Morningstar DBRS Confirms Credit Rating on Cars Alliance Auto Loans Italy 2015 S.r.l. Following Amendment

DBRS Ratings GmbH (Morningstar DBRS) confirmed its AAA (sf) credit rating on the Class A Notes issued by Cars Alliance Auto Loans Italy 2015 S.r.l. (the Issuer) following a transaction amendment (the Amendment).

The credit rating on the Class A Notes addresses the timely payment of interest and the ultimate repayment of principal on or before the legal final maturity date in March 2041.

The credit rating confirmation follows a review of the entire transaction and is based on the following analytical considerations:
-- An amendment to the transaction executed on 5 March 2024;
-- Portfolio performance, in terms of delinquencies, defaults, and losses, as of the February 2024 payment date;
-- Updated probability of default (PD), loss given default (LGD), and expected loss assumptions for the remaining collateral pool, considering the updated quarterly vintage performance data received in the context of the Amendment;
-- Current available credit enhancement to the Class A Notes to cover the expected losses at the AAA (sf) credit rating level; and
-- Absence of revolving termination events.

The transaction is a securitisation of Italian auto loan receivables originated by RCI Banque S.A., Italian Branch (RCI Italy or the seller). The EUR 2,027.1 million portfolio (excluding additional purchased receivables), as of the January 2024 cut-off date, consisted of loans granted to both private (95.2% of the discounted collateral balance) and corporate (4.8%) clients for the purchase of new (92.1%) and used (7.9%) vehicles. Most of the receivables include a final balloon payment, although, 37.8% of loans have equal monthly instalments.

The transaction was established in July 2015. In March 2021, an amendment to the transaction was executed, including: a renewal of the revolving period for 36 additional months until March 2024; an increase in the portfolio size, partially financed by a new issuance of Class A Notes; an increase in the cash reserve amount; a reduction in the coupon for the Class A Notes to 0.75% from 1.0%; an introduction of an optional redemption by the Class A Noteholders in the event that the excess cash trigger is breached; and some adjustments to the concentration limits. The transaction was further amended in January 2023, when the balloon concentration limits were removed and the balloon loan instalment ratio definition was updated.

AMENDMENT
On 5 March 2024, the Issuer entered into an amendment to the transaction. The Amendment entails the following changes:
-- A renewal of the revolving period for an additional 36 months until the March 2027 payment date (included);
-- Extension of the legal final maturity date until March 2041; and,
-- Changes to the transaction documents in relation to Zenith Service S.p.A. acting as the reporting agent.

REVOLVING PERIOD & CONCENTRATION LIMITS
The transaction has a revolving period currently scheduled to end in March 2027, following several extensions since closing. The revolving period will end prematurely if certain performance triggers are breached. To further mitigate the deterioration of the pool, the transaction permits certain concentration limits on the additional portfolios purchased on each payment date. To date, the concentration limits and performance triggers in place have been satisfied. Due to the inclusion of a revolving period in the transaction, Morningstar DBRS’ analysis considered potential portfolio migration based on the replenishment criteria set forth in the transaction legal documents.

PORTFOLIO PERFORMANCE
As of the February 2024 payment date, one- to two-month and two- to three-month delinquencies were 0.1% and 0.05% of the portfolio’s net discounted balance, respectively, while delinquencies greater than three months were 0.07%. Gross cumulative defaults as a percentage of the original portfolio and cumulative transferred receivables stood at 1.05%, with cumulative recoveries of 61.3%.

PORTFOLIO ASSUMPTIONS AND KEY DRIVERS
Morningstar DBRS updated its base case PD and LGD to 1.3% and 76.4%, respectively, based on updated historical gross loss and net loss data ranging from Q1 2013 to Q3 2023 that Morningstar DBRS received from the seller. 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 that the derived adjusted multiple is above the higher range at the AAA (sf) level.

CREDIT ENHANCEMENT
The portion of the Class J Notes not used to fund the cash reserve provides credit enhancement to the Class A Notes.
As of the February 2024 payment date, the credit enhancement remained stable at 13.0% since the amendment in March 2021.

The transaction benefits from a cash reserve funded through part of the proceeds from the Class J Notes and available to cover senior fees and the interest due on the Class A Notes. The reserve is floored at EUR 1.0 million and has an amortising target equal to 1.0% of the Class A and Class J Notes’ aggregate balance. The reserve is currently at its target amount of EUR 21.3 million.

Crédit Agricole Corporate and Investment Bank, Milan Branch (CACIB-Milan) acts as the account bank for the transaction. Based on Morningstar DBRS’ private credit rating on CACIB-Milan, the downgrade provisions outlined in the transaction documents, and structural mitigants, Morningstar DBRS considers the risk arising from the exposure to CACIB-Milan 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 rated 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 transaction structure in Intex DealMaker.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the credit rating is: “Master European Structured Finance Surveillance Methodology” (11 December 2023), https://dbrs.morningstar.com/research/425148, and the “Rating European Consumer and Commercial Asset-Backed Securitisations” (8 January 2024), https://dbrs.morningstar.com/research/426219.

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.

Morningstar DBRS has conducted a review of the transaction’s legal documents provided in the context of the Amendment. A review of any other transaction legal documents was not conducted as the 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 this credit rating include investor reports provided by EuroTitrisation SA (the Management Company), loan-level data provided by the European DataWarehouse GmbH, and the following historical information received from the seller:
-- Static quarterly gross loss data from Q1 2013 to Q3 2023;
-- Static quarterly net loss data from Q1 2013 to Q3 2023;
-- Dynamic monthly delinquency data from January 2013 to September 2023; and
-- Dynamic monthly prepayments data from January 2013 to September 2023.

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

For the Amendment, 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 purpose 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.

The last credit rating action on this transaction took place on 23 January 2023, when Morningstar DBRS confirmed its credit rating on the Class A Notes at AAA (sf), following a transaction amendment.

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 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 1.3% and 76.4%, 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 AAA (sf).
-- 25% increase in PD, expected credit rating of AAA (sf).
-- 50% increase in PD, expected credit rating of AAA (sf).
-- 25% increase in PD and 25% increase in LGD, expected credit rating of AAA (sf).
-- 25% increase in PD and 50% increase in LGD, expected credit rating of AAA (sf).
-- 50% increase in PD and 25% increase in LGD, expected credit rating of AA (high) (sf).
-- 50% increase in PD and 50% increase in LGD, expected credit rating of AA (high) (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: 23 July 2015

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://dbrs.morningstar.com/about/methodologies.

-- Master European Structured Finance Surveillance Methodology (11 December 2023),
https://dbrs.morningstar.com/research/425148.
-- 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.
-- Legal Criteria for European Structured Finance Transactions (30 June 2023),
https://dbrs.morningstar.com/research/416730.
-- Operational Risk Assessment for European Structured Finance Servicers (15 September 2023),
https://dbrs.morningstar.com/research/420572.
-- Operational Risk Assessment for European Structured Finance Originators (15 September 2023),
https://dbrs.morningstar.com/research/420573.
-- 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].