Morningstar DBRS Confirms Credit Ratings on Cars Alliance DFP Germany 2017

DBRS Ratings GmbH (Morningstar DBRS) confirmed its AA (sf) credit ratings on the Class A 2022-1 Notes and Class A 2022-2 Notes (the Notes) issued by Cars Alliance DFP Germany 2017 (the Issuer).

The credit ratings on the Notes address the timely payment of interest and the ultimate payment of principal on or before the legal final maturity date in August 2031.

CREDIT RATING RATIONALE
The confirmations follow an annual review of the transaction and are based on the following analytical considerations:
-- Portfolio performance, in terms of realised losses, principal payment rates, and yield, as of the September 2024 payment date.
-- Current available credit enhancement to the Notes to cover the expected losses at the AA (sf) credit rating level in various dealer concentration and liquidation scenarios.
-- No early amortisation events have occurred.

The transaction is a securitisation of auto wholesale receivables originated in Germany by RCI Banque S.A. Niederlassung Deutschland (RCI Germany), a subsidiary of RCI Banque S.A. and part of the automobile group Renault S.A. The portfolio consists of term loans and revolving credit lines to Renault, Nissan, Dacia, and Alpine dealers in Germany, which are secured by new vehicles (including demonstration vehicles), used vehicles, and spare parts.

The transaction is currently in its revolving period, scheduled to terminate in September 2027.

PORTFOLIO PERFORMANCE
As of the September 2024 payment date, the three-month average principal payment rate was 44.9% and cumulative defaults represented 0.1% of the total receivables purchased since closing. However, as of the September 2024 payment date, RCI Germany has repurchased all the defaulted receivables.

The collateral is subject to certain concentration limits on the product type securing the receivables (spare parts, second-hand vehicles). As of the September 2024 payment date, no limit has been breached. Morningstar DBRS has addressed the concentration risk in its analysis.

PORTFOLIO ASSUMPTIONS AND KEY DRIVERS
The key credit rating drivers are the base case probability of default of 5.2%, an increase in default rate up to 55.0% at the AA (sf) credit rating level, and a decline of the payment rate by 55.0% at the AA (sf) credit rating level.

CREDIT ENHANCEMENT
Credit enhancement to the Notes consists of subordination provided by a Class B loan and the general reserve. The subordination level is fixed at 19.5% of the portfolio target balance, or EUR 130.9 million as of the September 2024 payment date.

The general reserve provides liquidity support to the Notes as well as credit support from the payment date when either the outstanding portfolio balance is zero or the general reserve balance is sufficient to repay the principal on the Notes. As of the September 2024 payment date, the general reserve was at its target balance of EUR 10.8 million, with the target set at 2.0% of the aggregate balance of the series of Class A Notes with a EUR 2.0 million floor.

Commingling risk in the transaction is limited, as the collections are transferred to the account bank daily. Set-off risk in the transaction is mitigated by a minimum credit enhancement level, one component of which is determined by the amounts standing in the dealers' accounts held at the seller.

Société Générale, S.A. (Société Générale) acts as the account bank for the transaction. Based on Morningstar DBRS' account bank reference credit rating of Société Générale at AA (low), which is one notch below the 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 the account bank to be consistent with the credit rating assigned to the Notes, as described in Morningstar DBRS' "Legal Criteria for European Structured Finance Transactions" methodology.

Morningstar DBRS' credit ratings on the applicable classes address the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents. Where applicable, a description of these financial obligations can be found in the transactions' respective press releases at issuance.

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 factor(s) 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 Factors in Credit Ratings (13 August, 2024) https://dbrs.morningstar.com/research/437781 .

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" (6 August 2024), https://dbrs.morningstar.com/research/437540.

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 surveillance section of 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 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 Credit Ratings on Other Morningstar DBRS Credit Ratings" of the "Global Methodology for Rating Sovereign Governments" at: https://dbrs.morningstar.com/research/436000.

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 rating of the Notes, 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.

The last credit rating action on this issuer took place on 17 October 2023, when Morningstar DBRS confirmed its AA (sf) credit ratings on the Notes.

The lead analyst responsibilities for this transaction have been transferred to Pascale Kallas.

Information regarding Morningstar DBRS credit ratings, including definitions, policies, and methodologies, is available on https://dbrs.morningstar.com.

Class A 2022-1 Notes and Class A 2022-2 Notes Sensitivity:
-- Loss rate (LR): base case of 5.2%, stressed with a 25% and 50% increase
-- Monthly principal payment rate (MPPR): base case of 25% (in line with the payment rate early amortisation trigger), stressed with a 25% and 50% decrease
-- Yield: base case of 0.0%, stressed with a 25% and 50% decrease

While holding the MPPR and the yield constant:
-- 25% increase in loss rate, expected credit rating of AA (sf)
-- 50% increase in loss rate, expected credit rating of AA (sf)

While holding the LR and the yield constant:
-- 25% decrease in MPPR, expected credit rating of AA (sf)
-- 50% decrease in MPPR, expected credit rating of BB (high) (sf)

While holding the MPPR and the LR constant:
-- 25% decrease in yield, expected credit rating of AA (sf)
-- 50% decrease in yield, expected credit rating of AA (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: Pascale Kallas, Assistant Vice President
Rating Committee Chair: Alfonso Candelas, Associate Managing Director
Initial Rating Date: 25 July 2017

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 (6 August 2024),
https://dbrs.morningstar.com/research/437540.
Legal Criteria for European Structured Finance Transactions (28 June 2024),
https://dbrs.morningstar.com/research/435165.
Operational Risk Assessment for European Structured Finance Originators and Servicers (18 September 2024),
https://dbrs.morningstar.com/research/439571.
Interest Rate Stresses for European Structured Finance Transactions (24 September 2024), https://dbrs.morningstar.com/research/439913.
Rating European Auto Wholesale Securitisations (18 September 2024),
https://dbrs.morningstar.com/research/439582.
Rating European Structured Finance Transactions Methodology (18 September 2024),
https://dbrs.morningstar.com/research/439581.
Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings (13 August 2024), https://dbrs.morningstar.com/research/437781

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/439604.

For more information on this credit or on this industry, visit https://dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.