DBRS Ratings GmbH (DBRS) confirmed its AA (sf) rating on the Class A Notes issued by Cars Alliance Auto Loans Italy 2015 S.r.l. (the Issuer).
The confirmation follows an annual review of the transaction and is based on the following analytical considerations:
-- The portfolio performance, in terms of level of delinquencies and cumulative net losses, as of the April 2019 payment date;
-- No purchase termination event has occurred;
-- The current available credit enhancement (CE) to the the Class A Notes to cover the expected losses assumed in line with their AA (sf) rating level.
The rating of the Class A Notes addresses the timely payment of interest and the ultimate repayment of principal on or before the Legal Final Maturity Date in December 2031.
The Issuer is a securitisation of Italian auto loan receivables originated by RCI Banque S.A., Italian Branch (RCI Banque-Italy). As of the April 2019 payment date, the EUR 1,575.4 million portfolio consisted of loans granted to both private (92.6% of the discounted collateral balance) and corporate (7.4%) clients for the purchase of new (95.8%) and used (4.2%) vehicles. Most of the receivables have equal monthly instalments; however, 13.2% of loans include a final balloon payment.
The transaction was established in July 2015. In May 2018, an amendment to the transaction was executed. This included a renewal of the revolving period for 30 additional months until November 2020; an increase in the portfolio size partially financed by new Class A Notes issuance; an increase in the cash reserve amount; and some adjustments to the concentration limits to allow loans with a balloon instalment to make up a greater proportion of the pool.
BASE CASE ASSUMPTIONS
DBRS analysed the remaining pool of receivables and has maintained its base case probability of default (PD) and loss given default (LGD) assumptions at 2.8% and 90.5%, respectively.
REVOLVING PERIOD & CONCENTRATION LIMITS
The first revolving period finished on the February 2018 payment date and subsequently the Class A Notes were partially amortised by EUR 111.4 million. As part of the May 2018 renewal of the revolving period, this amortised amount was replenished, and the notional balance of the Class A Notes was increased to EUR 1,357.4 million from EUR 955.0 million.
The revolving period will end prematurely if certain performance triggers are breached. To further mitigate the deterioration of the pool, the transaction permits certain concentration limits on the additional portfolios purchased on each payment date. To date, the concentration limits and performance triggers in place have been satisfied. DBRS considered a worst-case portfolio composition in its cash flow analysis.
As of the April 2019 payment date, one- to two month and two- to three-month delinquencies were 0.3% and 0.1% of the portfolio net discounted balance, respectively, while delinquencies greater than three months were 0.2%. Gross cumulative defaults, as a percentage of the original portfolio and cumulative transferred receivables, were 0.6%, with cumulative recoveries of 47.4%.
CE for the Class A Notes is provided by subordination of the portion of the Class J Notes not used to fund the cash reserve. Since May 2018, this has been stable at 14.0%.
The transaction benefits from a cash reserve funded through part of the proceeds from the Class J Notes, which is available to cover senior fees and the interest due on the Class A Notes. This reserve has an amortising target equal to 1.0% of the aggregate Class A and Class J Notes balance floored at EUR 1.0 million. The reserve is currently at its target amount of EUR 16.0 million.
Crédit Agricole Corporate and Investment Bank, Milan Branch (CACIB-Milan) acts as the Account Bank for the transaction. Based on the DBRS private rating of CACIB-Milan, the downgrade provisions outlined in the transaction documents, and structural mitigants, DBRS considers the risk arising from the exposure to CACIB-Milan to be consitent with the rating assigned to the Class A Notes, as described in DBRS’s “Legal Criteria for European Structured Finance Transactions” methodology.
All figures are in euros unless otherwise noted.
The principal methodology applicable to the rating is: “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 this rating include investor reports provided by Zenith Service S.p.A. and loan-by-loan data from the European DataWarehouse GmbH.
DBRS did not rely upon third-party due diligence in order to conduct its analysis.
At the time of the initial rating and in April 2018, 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 this rating 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 9 May 2018, when DBRS downgraded its rating of the Class A Notes to AA (sf) from AAA (sf), following the amendment.
The lead analyst responsibilities for this transaction have been transferred to Alfonso Candelas.
Information regarding DBRS ratings, including definitions, policies and methodologies, is available on www.dbrs.com.
To assess the impact of changing the transaction parameters on this rating, DBRS considered the following stress scenarios, as compared to the parameters used to determine the rating (the “Base Case”):
-- DBRS expected a base case PD and LGD for the portfolio based on a review of the current assets and the transaction’s replenishment criteria. 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 2.8% and 90.5%, respectively.
For example, if the LGD increases by 50%, the rating of the Class A Notes would be expected to remain at AA (sf), ceteris paribus. If the PD increases by 50%, the rating of the Class A Notes would be expected to decrease to A (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 (sf), ceteris paribus.
Class A Notes risk sensitivity:
-- 25% increase in LGD, expected rating of AA (sf)
-- 50% increase in LGD, expected rating of AA (sf)
-- 25% increase in PD, expected rating of A (high) (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of A (high) (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of A (high) (sf)
-- 50% increase in PD, expected rating of A (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of A (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of A (sf)
For further information on DBRS historical default rates published by the European Securities and Markets Authority (ESMA) in a central repository, see: http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml.
Ratings assigned by DBRS Ratings GmbH are subject to EU and US regulations only.
Lead Analyst: Alfonso Candelas, Senior Vice President
Rating Committee Chair: Gareth Levington, Managing Director
Initial Rating Date: 23 July 2015
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.
-- Master European Structured Finance Surveillance Methodology
-- Legal Criteria for European Structured Finance Transactions
-- Operational Risk Assessment for European Structured Finance Servicers
-- Operational Risk Assessment for European Structured Finance Originators
-- Rating European Consumer and Commercial Asset-Backed Securitisations
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 firstname.lastname@example.org.