly origination and cumulative gross and net loss data from Q1 2010 to Q3 2022, provided by RCI Germany.

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

At the time of the initial credit ratings, 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 27 October 2022, when DBRS Morningstar confirmed its credit ratings on the Class A and Class B Notes at AAA (sf ) and AA (high) (sf), respectively.

Information regarding DBRS Morningstar credit 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 credit ratings, DBRS Morningstar considered the following stress scenarios, as compared to the parameters used to determine the credit 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 credit 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 credit rating on 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 credit rating on 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 credit rating on the Class A Notes would also be expected to fall to AA (low) (sf).

Class A Notes Risk Sensitivity:
-- 25% increase in LGD, expected credit rating of AAA (sf)
-- 50% increase in LGD, expected credit rating of AA (high) (sf)
-- 25% increase in PD, expected credit rating of AAA (sf)
-- 50% increase in PD, expected credit rating of AA (high) (sf)
-- 25% increase in PD and 25% increase in LGD, expected credit rating of AA (high) (sf)
-- 25% increase in PD and 50% increase in LGD, expected credit rating of AA (sf)
-- 50% increase in PD and 25% increase in LGD, expected credit rating of AA (sf)
-- 50% increase in PD and 50% increase in LGD, expected credit rating of AA (low) (sf)

Class B Notes Risk Sensitivity:
-- 25% increase in LGD, expected credit rating of AA (high) (sf)
-- 50% increase in LGD, expected credit rating of AA (sf)
-- 25% increase in PD, expected credit rating of AA (high) (sf)
-- 50% increase in PD, expected credit rating of AA (sf)
-- 25% increase in PD and 25% increase in LGD, expected credit rating of AA (sf)
-- 25% increase in PD and 50% increase in LGD, expected credit rating of A (high) (sf)
-- 50% increase in PD and 25% increase in LGD, expected credit rating of A (high) (sf)
-- 50% increase in PD and 50% increase in LGD, expected credit rating of 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://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: Preben Cornelius Overas, Assistant Vice President
Credit Rating Committee Chair: Alfonso Candelas, Senior Vice President
Initial Credit Rating Date: 30 September 2021

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 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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