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 2019-1 (the Issuer) at AAA (sf) and AA (high) (sf), respectively.
The ratings on the Rated Notes address the timely payment of interest and the ultimate payment of principal on or before the legal final maturity date in August 2031.
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 March 2020 payment date;
-- Probability of default (PD), loss given default (LGD), and expected loss assumptions for the remaining collateral pool;
-- No revolving termination events have occurred;
-- The current available credit enhancement to the Rated Notes to cover expected losses assumed in line with their respective rating levels.
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 2019 and has a 14-month revolving period scheduled to end on the July 2020 payment date.
As of the March 2020 payment date, loans that were one to two months and two to three months in arrears represented 1.0% and 0.1% of the outstanding portfolio balance, respectively, while loans more than three months delinquent represented 0.1%. Gross cumulative defaults amounted to 0.1% of the aggregate initial portfolio balance, with cumulative recoveries of 71.5% to date.
PORTFOLIO ASSUMPTIONS AND KEY DRIVERS
DBRS Morningstar conducted an analysis of the remaining pool of receivables and updated its base case PD and LGD assumptions to 2.3% and 43.7%, respectively, based on the worst-case portfolio composition.
The transaction includes a 14-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 Class A notes will begin. To date, all triggers are being met.
The subordination of the respective junior notes provides credit enhancement to the Rated Notes. As of the March 2020 payment date, credit enhancement to the Rated Notes was 7.8% and 5.2%, respectively, stable since the DBRS Morningstar initial ratings because of the transaction revolving period.
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 target of EUR 10.3 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.
For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.
For more information regarding structured finance rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/358308.
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework and its methodologies can be found at: https://www.dbrsmorningstar.com/research/357792.
All figures are in euros unless otherwise noted.
The principal methodology applicable to the ratings is the “Master European Structured Finance Surveillance Methodology, December 2019”.
DBRS Morningstar 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 at: https://www.dbrsmorningstar.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.dbrsmorningstar.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 (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 ratings, 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 29 May 2019, when DBRS Morningstar finalised its provisional ratings on the notes.
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.dbrsmorningstar.com.
To assess the impact of changing the transaction parameters on the ratings, DBRS Morningstar considered the following stress scenarios as compared with the parameters used to determine the ratings (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 2.3% and 43.7%, 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 would be expected to fall to AA (high) (sf), assuming no change in the PD. If the PD increases by 50%, the rating of the Class A would be expected to fall to AA (high) (sf), assuming no change in the LGD. Furthermore, if both the PD and LGD increase by 50%, the rating of the Class A would be expected to fall to A (high) (sf).
Class A Risk Sensitivity:
-- 25% increase in LGD, expected rating of AAA (sf)
-- 50% increase in LGD, expected rating of AA (high) (sf)
-- 25% increase in PD, expected rating of AAA (sf)
-- 50% increase in PD, expected rating of AA (high) (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of AA (high) (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of AA (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of AA (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of A (high) (sf)
Class B 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)
-- 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 (low) (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 U.S. regulations only.
Lead Analyst: Petter Wettestad, Senior Analyst
Rating Committee Chair: David Lautier, Senior Vice President
Initial Rating Date: 16 April 2019
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The rating methodologies used in the analysis of this transaction are listed below and can be found at: https://www.dbrsmorningstar.com/about/methodologies.
-- Master European Structured Finance Surveillance Methodology (13 December 2019).
-- Legal Criteria for European Structured Finance Transactions (11 September 2019).
-- Operational Risk Assessment for European Structured Finance Servicers (28 February 2020).
-- Operational Risk Assessment for European Structured Finance Originators (28 February 2020).
-- Rating European Consumer and Commercial Asset-Backed Securitisations (13 January 2020).
-- Rating European Structured Finance Transactions Methodology (28 February 2020).
-- Interest Rate Stresses for European Structured Finance Transactions (10 October 2019).
-- Derivative Criteria for European Structured Finance Transactions (26 September 2019).
A description of how DBRS Morningstar analyses structured finance transactions and how the methodologies are collectively applied can be found at: https://www.dbrsmorningstar.com/research/278375.
For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at firstname.lastname@example.org.