DBRS Ratings GmbH (DBRS Morningstar) confirmed its ratings on the Class A and B notes (collectively, the Notes) at AAA (sf) and AA (high) (sf), respectively, issued by Cars Alliance Auto Loans France V 2018-1 (the Issuer).
The ratings on the Class A and Class B notes address the timely payment of interest and ultimate payment of principal on or before the legal final maturity date in October 2029.
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 as of January 2020 payment date.
-- Probability of default (PD), loss given default (LGD), and expected loss assumptions on the remaining receivables.
-- Current available credit enhancement 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 had an 18-month revolving period, which ended in October 2019.
As of January 2020, loans that were one- to two-months and two- to three-months in arrears represented 0.6% and 0.2% of the outstanding portfolio balance, respectively. The gross cumulative defaults amounted to 1.1% of the aggregate initial portfolio balance, with cumulative recoveries of 59.8% to date.
Following the end of the revolving period, DBRS Morningstar updated its base case PD and LGD assumptions to 3.9% and 52.9%, respectively, based on the current portfolio composition as of the January 2020 payment date.
The subordination of the respective junior notes provide credit enhancement to the Notes. As of the January 2020 payment date, credit enhancement to the Class A notes increased to 10.0%, from 8.0% 12 months ago following the end of the revolving period in October 2019 and start of amortisation; credit enhancement to the Class B notes increased to 6.3% from 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 6.1 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 Morningstar Long Term Critical Obligations Rating of SG at AA, the downgrade provisions outlined in the transaction documents, and structural mitigants, DBRS Morningstar considers the risk arising from the exposure to SG to be consistent with the ratings assigned to the Notes, as described in DBRS Morningstar'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 one-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 consistent with DBRS Morningstar’s “Derivative Criteria for European Structured Finance Transactions” methodology.
DBRS Morningstar analysed the transaction structure in Intex DealMaker.
All figures are in euros unless otherwise noted.
The principal methodology applicable to the ratings is the “Master European Structured Finance Surveillance Methodology”.
DBRS Morningstar 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 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 “Global Methodology for Rating Sovereign Governments” at: https://www.dbrs.com/research/350410/global-methodology-for-rating-sovereign-governments.
The sources of data and information used for these ratings include investor reports provided by EuroTitrisation SA, and loan-level data provided by the European DataWarehouse GmbH.
DBRS Morningstar did not rely upon third-party due diligence in order to conduct its analysis.
At the time of the initial rating, DBRS Morningstar was supplied with third-party assessments. However, this did not impact the rating analysis.
DBRS Morningstar considers the data and information available to it for the purposes of providing these ratings to be of satisfactory quality.
DBRS Morningstar 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 3 April 2019, when DBRS Morningstar confirmed the ratings of 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 Petter Wettestad.
Information regarding DBRS Morningstar 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 Morningstar considered the following stress scenarios as compared with the parameters used to determine the rating (the Base Case):
-- DBRS Morningstar 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 3.9% and 52.9%, respectively.
-- The risk sensitivity overview below illustrates the ratings expected if the PD and LGD increase by a certain percentage over the base case assumption. For example, if the LGD increases by 50%, the rating of the Class A notes would be expected to fall to AA (sf), assuming no change in the PD. If the PD increases by 50%, the rating of the Class A notes would also be expected to fall to AA (sf), assuming no change in the LGD. Furthermore, if both the PD and LGD increase by 50%, the rating of the Class A notes would be expected to fall to A (sf).
Class A Risk Sensitivity: -- 25% increase in LGD, expected rating of AAA (sf) -- 50% increase in LGD, expected rating of AA (sf) -- 25% increase in PD, expected rating of AAA (sf) -- 50% increase in PD, expected rating of AA (sf) -- 25% increase in PD and 25% increase in LGD, expected rating of AA (sf) -- 25% increase in PD and 50% increase in LGD, expected rating of A (high) (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 (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) -- 50% increase in PD, expected rating of A (high) (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 and 25% increase in LGD, expected rating of A (low) (sf) -- 50% increase in PD and 50% increase in LGD, expected rating of BBB (sf)
For further information on DBRS Morningstar 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: Petter Wettestad, Senior Financial Analyst
Rating Committee Chair: Alfonso Candelas, Senior Vice President
Initial Rating Date: 4 April 2018
DBRS Ratings GmbH
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60311 Frankfurt am Main Deutschland
Geschäftsführer: Detlef Scholz
Amtsgericht Frankfurt am Main, HRB 110259
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 Morningstar 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.