Morningstar DBRS Upgrades and Confirms Credit Ratings on Red & Black Auto Lease France 2
AutoDBRS Ratings GmbH (Morningstar DBRS) took the following credit rating actions on the notes issued by Red & Black Auto Lease France 2 (the Issuer):
-- Class A Notes confirmed at AAA (sf)
-- Class B Notes upgraded to A (high) (sf) from BBB (high) (sf)
The credit ratings on the Class A and Class B Notes address the timely payment of interest and ultimate repayment of principal on or before the legal final maturity date in June 2035.
CREDIT RATING RATIONALE
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 June 2025 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 notes to cover the expected losses at their respective credit rating levels.
The transaction is a securitisation collateralised by lease receivable instalments and the residual value (RV) component of the lease agreements. The auto lease agreements are characterised as full-service leasing contracts (location long durée (LLD)) and have been granted by Temsys S.A., whose commercial name is Ayvens France (Ayvens France or the Seller) to commercial lessees operating in France. The transaction closed in June 2023 and there was a revolving period of 12 months, which ended after the June 2024 payment date.
PORTFOLIO PERFORMANCE
As of the June 2025 payment date, loans that were 30 days to 60 days delinquent and 60 days to 90 days delinquent represented 0.6% and 0.2% of the portfolio balance, respectively. The cumulative gross default ratio was 2.3% of the aggregate cumulative portfolio.
PORTFOLIO ASSUMPTIONS AND KEY DRIVERS
Morningstar DBRS conducted a loan-by-loan analysis of the remaining pool of receivables and updated its base case PD, LGD, and RV assumptions to 3.4%, 33.9%, and 9.5% at the B (sf) rating level, respectively.
CREDIT ENHANCEMENT
Subordination of the junior notes provides credit enhancement. As of the June 2025 payment date, the credit enhancement available to the Class A and Class B Notes increased to 41.8% and 21.1%, respectively, from 27.5%, and 13.9%, respectively, at the time of the last annual review.
The transaction benefits from a general reserve that is fully funded on the issue date. The general reserve covers senior expenses, net swap payments, and interest shortfalls on the rated notes during both the revolving and normal amortisation periods and it is made available in full to the priority of payments on the legal maturity date. The general reserve is set at 1.5% of the outstanding balance of the notes. It has been at its required balance since closing and currently stands at EUR 7.1 million.
Société Générale, S.A. acts as the account bank for the transaction. Based on the account bank reference rating of AA (low) on Société Générale, S.A. (which is one notch below its 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 ratings assigned to the notes, as described in Morningstar DBRS' "Legal and Derivative Criteria for European Structured Finance Transactions" methodology.
All lease receivables are sold using a fixed discount 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 the Royal Bank of Canada (RBC). Morningstar DBRS' Long-Term Issuer Rating of AA (high) on RBC is above the first rating threshold as described in Morningstar DBRS' "Legal and 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
Environmental (E) Factors
The transaction has a relatively large exposure to electric and plug-in hybrid vehicles at 60.6% as of the latest payment date. The line-by-line sale proceeds data, which was used to derive the RV loss assumption at closing, included a high number of observations related to older diesel engine vehicles, which did not reflect the securitised pool composition. At closing Morningstar DBRS considered the relatively higher exposure to plug-in hybrid, electric, and hybrid which showed favourable past RV performance as a result of prudent RV setting policies in deriving its RV loss assumption. Without considering that, the rating of the Class B Notes would have been one notch lower and therefore Morningstar DBRS considered this exposure as a significant Environmental factor within its analysis, namely the factor "Carbon and Greenhouse Gas (GHG) Costs", both at closing and at the time of the last annual review.
The E factor has changed from the prior credit rating disclosure. For this review, given the increased credit enhancement and the three notches upgrade on the Class B Notes, this factor is no longer significant but relevant, as it does not affect the credit rating.
There were no Social or 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 Factors in Credit Ratings" at https://dbrs.morningstar.com/research/454196.
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: "Master European Structured Finance Surveillance Methodology" (4 February 2025), https://dbrs.morningstar.com/research/447080.
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 transaction 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 27 June 2024, when Morningstar DBRS confirmed its credit ratings on the Class A and Class B Notes at AAA (sf) and BBB (high) (sf), respectively.
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 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.
-- Probability of default (PD) rate used: base case PD of 17.5% at the AAA (sf) stress level and 11.1% at the A (high) (sf) stress level, a 25% and 50% increase on the base case PD was tested.
-- Losses given default (LGD) rates used: LGD of 50.1% at the AAA (sf) stress level and 45.1% at the A (high) (sf) stress level, a 25% and 50% decrease in the base case recovery rate was tested.
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 A (high) (sf)
-- 50% increase in LGD, expected credit rating of A (high) (sf)
-- 25% increase in PD, expected credit rating of A (sf)
-- 50% increase in PD, expected credit rating of A (low) (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 A (sf)
-- 50% increase in PD and 25% increase in LGD, expected credit rating of A (low) (sf)
-- 50% increase in PD and 50% increase in LGD, expected credit rating of A (low) (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: Baran Cetin, Assistant Vice President
Rating Committee Chair: Mark Wilder, Senior Vice President
Initial Rating Date: 27 June 2023
DBRS Ratings GmbH
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Tel. +49 (69) 8088 3500
Geschäftsführung: Detlef Scholz, Marta Zurita Bermejo
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.
-- Legal and Derivative Criteria for European Structured Finance Transactions (19 November 2024),
https://dbrs.morningstar.com/research/443196
-- Master European Structured Finance Surveillance Methodology (4 February 2025),
https://dbrs.morningstar.com/research/447080
-- Rating European Consumer and Commercial Asset-Backed Securitisations (18 September 2024),
https://dbrs.morningstar.com/research/439583.
-- Rating European Structured Finance Transactions Methodology (17 June 2025),
https://dbrs.morningstar.com/research/456339.
-- Rating CLOs Backed by Loans to European SMEs (5 June 2025) and SME Diversity Model v2.7.1.6., https://dbrs.morningstar.com/research/455697.
-- 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.
-- Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings (16 May 2025), https://dbrs.morningstar.com/research/454196.
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 dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.
Ratings
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