Morningstar DBRS Assigns Provisional Credit Rating to Red & Black Auto Loans France 2024

DBRS Ratings GmbH (Morningstar DBRS) assigned a provisional credit rating of AAA (sf) to the Class A Notes to be issued by Red & Black Auto Loans France 2024 (the Issuer).

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

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

CREDIT RATING RATIONALE
The transaction represents the issuance of Notes backed by a pool of auto loan receivables related to auto loan contracts originated by Compagnie Générale de Location d'Équipements S.A. (CGL; the Seller or the Originator) and granted to private individuals residing in France for the purchase of new or used cars. CGL's commercial brand name is CGI Finance. CGL is a consolidated subsidiary of Société Générale, S.A. (SG). EuroTitrisation SA will manage the transaction and CGL will service the receivables.

Morningstar DBRS' provisional credit rating is 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 Class A Notes are expected to be issued;
-- The credit quality of CGL's portfolio, the characteristics of the collateral, its historical performance, and the Morningstar DBRS-projected behaviour under various stress scenarios;
-- CGL's capabilities with respect to originations, underwriting, servicing, market position, and financial strength;
-- The operational risk review of CGL, which Morningstar DBRS deems to be an average 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; and,
-- The sovereign credit rating on the Republic of France, currently rated at AA (high) with a Stable trend by Morningstar DBRS.

TRANSACTION STRUCTURE
The transaction includes a 12-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 repayment of principal on the Class A Notes will be fully sequential with no payment of principal on the Class B Notes until the Class A Notes are redeemed in full.

The Class A Notes are supported by a general reserve, which covers senior fees, net swap payments, and interest payment shortfalls on the Class A Notes throughout the life of the transaction. The Seller will initially fund the general reserve, which will amortise to a target defined as 1.25% of the outstanding balance of the Class A Notes. The excess funds over the target reserve fund balance will be released in the interest priority of payments in each period that the reserve amortises and credits the principal deficiency ledger before covering interest on the Class B Notes.

All underlying contracts are fixed rate while the Class A Notes are indexed to one-month Euribor. Interest rate risk for the Class A Notes is mitigated through an interest rate swap provided by SG.

COUNTERPARTIES
The Issuer bank account is held at SG. Morningstar DBRS' public Long-Term Issuer Rating on SG is A (high) with a Stable trend and its Long Term Critical Obligations Rating is AA with a Stable trend. The transaction is expected to contain downgrade provisions relating to the account bank that are consistent with Morningstar DBRS' criteria.

SG is also the swap counterparty for the transaction. The hedging documents are expected to contain downgrade provisions that are consistent with Morningstar DBRS' criteria.

Morningstar DBRS' credit rating on the Class A Notes addresses the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents. The associated financial obligations are the related interest and principal amounts.

Morningstar DBRS' credit rating does 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 rating 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 this credit rating include the Seller and its agents. Morningstar DBRS received the following data:
-- Monthly dynamic outstanding portfolio balances from January 2016 to December 2023;
-- Quarterly static gross loss and recovery data from Q1 2016 to Q1 2024;
-- Monthly dynamic prepayment data from January 2016 to January 2024;
-- Monthly dynamic delinquency data from January 2016 to March 2024;
-- Detailed stratification tables as of 30 April 2024; and
-- A theoretical amortisation for the portfolio.

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 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.

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 a final credit rating on the above-mentioned securities is subject to receipt by Morningstar DBRS of all data and/or information and final documentation that Morningstar DBRS deems necessary to finalise the credit rating.

This credit rating concerns an expected-to-be-issued new financial instrument. This is the first Morningstar DBRS credit rating on this financial instrument.

Information regarding Morningstar DBRS credit ratings, including definitions, policies, and methodologies, is available on https://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: 2.5%
-- Expected recovery rate: 55%
-- Loss given default (LGD): 61.5% for the AAA (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 (high) (sf), AA (sf), AAA (sf), AA (high) (sf), AA (sf), AA (sf), AA (sf), and 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.

This credit rating is endorsed by DBRS Ratings Limited for use in the United Kingdom.

Lead Analyst: Ricardo Garcia, Vice President
Rating Committee Chair: David Lautier, Senior Vice President
Initial Credit Rating Date: 21 May 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 https://dbrs.morningstar.com or contact us at [email protected].