Morningstar DBRS Assigns Credit Rating to Cars Alliance Auto Leases France Master Class A 2024-44 Notes and Discontinues Credit Rating on Class A 2023-37 Notes

DBRS Ratings GmbH (Morningstar DBRS) assigned a AAA (sf) credit rating to the EUR 358.7 million Class A 2024-44 Notes (the Class A Notes) issued by Cars Alliance Auto Leases France Master (the Issuer). Morningstar DBRS assigned the credit rating following the issuance of the notes on the 22 January 2024 payment date. As of the payment date, all portfolio revolving conditions had been met. Additionally, Morningstar DBRS discontinued its AAA (sf) credit rating on the EUR 340.9 million Class A 2023-37 Notes because of their full repayment.

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

The credit 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 servicer) 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 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 January 2024 payment date, loans that were 30 to 60 days and 60 to 90 days delinquent represented 0.21% and 0.04% of the discounted portfolio balance, respectively. The cumulative gross default ratio was 0.87% of the aggregate original balance, with cumulative principal recoveries of 29.45% to date.

PORTFOLIO ASSUMPTIONS AND KEY CREDIT RATING DRIVERS
Morningstar DBRS 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 January 2024 payment date, credit enhancement to the Class A Notes stood at 11.22%.

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 8.13 million, with a target balance equal to 1.0% of the notes’ aggregate balance. In a stressed scenario where Morningstar DBRS 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 Morningstar DBRS 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, Morningstar DBRS considers the risk arising from the exposure to the account bank to be consistent with the credit rating assigned to the notes, as described in Morningstar DBRS’ "Legal Criteria for European Structured Finance Transactions" methodology.

Morningstar DBRS’ credit rating on the notes addresses the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents. The associated financial obligations for the Class A Notes are the related Interest Payment Amounts and the related Class Balances.

Morningstar DBRS’ credit rating does not address non-payment risk associated with contractual payment obligations contemplated in the applicable transaction documents that are not financial obligations.

Morningstar DBRS’ long-term credit ratings provide opinions on risk of default. Morningstar DBRS 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 Morningstar DBRS considers ESG factors within the Morningstar DBRS 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.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the credit ratings is: “Master European Structured Finance Surveillance Methodology” (11 December 2023), https://www.dbrsmorningstar.com/research/425148/master-european-structured-finance-surveillance-methodology.

Other methodologies referenced in this transaction are listed at the end of this press release.

A review of the transaction legal documents was not conducted as the legal documents have remained unchanged since the most recent credit rating action.

In Morningstar DBRS’ opinion, the changes under consideration do not require 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 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://dbrs.morningstar.com/research/421590.

The sources of data and information used for this credit rating include a monthly investor report provided by EuroTitrisation.

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

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

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

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

This credit rating concerns a newly issued financial instrument. This is the first Morningstar DBRS credit rating on this financial instrument.

The last credit rating action on this transaction took place on 21 December 2023, when Morningstar DBRS assigned a AAA (sf) credit rating to the Class A 2023-43 Notes and discontinued its credit rating on the Class A 2023-40 Notes.

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

Sensitivity Analysis: To assess the impact of changing the transaction parameters on the credit rating, Morningstar DBRS considered the following stress scenarios, as compared with the parameters used to determine the credit rating (the base case):

-- Morningstar DBRS expected a base case probability of default and LGD 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 credit rating, Morningstar DBRS 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 credit 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

Morningstar DBRS concludes that the expected credit 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 Morningstar DBRS 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 Morningstar DBRS historical default rates published by the Financial Conduct Authority (FCA) in a central repository, see https://data.fca.org.uk/#/ceres/craStats.

This credit 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 credit 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 (11 December 2023),
https://dbrs.morningstar.com/research/425148/master-european-structured-finance-surveillance-methodology
-- Legal Criteria for European Structured Finance Transactions (30 June 2023), https://dbrs.morningstar.com/research/416730/legal-criteria-for-european-structured-finance-transactions.
-- Operational Risk Assessment for European Structured Finance Originators (15 September 2023), https://dbrs.morningstar.com/research/420573/operational-risk-assessment-for-european-structured-finance-originators.
-- Operational Risk Assessment for European Structured Finance Servicers (15 September 2023), https://dbrs.morningstar.com/research/420572/operational-risk-assessment-for-european-structured-finance-servicers.
-- Rating European Consumer and Commercial Asset-Backed Securitisations (8 January 2024), https://dbrs.morningstar.com/research/426219/rating-european-consumer-and-commercial-asset-backed-securitisations.
-- Rating European Structured Finance Transactions Methodology (11 December 2023), https://dbrs.morningstar.com/research/425149/rating-european-structured-finance-transactions-methodology.
-- DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (4 July 2023),
https://dbrs.morningstar.com/research/416784/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings.

A description of how Morningstar DBRS analyses structured finance transactions and how the methodologies are collectively applied can be found at: https://dbrs.morningstar.com/research/278375

For more information on this credit or on this industry, visit dbrs.morningstar.com or contact us at [email protected].