Morningstar DBRS Assigns Provisional Credit Ratings to Cars Alliance Auto Loans Germany V 2024-1

DBRS Ratings GmbH (Morningstar DBRS) assigned provisional credit ratings to the Class A Notes and Class B Notes (together, the Rated Notes) to be issued by Cars Alliance Auto Loans Germany V 2024-1 (the Issuer) as follows:

-- Class A Notes at AAA (sf)
-- Class B Notes at AA (sf)

Morningstar DBRS did not assign a provisional credit rating to the Class C Notes (together with the Rated Notes, the Notes) also to be issued in this transaction.

The credit ratings on the Rated Notes address the timely payment of scheduled interest and ultimate repayment of principal by the legal final maturity date.

CREDIT RATING RATIONALE
The transaction represents the issuance of Notes backed by a portfolio of auto loan receivables granted by the German branch of RCI Banque S.A. (RCIB or the Seller) to private individuals residing in Germany. The initial portfolio of approximately EUR 910 million will comprise both balloon and standard amortising loans granted for the purchase of new and used vehicles. RCIB will also service the collateral portfolio.

Morningstar DBRS’ provisional credit ratings are based on the following analytical considerations:
-- The transaction’s structure, including the form and sufficiency of available credit enhancement to withstand stressed cash flow assumptions and repay the Issuer’s financial obligations according to the terms under which the Rated Notes are expected to be issued.
-- The credit quality of RCIB’s portfolio, the characteristics of the collateral, its historical performance, and Morningstar DBRS-projected behaviour under various stress scenarios.
-- RCIB’s capabilities with respect to originations, underwriting, servicing, and its position in the market and financial strength.
-- The operational risk review of RCIB, which Morningstar DBRS deems to be an acceptable servicer.
-- The transaction parties’ financial strength with regard to their respective roles.
-- The expected consistency of the transaction’s legal structure with Morningstar DBRS’ “Legal Criteria for European Structured Finance Transactions” methodology.
-- The expected consistency of the transaction’s hedging structure with Morningstar DBRS’ “Derivative Criteria for European Structured Finance Transactions” methodology.
-- The sovereign rating on the Federal Republic of Germany, currently rated at AAA with a Stable trend by Morningstar DBRS.

TRANSACTION STRUCTURE
The transaction includes an eight-month revolving period during which the Issuer shall purchase additional collateral. During this period, the transaction will be subject to receivables eligibility criteria and concentration limits designed to limit the potential deterioration of the portfolio quality, with which the Issuer will have to comply.

The Notes amortise sequentially and the transaction incorporates a single waterfall that facilitates the distribution of the available distribution amount.

The Seller will fund an amortising general reserve account equal to 1.25% of the outstanding principal balance of the Rated Notes on the closing date that will be available to the transaction. The general reserve provides liquidity support to the Rated Notes and is available to pay senior transaction fees, swap payments, and interest payments on the Rated Notes. The general reserve also ultimately provides credit enhancement to the Rated Notes.

COUNTERPARTIES
Natixis S.A. (Natixis) has been appointed as the Issuer’s account bank for the transaction. Morningstar DBRS maintains a private credit rating on Natixis and concluded that Natixis meets Morningstar DBRS’ minimum criteria to act in its capacity, and the transaction is expected to contain 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. RCIB is the swap counterparty for the transaction while Natixis is the standby swap counterparty. Morningstar DBRS rates RCIB and Natixis privately. The swap agreements are expected to 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. The associated financial obligations of the Rated Notes are the related interest and principal amounts.

Morningstar DBRS’ credit ratings do not address nonpayment risk associated with contractual payment obligations contemplated in the applicable transaction document(s) 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: 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 considers potential portfolio migration based on replenishment criteria set forth in the transaction legal documents.

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 the Seller and its agents. Morningstar DBRS received the following data:
-- Static quarterly gross loss data from Q1 2013 to Q4 2023;
-- Static quarterly net loss data from Q1 2013 to Q4 2023;
-- Dynamic monthly delinquency and prepayments data from January 2016 to December 2023;
-- Portfolio stratification tables and loan-by-loan provisional portfolio selected as of 31 January 2024; and
-- A theorical amortisation of the provisional pool.

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

Morningstar DBRS was supplied with third-party assessments. However, this did not affect 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.

A provisional credit rating is not a final credit rating with respect to the above-mentioned securities and may change or be different than the final credit rating assigned or may be discontinued. The assignment of final credit ratings on the above-mentioned securities are subject to receipt by Morningstar DBRS of all data and/or information and final documentation that Morningstar DBRS deems necessary to finalise the credit ratings.

These credit ratings concern an expected-to-be-issued new financial instrument. These are the first Morningstar DBRS credit ratings on this financial instrument.

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):

-- Expected default rate: 1.6%
-- Expected recovery rate: 61.1%
-- Loss given default (LGD): 60.3% for the AAA (sf) scenario and 57.4% for the AA (sf) scenario.

Scenario 1: A 25% increase in the expected default.
Scenario 2: A 50% increase in the expected default.
Scenario 3: A 25% increase in LGD.
Scenario 4: A 50% increase in LGD.
Scenario 5: A 25% increase in both the expected default and LGD.
Scenario 6: A 25% increase in the expected default and 50% increase in LGD.
Scenario 7: A 50% increase in the expected default and 25% increase in LGD.
Scenario 8: A 50% increase in both the expected default and LGD.

Morningstar DBRS concludes that the expected credit ratings under the eight stress scenarios will be:
-- Class A Notes: AA (sf), AA (sf), AA (sf), AA (sf), AA (low) (sf), A (high) (sf), A (high) (sf), A (sf)
-- Class B Notes: AA (low) (sf), A (high) (sf), AA (low) (sf), A (high) (sf), A (sf), A (low) (sf), A (low) (sf), BBB (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.

These credit ratings are endorsed by DBRS Ratings Limited for use in the United Kingdom.

Lead Analyst: Sergio Rodas Sanchez, Senior Analyst
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: 11 March 2024

DBRS Ratings GmbH, Sucursal en España
Paseo de la Castellana 81, Plantas 26 & 27
28046 Madrid, Spain
Tel. +34 (91) 903 6500

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

-- 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 (7 March 2024),
https://dbrs.morningstar.com/research/429054
-- Derivative Criteria for European Structured Finance Transactions (18 September 2023),
https://dbrs.morningstar.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].