Morningstar DBRS Confirms Credit Ratings on Cars Alliance Auto Loans Germany V 2021-1

DBRS Ratings GmbH (Morningstar DBRS) confirmed its AAA (sf) credit ratings on the Class A and Class B Notes (the rated notes) issued by Cars Alliance Auto Loans Germany V 2021-1 (the Issuer).

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 2034.

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

The transaction is a securitisation collateralised by a portfolio of auto loan receivables granted and serviced by RCI Banque S.A. Niederlassung Deutschland (RCI Germany), the German branch of RCI Group and the captive lender of Renault S.A.S. The transaction closed in October 2021 and had an initial 18-month revolving period, which ended on the March 2023 payment date.

PORTFOLIO PERFORMANCE
As of the October 2024 payment date, loans that were one to two months and two to three months in arrears represented 0.5% and 0.2% of the outstanding portfolio balance, respectively, while loans more than three months delinquent represented 0.2%. Gross cumulative defaults amounted to 0.5% of the aggregate initial portfolio balance, with cumulative recoveries of 71.8% to date.

PORTFOLIO ASSUMPTIONS AND KEY DRIVERS
Morningstar DBRS updated its base case PD and LGD assumptions to 1.6% and 38.9%, respectively, based on updated historical gross loss and net loss data ranging from Q1 2013 to Q4 2023, submitted by RCI Germany, and the current portfolio composition.

Morningstar DBRS adopted mid-range core multiples. The inclusion of incremental balloon stresses means that the derived adjusted multiple is above the higher range used at the AAA (sf) credit rating level.

CREDIT ENHANCEMENT AND RESERVES
The subordination of the respective junior notes provides credit enhancement to the rated notes. As of the October 2024 payment date, subordination available to the Class A and Class B Notes was 16.2% and 10.8%, respectively, up from 9.9% and 6.6%, respectively, as of the last annual review.

The transaction benefits from an amortising general reserve account, which is available to cover senior expenses, swap payments, and missed interest payments on the rated notes. This account is currently funded with EUR 3.2 million, and its target balance is equal to 1.0% of the rated notes' balance.

The structure also includes a commingling reserve account and a set-off reserve account, which will be funded if certain triggers are breached. To date, these reserves are unfunded.

BNP Paribas SA acts as the account bank for the transaction. Based on Morningstar DBRS' reference rating on BNP Paribas SA of AA (which is one notch below its DBRS Morningstar Long Term Critical Obligations Rating of AA (high)), 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.

The Issuer entered into swap agreements with RCI Germany to hedge the interest rate mismatch between the Class A Notes, indexed to one-month Euribor, and the fixed interest rate payments from the securitised portfolio. The Issuer standby swap counterparty, Société Générale, S.A. (SocGen), guarantees the financial and operational terms of the swap agreements. If RCI Germany fails to meet its obligations as swap counterparty, SocGen will step in to hedge the Issuer's exposure. The standby swap agreement defines downgrade provisions in line with Morningstar DBRS' "Derivative 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 https://dbrs.morningstar.com/research/437781.

DBRS Morningstar 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 the "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 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 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 SA, loan-level data provided by the European DataWarehouse GmbH, and static quarterly origination and cumulative gross and net loss data from Q1 2013 to Q4 2023, provided by RCI Germany.

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 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 27 October 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 AAA (sf) from AA (high) (sf).

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.

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):

-- 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 1.6% and 38.9%, respectively.

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

Class B Notes Risk Sensitivity:
-- 25% increase in LGD, expected credit rating of AAA (sf)
-- 50% increase in LGD, expected credit rating of AAA (sf)
-- 25% increase in PD, expected credit rating of AAA (sf)
-- 50% increase in PD, expected credit rating of AAA (sf)
-- 25% increase in PD and 25% increase in LGD, expected credit rating of AAA (sf)
-- 25% increase in PD and 50% increase in LGD, expected credit rating of AA (high) (sf)
-- 50% increase in PD and 25% increase in LGD, expected credit rating of AA (high) (sf)
-- 50% increase in PD and 50% increase in LGD, 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: 30 September 2021

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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
-- Derivative Criteria for European Structured Finance Transactions (6 September 2024),
https://dbrs.morningstar.com/research/439043
-- Operational Risk Assessment for European Structured Finance Originators and Servicers (18 September 2024), https://dbrs.morningstar.com/research/439571
-- Rating European Consumer and Commercial Asset-Backed Securitisations (18 September 2024),
https://dbrs.morningstar.com/research/439583
-- 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.