Morningstar DBRS Upgrades and Confirms Credit Ratings on Auto ABS French Leases 2021

DBRS Ratings GmbH (Morningstar DBRS) took the following credit rating actions on the Class A and Class B Notes (collectively, the rated notes) issued by Auto ABS French Leases 2021 (the Issuer):

-- Class A Notes confirmed at AAA (sf)
-- Class B Notes upgraded to AAA (sf) (sf) from AA (high) (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 June 2033.

CREDIT RATING RATIONALE
The credit rating actions follow an annual review of the transaction and are based on the following analytical considerations:
-- The portfolio performance, in terms of delinquencies, defaults, and losses as of the March 2024 payment date;
-- Probability of default (PD), loss given default (LGD), and expected loss assumptions on the remaining receivables; and
-- Current available credit enhancement to the rated notes to cover the expected losses at the AAA (sf) credit rating level.

The transaction is a securitisation of lease receivables related to auto lease agreements including residual value (RV) contracts granted by Compagnie Générale de Crédit aux Particulier S.A. to private and commercial lessees in France. The transaction included an initial 12-month revolving period, which ended on the 29 June 2022 payment date.

PORTFOLIO PERFORMANCE
As of the March 2024 payment date, leases that were one to two months and two to three months delinquent represented 0.20% and 0.09% of the portfolio balance, respectively, while leases more than three months delinquent represented 0.13%. Gross cumulative defaults amounted to 1.19% of the aggregate original balance, 67.01% of which has been recovered so far.

PORTFOLIO ASSUMPTIONS AND KEY DRIVERS
Morningstar DBRS conducted a loan-by-loan analysis on the remaining pool of receivables and updated its base case PD and LGD assumptions to 2.2% and 28.4%, respectively. Morningstar DBRS also updated the RV loss rate to 30.5% at the AAA (sf) credit rating level.

CREDIT ENHANCEMENT
The subordination of the Class B and Class C Notes and the cash reserve provides credit enhancement to the Class A Notes while the subordination of the Class C Notes provides credit enhancement to the Class B Notes. As of the March 2024 payment date, credit enhancement available to the Class A and Class B Notes was 43.2% and 29.5%, respectively, up from 20.5% and 14.0%, respectively, at closing.

The transaction benefits from an amortising cash reserve account, which is available to cover senior expenses and missed interest payments on the rated notes. This account was funded at closing with EUR 6.95 million and its target balance is equal to 0.8% of the outstanding principal balance of the rated notes, with a floor of EUR 1.0 million. The reserve currently stands at its target amount of EUR 2.9 million.

Banco Santander SA (Santander) acts as the account bank for the transaction. Based on the account bank reference rating of Santander at A (high) (which is one notch below its Morningstar DBRS Long Term Critical Obligations Rating (COR) of AA (low)), 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 the account bank to be consistent with the credit ratings assigned to the rated notes, as described in Morningstar DBRS' "Legal Criteria for European Structured Finance Transactions" methodology.

Santander also acts as the swap counterparty for the transaction. Morningstar DBRS' Long Term COR of AA (low) on Santander is consistent with the first credit rating threshold as described in 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 ratings do 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 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 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 France Titrisation 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 7 June 2023, when Morningstar DBRS confirmed its AAA (sf) credit rating on the Class A Notes and upgraded its credit rating on the Class B Notes to AA (high) (sf) from AA (sf).

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 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 2.2% and 28.4%, respectively.
-- A RV loss of 30.5% was applied at the AAA (sf) credit rating level.
-- The Risk Sensitivity overview below illustrates the credit ratings expected if the PD, LGD, and RV haircut increase by a certain percentage over the base case assumption.

Class A Notes Risk Sensitivity:
-- 25% increase in RV loss, expected credit rating of AAA (sf)
-- 50% increase in RV loss, expected credit rating of AAA (sf)
-- 25% increase in both PD and LGD, expected credit rating of AAA (sf)
-- 50% increase in both PD and LGD, expected credit rating of AAA (sf)
-- 25% increase in both PD and LGD, and 25% increase in RV, expected credit rating of AAA (sf)
-- 25% increase in both PD and LGD, and 50% increase in RV, expected credit rating of AAA (sf)
-- 50% increase in both PD and LGD, and 25% increase in RV, expected credit rating of AAA (sf)
-- 50% increase in both PD and LGD, and 50% increase in RV, expected credit rating of AAA (sf)

Class B Notes Risk Sensitivity:
-- 25% increase in RV loss, expected credit rating of AAA (sf)
-- 50% increase in RV loss, expected credit rating of AA (high) (sf)
-- 25% increase in both PD and LGD, expected credit rating of AAA (sf)
-- 50% increase in both PD and LGD, expected credit rating of AAA (sf)
-- 25% increase in both PD and LGD, and 25% increase in RV, expected credit rating of AAA (sf)
-- 25% increase in both PD and LGD, and 50% increase in RV, expected credit rating of AA (high) (sf)
-- 50% increase in both PD and LGD, and 25% increase in RV, expected credit rating of AA (high) (sf)
-- 50% increase in both PD and LGD, and 50% increase in RV, 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.

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: 2 June 2021

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.

-- Master European Structured Finance Surveillance Methodology (7 March 2024),
https://dbrs.morningstar.com/research/429051.
-- 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/429054.
-- 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.

For more information on this credit or on this industry, visit dbrs.morningstar.com or contact us at [email protected].