Morningstar DBRS Upgrades and Confirms Credit Ratings on Cars Alliance Auto Loans France V 2022-1

DBRS Ratings GmbH (Morningstar DBRS) took the following credit rating actions on the notes (collectively, the Notes), issued by Cars Alliance Auto Loans France V 2022-1 (the Issuer):

-- Class A Notes confirmed at AAA (sf)
-- Class B Notes upgraded to AA (sf) from AA (low) (sf)

The credit ratings address the timely payment of interest and the ultimate repayment of principal on or before the legal final maturity date in November 2032.

The credit rating actions follow an annual review of the transaction and are based on the following analytical considerations:
-- Portfolio performance, in terms of delinquencies, defaults, and losses as of the February 2024 payment date.
-- Probability of default (PD), loss given default (LGD), and expected loss assumptions on the remaining receivables.
-- Current available credit enhancement to the Notes to cover the expected losses at their respective credit rating levels.

The transaction is a securitisation collateralised by a pool of loan receivables granted by Diac SA (Diac) predominantly to private individuals and commercial clients in France for the purchase of new or used vehicles in France. Diac also services the receivables. The transaction closed in May 2022 and included an initial 18-month revolving period, which ended on the November 2023 payment date.

PORTFOLIO PERFORMANCE
As of February 2024, loans that were one to two months and two to three months in arrears represented 0.6% and 0.2% of the outstanding portfolio balance, respectively. The gross cumulative defaults amounted to 1.3% of the aggregate initial portfolio balance, with cumulative recoveries of 58.7% to date.

PORTFOLIO ASSUMPTIONS AND KEY DRIVERS
Morningstar DBRS conducted a loan-by-loan analysis on the outstanding pool following the end of the revolving period and updated its PD and recovery assumptions to 3.1% and 54.3%, respectively.

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) credit rating level.

CREDIT ENHANCEMENT
The subordination of the respective junior notes provides credit enhancement to the Notes. As of the February 2024 payment date, subordination available to the Class A and Class B Notes increased to 14.8% and 6.8%, respectively, from 13.0% and 6.0%, respectively. The increased credit enhancement is driven by the start of the amortisation of the Class A Notes, following the end of the revolving period.

The transaction benefits from an amortising general reserve account, which is available to cover senior expenses and interest payments on the Notes. This account was funded at closing with EUR 5.3 million, and its target balance is equal to 0.75% of the aggregate principal balance of the Notes. Since closing, it has been at its target balance and currently stands at EUR 4.6 million as of the February 2024 payment date.

BNP Paribas SA is the account bank for the transaction. Based on the reference rating of BNP Paribas SA at AA, which is one notch below its Morningstar DBRS Long Term Critical Obligations Rating of AA (high), the downgrade provisions outlined in the transaction documents, and structural mitigants, Morningstar DBRS considers the risk arising from the exposure to BNP Paribas SA to be consistent with the credit ratings assigned to the Notes, as described in Morningstar DBRS’ "Legal Criteria for European Structured Finance Transactions" methodology.

The Issuer entered into a Swap Agreement with Diac to hedge the interest rate mismatch between the Notes, indexed to one-month Euribor, and the fixed interest rate payments from the collateral portfolio. The structure also includes a Stand-By Swap, where Crédit Agricole Corporate and Investment Bank (CACIB) provides a financial and operational guarantee to Diac; if Diac fails to meet its obligations as a Swap Counterparty, CACIB will step in to hedge the Issuer’s exposure. The Stand-By Swap Agreement defines downgrade provisions consistent with Morningstar DBRS’ “Derivative Criteria for European Structured Finance Transactions” methodology.

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” (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.

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 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 24 May 2023, when Morningstar DBRS confirmed its credit ratings of AAA (sf) and AA (low) (sf) on the Class A and Class B Notes, respectively.

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 of the current pool of loans for the Issuer are 3.1% and 53.3%, 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 AA (high) (sf)
-- 50% increase in LGD, expected credit rating of AA (sf)
-- 25% increase in PD, expected credit rating of AA (high) (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 (low) (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)

Class B Notes Risk Sensitivity:
-- 25% increase in LGD, expected credit rating of A (high) (sf)
-- 50% increase in LGD, expected credit rating of A (sf)
-- 25% increase in PD, expected credit rating of A (high) (sf)
-- 50% increase in PD, expected credit rating of A (sf)
-- 25% increase in PD and 25% increase in LGD, expected credit rating of A (sf)
-- 25% increase in PD and 50% increase in LGD, expected credit rating of BBB (high) (sf)
-- 50% increase in PD and 25% increase in LGD, expected credit rating of BBB (high) (sf)
-- 50% increase in PD and 50% increase in LGD, expected credit rating of BBB (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 Rating Date: 21 April 2022

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 (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 Servicer (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
-- Interest Rate Stresses for European Structured Finance Transactions (15 September 2023), https://dbrs.morningstar.com/research/420602
-- Derivative Criteria for European Structured Finance Transactions (18 September 2023),
https://dbrs.morningstar.com/research/420754
-- 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.