Morningstar DBRS Confirms Credit Ratings on Cars Alliance Auto Loans Germany V 2023-1

DBRS Ratings GmbH (Morningstar DBRS) confirmed its AAA (sf) credit ratings on the Class A and Class B Notes (collectively, the rated notes) issued by Cars Alliance Auto Loans Germany V 2023-1 (the Issuer).

The credit ratings address the timely payment of interest and the ultimate repayment of principal on or before the legal final maturity date in March 2035.

The confirmations 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 February 2024 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 March 2023 with an initial 12-month revolving period, which is scheduled to end on the March 2024 payment date.

PORTFOLIO PERFORMANCE
As of the February 2024 payment date, loans that were one to two months and two to three months in arrears represented 0.3% and 0.1% of the outstanding portfolio balance, respectively, while loans more than three months delinquent represented 0.1%. Gross cumulative defaults amounted to 0.1% of the aggregate initial portfolio balance, with cumulative recoveries of 56.3% to date.

PORTFOLIO ASSUMPTIONS AND KEY DRIVERS
Morningstar DBRS updated its base case PD and LGD assumptions to 1.6% and 38.9%, respectively, based on the current portfolio composition given the upcoming end of the revolving period on the March 2024 payment date.

Morningstar DBRS 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 February 2024 payment date, subordination available to the Class A and Class B Notes was 7.5% and 5.0%, respectively. The credit enhancement has remained stable since closing due to the revolving period.

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 9.0 million, and its target balance is equal to 1.3% 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.

Société Générale, S.A. (SG) has been appointed as the Issuer’s account bank for the transaction. Morningstar DBRS maintains a public Long-Term Issuer Rating of A (high) on SG and concluded that SG meets Morningstar DBRS’ minimum criteria to act in its capacity and the transaction contains downgrade provisions relating to the account bank consistent with Morningstar DBRS’ criteria.

The transaction is exposed to interest rate risk due to the mismatch between the fixed-rate assets and the floating-rate liabilities. RCI Germany is the swap counterparty for the transaction while BNP Paribas SA (BNPP) is the standby swap counterparty. Morningstar DBRS privately rates RCI Germany and publicly rates BNPP with a Long Term Critical Obligations Rating of AA (high). The swap agreements contain downgrade provisions with respect to the Issuer standby swap counterparty that are consistent with Morningstar DBRS’ criteria.

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

Morningstar DBRS’ credit rating does not address nonpayment 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 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” (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.

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 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 27 March 2023, when Morningstar DBRS finalised its provisional credit ratings on the Class A and Class B Notes at AAA (sf).

The lead analyst responsibilities for this transaction have been transferred to Preben Cornelius Overas.

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 (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 A (high) (sf)

Class B Notes Risk Sensitivity:
-- 25% increase in LGD, expected credit rating of AA (sf)
-- 50% increase in LGD, expected credit rating of AA (sf)
-- 25% increase in PD, expected credit rating of AA (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 (low) (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 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: 20 February 2023

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.

-- 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 Consumer and Commercial Asset-Backed Securitisations (8 January 2024), https://dbrs.morningstar.com/research/426219
-- Rating European Structured Finance Transactions Methodology (11 December 2023), https://dbrs.morningstar.com/research/425149
-- Derivative Criteria for European Structured Finance Transactions (18 September 2023),
https://www.dbrsmorningstar.com/research/420754
-- Interest Rate Stresses for European Structured Finance Transactions (15 September 2023), https://dbrs.morningstar.com/research/420602
-- Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (23 January 2024),
https://dbrs.morningstar.com/research/427030

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].