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

DBRS Ratings GmbH (Morningstar DBRS) assigned a AAA (sf) credit rating to the EUR 211.8 million Series 2024-02, Class A Notes issued by Cars Alliance Auto Loans Germany Master (the Issuer) following the note issuance on the 19 February 2024 payment date. Additionally, Morningstar DBRS discontinued its AAA (sf) credit rating on the EUR 173.8 million Series 2023-10, Class A Notes as a result of the notes’ full repayment and confirmed its AAA (sf) credit ratings on the following remaining outstanding series (collectively, the Class A Notes):

-- EUR 232.5 million Series 2023-11, Class A Notes
-- EUR 197.7 million Series 2023-12, Class A Notes
-- EUR 313.3 million Series 2024-01, Class A Notes

The credit 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 credit 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 February 2024 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) credit 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 February 2024 payment date, the aggregate balance of the outstanding series of the Class A Notes was EUR 955.3 million and the balance of the Class B Notes was EUR 71.4 million. The EUR 1,019.0 million securitised portfolio (excluding defaulted receivables) consisted of auto loans granted to finance the purchase of new (78.7%) and used vehicles (21.3%).

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 February 2024 payment date, loans that were one to two months, two to three months, and more than three months in arrears all represented 0.1% of the outstanding portfolio balance. Gross cumulative defaults amounted to 0.7% of the aggregate initial portfolio balance, with cumulative recoveries of 83.3% to date.

PORTFOLIO ASSUMPTIONS AND KEY DRIVERS
Morningstar DBRS conducted a loan-by-loan analysis of the remaining pool of receivables and kept its base-case PD and LGD assumptions at 1.6% and 38.9%, respectively. The portfolio composition continues to consider potential portfolio migration based on replenishment criteria set forth in the transaction legal documents.

Morningstar DBRS 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 February 2024 payment date, credit enhancement to the Class A Notes stands at 7.7%.

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 7.7 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 remain unfunded.

HSBC Continental Europe acts as the account bank for the transaction. Based on Morningstar DBRS’ private rating on HSBC Continental Europe, 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 Class A 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.

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, AND 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 Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://dbrs.morningstar.com/research/427030.

Morningstar DBRS analysed the transactions structures 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” (11 December 2023), https://dbrs.morningstar.com/research/425148.

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

Morningstar DBRS 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://dbrs.morningstar.com/research/421590.

The sources of data and information used for these credit ratings include investor reports provided by EuroTitrisation SA (the management company) and loan-level data provided by the European DataWarehouse GmbH.

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

At the time of the initial credit ratings, Morningstar DBRS was 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 these credit ratings 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.

The last credit rating action on this transaction took place on 18 January 2024, when Morningstar DBRS assigned a AAA (sf) credit rating to the Series 2024-01, Class A Notes and discontinued its credit rating on the Series 2023-09, Class A Notes. Prior to that, the last annual review took place on the 20 March 2023, when Morningstar DBRS assigned a AAA (sf) credit rating to the Series 2023-03, Class A Notes, confirmed the credit ratings on the Series 2022-09 and 2022-10, Class A Notes and discontinued the credit rating on the Series 2022-08, 2022-11, 2022-12, 2023-01 and 2023-02, Class A 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 ratings, Morningstar DBRS considered the following stress scenarios, as compared to the parameters used to determine the credit ratings (the base case):

-- Morningstar DBRS 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.

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)

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.

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: 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 credit rating methodologies used in the analysis of these transactions can be found at: https://dbrs.morningstar.com/about/methodologies.

-- Rating European Consumer and Commercial Asset-Backed Securitisations (8 January 2024),
https://dbrs.morningstar.com/research/426219
-- Master European Structured Finance Surveillance Methodology (11 December 2023), https://dbrs.morningstar.com/research/425148
-- Legal Criteria for European Structured Finance Transactions (30 June 2023), https://dbrs.morningstar.com/research/416730
-- Operational Risk Assessment for European Structured Finance Originators (15 September 2023), https://dbrs.morningstar.com/research/420573
-- Operational Risk Assessment for European Structured Finance Servicers (15 September 2023), https://dbrs.morningstar.com/research/420572
-- Rating European Structured Finance Transactions Methodology (11 December 2023),
https://dbrs.morningstar.com/research/425149
-- Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (23 January 2024), https://dbrs.morningstar.com/research/427030
-- Interest Rate Stresses for European Structured Finance Transactions (15 September 2023), https://dbrs.morningstar.com/research/420602

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].