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

DBRS Ratings GmbH (Morningstar DBRS) assigned AAA (sf) credit ratings to the EUR 138.3 million Series 2024-03 a and to the EUR 138.2 million Series 2024-03 b, Class A Notes issued by Cars Alliance Auto Loans France Master (the Issuer) following the notes’ issuance on the 21 March 2024 payment date. Additionally, Morningstar DBRS discontinued its AAA (sf) credit rating on the EUR 256.6 million Series 2023-11 a, Class A Notes as a result of the notes’ full repayment on the same payment date, and confirmed its AAA (sf) credit ratings on the following remaining outstanding series (collectively, the Class A Notes):

-- EUR 84.3 million Series 2023-12, Class A Notes
-- EUR 184.5 million Series 2024-01, Class A Notes
-- EUR 158.1 million Series 2024-02, Class A Notes

The credit ratings on the Class A Notes address the timely payment of interest and the ultimate repayment of principal by the legal final maturity date in August 2034.

The credit rating confirmations follow an annual review of the transaction and are based on the following analytical considerations:
-- Portfolio performance, in terms of the level of delinquencies and defaults, as of the March 2024 payment date;
-- No Revolving Period Termination Events have occurred;
-- Probability of default (PD), loss given default (LGD), and expected loss assumptions on the portfolio; and
-- Current available credit enhancement to the Class A Notes to cover the expected losses at their AAA (sf) credit rating level.

The transaction is a master trust securitisation backed by a pool of auto loan receivables related to new and used motor vehicles originated and serviced by Diac S.A., a French subsidiary of RCI Banque SA. The transaction’s revolving period extends until the July 2024 payment date, subject to certain portfolio conditions being met. During the revolving period, the Issuer may acquire additional receivables and issue a further series of Class A Notes with a different expected maturity date.

The transaction closed on 25 May 2012. Since closing, replenishment of the underlying receivables has met the portfolio’s revolving conditions on each payment date.

PORTFOLIO PERFORMANCE
As of the March 2024 payment date, loans that were 30 to 60 days delinquent and 60 to 90 days delinquent represented 0.7% and 0.2% of the portfolio net discounted balance, respectively. The cumulative gross default ratio was 1.6% of the aggregate original portfolio balance, with cumulative principal recoveries of 77.6% to date.

PORTFOLIO ASSUMPTIONS AND KEY CREDIT RATING DRIVERS
Morningstar DBRS maintained its base-case PD and LGD assumptions in eight different cash flow scenarios that took the dynamic credit enhancement mechanism into consideration. Morningstar DBRS estimates the subordination of the Class B Notes to range from 6.5% to 15.9%, the PD assumptions to range from 2.1% to 3.8%, and the LGD assumptions to range from 51.5% to 57.2%. The assumptions are based on the potential portfolio migration and the replenishment criteria set forth in the transaction legal documents.

Morningstar DBRS opted to elect midrange 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
The subordination of the Class B Notes and the cash reserve provides credit enhancement to the Class A Notes. As of the March 2024 payment date, credit enhancement to the Class A Notes was 13.4%.

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 8.1 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 15 months of senior fees and interest payments on the Class A Notes.

Société Générale, S.A. acts as the account bank for the transaction. Based on the reference credit rating of Société Générale, S.A. at AA (low) (which is one notch below its Morningstar DBRS Long Term Critical Obligations Rating of AA), 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 Société Générale, S.A. to be consistent with the credit ratings assigned to the notes, as described in Morningstar DBRS’ “Legal Criteria for European Structured Finance Transactions” methodology.

Morningstar DBRS’ credit ratings on the notes address the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents. The associated financial obligations for each of the rated notes are the related Interest Payment Amounts and the related Class Balances.

Morningstar DBRS’ credit ratings do 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” (7 March 2024), https://dbrs.morningstar.com/research/429051.

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 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 monthly investor reports provided by EuroTitrisation (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 not 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.

The last credit rating action on this transaction took place on 21 February 2024, when Morningstar DBRS assigned a AAA (sf) credit rating to the Series 2024-02, Class A Notes and discontinued its AAA (sf) credit rating on the Series 2023-10, Class A Notes. Prior to that, the last annual review took place on 6 April 2023, when Morningstar DBRS confirmed the credit ratings on the Series 2022-12, 2023-01, 2023-02, and 2023-03, 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 with the parameters used to determine the credit ratings (the base case):

-- Morningstar DBRS expected a base-case PD and LGD for the portfolio 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 are 3.5% and 54.4%, respectively. They are based on portfolio migration and Morningstar DBRS’ most constraining cash flow scenario.
-- 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 (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 (low) (sf)
-- 50% increase in PD and 50% increase in LGD, expected credit rating of A (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: Preben Cornelius Overas, Assistant Vice President
Rating Committee Chair: Alfonso Candelas, Senior Vice President
Initial Credit Rating Date: 25 May 2012

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.dbrs.morningstar.com/about/methodologies.

-- Master European Structured Finance Surveillance Methodology (7 March 2024),
https://dbrs.morningstar.com/research/429051

-- Legal Criteria for European Structured Finance Transactions (30 June 2023),
https://dbrs.morningstar.com/research/416730

-- Operational Risk Assessment for European Structured Finance Originators (7 March 2024), https://dbrs.morningstar.com/research/429054

-- 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

-- 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].