DBRS Ratings GmbH (DBRS) confirmed the following ratings on the bonds issued by Cars Alliance Auto Loans France V 2018-1 (the Issuer):
-- Class A at AAA (sf)
-- Class B at AA (high) (sf)
The ratings on the Class A and Class B notes (the Notes) address the timely payment of interest and ultimate payment of principal on or before the legal final maturity date.
The confirmations follow an annual review of the transaction and are based on the following analytical considerations:
-- Portfolio performance, in terms of delinquencies, defaults and losses.
-- Probability of default (PD), loss given default (LGD) and expected loss assumptions on the remaining receivables.
-- No revolving termination events have occurred.
-- Current available credit enhancement (CE) to the Notes to cover the expected losses at their respective rating levels.
The Issuer is a securitisation collateralised by a pool of loan receivables granted and serviced by Diac SA (Diac), predominantly to private individuals and commercial clients in France for the purchase of new or used cars in France. The transaction closed in March 2018 and has an 18-month revolving period scheduled to end in October 2019.
As of the March 2019 payment date, the gross cumulative default ratio as a percentage of the original portfolio plus all subsequent portfolios was 0.9%, of which 45.3% has been recovered so far. The percentage of loans between 30 and 60 days and 60 and 90 days delinquent was 0.01% and 0.01%, respectively.
PORTFOLIO ASSUMPTIONS AND REVOLVING PERIOD
DBRS conducted a loan-by-loan analysis of the remaining pool of receivables and has maintained its base case PD and LGD assumptions at 4.1% and 51.6%, respectively.
The transaction includes an 18-month revolving period, during which the Issuer has the option to purchase new receivables. Concentration limits are in place to mitigate against any negative evolution of the portfolio, and performance triggers are included in the revolving period termination events. When the revolving period ends, the amortisation of the Notes will begin. To date, all triggers are being met.
CE is provided by the subordination of the respective junior obligations. Because of the revolving period, CE remains stable: the CE for the Class A notes is 8.0% and the CE for the Class B notes is 5.0%
The transaction structure includes a general reserve account that is available to cover senior expenses and missed interest payments on the Notes and, as soon as the portfolio balance is reduced to zero or on the final maturity date, to repay principal on the Notes. This account was funded at closing with EUR 7.6 million, and its target balance is equal to 1.0% of the aggregate principal balance of the Notes. It has been at its target balance since closing, currently EUR 7.6 million.
Société Générale, S.A. (SG) acts as the account bank for the transaction. Based on the reference rating of SG at AA (low), one notch below the DBRS Long Term Critical Obligations Rating of SG at AA, the downgrade provisions outlined in the transaction documents, and structural mitigants, DBRS considers the risk arising from the exposure to SG to be consistent with the ratings assigned to the Notes, as described in DBRS's "Legal Criteria for European Structured Finance Transactions" methodology.
The Issuer entered into a Swap Agreement with Diac in order to hedge the interest rate mismatch between the Notes, indexed to 1-month Euribor, and the fixed interest rate payments from the collateral portfolio. The structure also includes a Stand-By Swap, where HSBC France provides a financial and operational guarantee to Diac; if Diac fails to meet its obligations as Swap Counterparty, HSBC France will step in to hedge the Issuer’s exposure. The Stand-By Swap Agreement defines downgrade provisions in line with DBRS’s “Derivative Criteria for European Structured Finance Transactions” methodology.
All figures are in euros unless otherwise noted.
The principal methodology applicable to the ratings is the “Master European Structured Finance Surveillance Methodology”. 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 continues to be based on the worst-case 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 rating action.
Other methodologies referenced in this transaction are listed at the end of this press release. These may be found on www.dbrs.com at: http://www.dbrs.com/about/methodologies.
For a more detailed discussion of the sovereign risk impact on Structured Finance ratings, please refer to “Appendix C: The Impact of Sovereign Ratings on Other DBRS Credit Ratings” of the “Rating Sovereign Governments” methodology at: http://dbrs.com/research/333487/rating-sovereign-governments.pdf.
The sources of data and information used for these ratings include monthly investor reports provided by Eurotitrisation (the Management Company).
DBRS did not rely upon third-party due diligence in order to conduct its analysis.
At the time of the initial rating, DBRS was supplied with third-party assessments. However, this did not impact the rating analysis.
DBRS considers the data and information available to it for the purposes of providing these ratings to be of satisfactory quality.
DBRS does not audit or independently verify the data or information it receives in connection with the rating process.
The last rating action on this transaction took place on 4 April 2018, when DBRS finalised its provisional ratings on the Class A and B notes at AAA (sf) and AA (high) (sf), respectively.
The lead analyst responsibilities for this transaction have been transferred to Alfonso Candelas.
Information regarding DBRS ratings, including definitions, policies and methodologies is available at www.dbrs.com.
To assess the impact of changing the transaction parameters on the rating, DBRS considered the following stress scenarios as compared with the parameters used to determine the rating (the “Base Case”):
-- DBRS expected a base case probability of default (PD) and loss given default (LGD) for the portfolio 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 receivables are 4.1% and 51.6%, respectively.
For example, if the LGD increases by 50%, the rating of the Class A notes would be expected to decrease to AA (sf), ceteris paribus. If the PD increases by 50%, the rating of the Class A notes would be expected to decrease to AA (sf), ceteris paribus. Furthermore, if both the PD and LGD increase by 50%, the rating of the Class A notes would be expected to decrease to A (low) (sf), ceteris paribus.
Class A risk sensitivity:
-- 25% increase in LGD, expected rating of AA (high) (sf)
-- 50% increase in LGD, expected rating of AA (sf)
-- 25% increase in PD, expected rating of AA (high) (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of AA (low) (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of A (high) (sf)
-- 50% increase in PD, expected rating of AA (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of A (high) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of A (low) (sf)
Class B risk sensitivity:
-- 25% increase in LGD, expected rating of AA (low) (sf)
-- 50% increase in LGD, expected rating of A (high) (sf)
-- 25% increase in PD, expected rating of AA (low) (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of A (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of A (low) (sf)
-- 50% increase in PD, expected rating of A (high) (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of A (low) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of BBB (high) (sf)
For further information on DBRS historical default rates published by the European Securities and Markets Authority (“ESMA”) in a central repository, see:
Ratings assigned by DBRS Ratings GmbH are subject to EU and US regulations only.
Lead Analyst: Alfonso Candelas, Senior Vice President
Rating Committee Chair: Vito Natale, Managing Director
Initial Rating Date: 4 April 2018
DBRS Ratings GmbH
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Geschäftsführer: Detlef Scholz
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The rating methodologies used in the analysis of this transaction can be found at: http://www.dbrs.com/about/methodologies.
-- Legal Criteria for European Structured Finance Transactions
-- Master European Structured Finance Surveillance Methodology
-- Rating European Consumer and Commercial Asset-Backed Securitisations
-- Operational Risk Assessment for European Structured Finance Servicers
-- Operational Risk Assessment for European Structured Finance Originators
-- Derivative Criteria for European Structured Finance Transactions
-- Interest Rate Stresses for European Structured Finance Transactions
A description of how DBRS analyses structured finance transactions and how the methodologies are collectively applied can be found at: http://www.dbrs.com/research/278375.
For more information on this credit or on this industry, visit www.dbrs.com or contact us at email@example.com.