Press Release

DBRS Morningstar Confirms Ratings on Cars Alliance Auto Loans Germany V 2016-1

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March 05, 2020

DBRS Ratings GmbH (DBRS Morningstar) confirmed its ratings on the Class A and Class B Notes (collectively, the Rated Notes) issued by Cars Alliance Auto Loans Germany V 2016-1 (the Issuer) at AAA (sf).

The ratings on the Rated Notes address the timely payment of interest and ultimate payment of principal on or before the legal final maturity date in May 2027.

The confirmations follow an annual review of the transaction and are based on the following analytical considerations:
-- The portfolio performance, in terms of level of delinquencies and defaults, as of the February 2020 payment date;
-- Probability of default (PD), loss given default (LGD), and expected loss assumptions for the remaining collateral pool;
-- The current available credit enhancement to the Rated Notes to cover expected losses assumed in line with their AAA (sf) rating level.

The Issuer 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 Renault S.A.S. captive lender. The transaction closed in May 2016 and had a one-year revolving period.

PORTFOLIO PERFORMANCE
As of the February 2020 payment date, loans that were one to two months and two to three months in arrears represented 0.6% and 0.3% of the outstanding portfolio balance, respectively, while loans more than three months delinquent represented 0.2%. Gross cumulative defaults amounted to 0.8% of the aggregate initial portfolio balance, with cumulative recoveries of 72.1% to date.

PORTFOLIO ASSUMPTIONS
DBRS Morningstar conducted an analysis of the remaining pool of receivables and updated its base case PD and LGD assumptions to 1.5% and 33.9%, respectively, based on the current portfolio composition as of the February 2020 payment date.

CREDIT ENHANCEMENT
The subordination of the respective junior notes provides credit enhancement to the Rated Notes. As of the February 2020 payment date, credit enhancement to the Class A Notes increased to 38.6% from 19.7%, as of the last annual review. Credit enhancement for the Class B Notes increased to 24.9% from 12.7%, as of the last annual review.

The transaction structure includes an amortising general reserve account, which is available to cover senior expenses and missed interest payments on the Rated Notes. This account is currently funded at its floor of EUR 3.6 million.

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 continue to be unfunded.

Société Générale, S.A. (SocGen) acts as the account bank for the transaction. Based on the reference rating of SocGen at AA (low), one notch below DBRS Morningstar Long-Term Critical Obligations Rating of AA, the downgrade provisions outlined in the transaction documents, and structural mitigants, DBRS Morningstar considers the risk arising from the exposure to SocGen to be consistent with the ratings assigned to the Rated Notes, as described in DBRS Morningstar’s "Legal Criteria for European Structured Finance Transactions" methodology.
The Issuer entered into two swap agreements with RCI Germany to hedge the interest rate mismatch between the Rated Notes, indexed to one-month Euribor, and the fixed interest rate payments from the securitised portfolio. The Issuer Stand-By Swap Counterparty, Credit Agricole Corporate & Investment Bank (CACIB), guarantees the financial and operational terms of the swap agreements. If RCI Germany fails to meet its obligations as swap counterparty, CACIB will step in to hedge the Issuer’s exposure. The Stand-By Swap Agreement defines downgrade provisions in line with DBRS Morningstar’s “Derivative Criteria for European Structured Finance Transactions” methodology.

DBRS Morningstar analysed the transaction structure in Intex DealMaker.

Notes:
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 (the Management Company).

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 25 April 2019, when DBRS Morningstar confirmed the ratings of the Class A and Class B Notes at AAA (sf).

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 1.5% and 33.9%, 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 remain at AAA (sf), assuming no change in the PD. If the PD increases by 50%, the rating of the Class A Notes would be expected to remain at AAA (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 remain at AAA (sf).

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

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

For further information on DBRS Morningstar 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: Petter Wettestad, Senior Analyst
Rating Committee Chair: Alfonso Candelas, Senior Vice President
Initial Rating Date: 21 April 2016

DBRS Ratings GmbH
Neue Mainzer Straße 75
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: https://www.dbrs.com/methodology/

-- Master European Structured Finance Surveillance Methodology
-- Rating European Consumer and Commercial Asset-Backed Securitisations
-- Legal Criteria for European Structured Finance Transactions
-- Derivative Criteria for European Structured Finance Transactions
-- Interest Rate Stresses for European Structured Finance Transactions
-- Operational Risk Assessment for European Structured Finance Servicers

A description of how DBRS Morningstar analyses structured finance transactions and how the methodologies are collectively applied can be found at: https://www.dbrs.com/research/278375

For more information on this credit or on this industry, visit www.dbrs.com or contact us at info@dbrs.com.

ALL DBRS RATINGS ARE SUBJECT TO DISCLAIMERS AND CERTAIN LIMITATIONS. PLEASE READ THESE DISCLAIMERS AND LIMITATIONS AND ADDITIONAL INFORMATION REGARDING DBRS RATINGS, INCLUDING DEFINITIONS, POLICIES, RATING SCALES AND METHODOLOGIES.