DBRS Ratings Limited (DBRS Morningstar) confirmed its AAA (sf) rating on the Class A Notes (the Notes) issued by Cars Alliance DFP Germany 2017 (CA Germany or the Issuer).
The rating on the Notes addresses the timely payment of interest and ultimate payment of principal on or before the legal final maturity date on the payment date in June 2026.
The confirmation follows an annual review of the transaction and is based on the following analytical considerations:
-- Portfolio performance, in terms of realised losses, principal payment rates, and yield, as of the June 2020 payment date.
-- Current available credit enhancement to the Notes to cover the expected losses at the AAA (sf) rating level in various dealer concentration and liquidation scenarios.
-- No early amortisation events have occurred.
CA Germany is a securitisation of auto wholesale receivables originated by RCI Banque S.A. Niederlassung Deutschland (RCI Germany), part of the automobile group Renault S.A. The portfolio consists of term loans to Renault, Nissan, and Infiniti dealers in Germany, which are secured by new vehicles (including demonstration vehicles), used vehicles, and spare parts. Only the principal component of the receivables is securitised. Interest on the Notes is paid by RCI Germany on the relevant payment date. The transaction is currently in its revolving period, scheduled to terminate in August 2022.
As of the June 2020 payment date, the three-month average principal payment rate was 32.5%, and cumulative defaults represented 0.1% of the total receivables purchased since closing. However, as of June 2020 payment date, RCI Germany repurchased almost all the defaulted receivables and the outstanding defaulted balance was EUR 454,754.
The collateral is subject to certain concentration limits on the product type securing the receivables (spare parts, second-hand vehicles), which have all been met as of the June 2020 payment date. The largest single dealer concentration, the second-largest dealer concentration, the third-to-fifth largest single dealer concentration, and the “other” dealer concentration are limited to 6.0%, 4.0%, 2.5%, and 2.0%, respectively. DBRS Morningstar has addressed the concentration risk in its analysis.
PORTFOLIO ASSUMPTIONS AND KEY DRIVERS
The key rating drivers are the base case PD of 9.4%, an increase in default rate up to 45.0% at the AAA (sf) rating level and a decline of the payment rate by 60.0% at the AAA (sf) rating level. DBRS Morningstar has maintained these assumptions since last annual review, given the sustained performance of the transaction up to the latest payment date of June 2020.
Credit enhancement to the Notes consists of subordination provided by a Class B loan. The subordination level is subject to a minimum balance and is variable according to the three-month average payment rate on the portfolio. As of the June 2020 payment date, the required subordination is equal to EUR 183.8 million or 21.4% of the portfolio balance. The general reserve provides liquidity support to the Notes as well as credit support from the payment date when either the outstanding portfolio balance is zero or when the general reserve balance is sufficient to repay the principal on the Notes. The general reserve is currently at its target amount of EUR 10.1 million, with the target set at 1.5% of the Notes balance with a floor at EUR 2.5 million.
Commingling risk in the transaction is limited, as the collections are transferred to the account bank on a daily basis. Set-off risk in the transaction is mitigated by a minimum credit enhancement level, one component of which is determined by the amounts standing in the dealers’ accounts held at the seller.
Société Générale acts as the account bank for the transaction. Based on the account bank reference rating of Société Générale at AA (low), which is one notch below the DBRS Morningstar Long-Term Critical Obligations Rating of AA, the downgrade provisions outlined in the transaction documents, and other mitigating factors inherent in the transaction structure, DBRS Morningstar considers the risk arising from the exposure to the account bank to be consistent with the rating assigned to the Notes, as described in DBRS Morningstar's "Legal Criteria for European Structured Finance Transactions" methodology.
DBRS Morningstar analysed the transaction with its proprietary cash flow engine.
The Coronavirus Disease (COVID-19) and the resulting isolation measures have caused an economic contraction, leading to sharp increases in unemployment rates and income reductions for many borrowers. DBRS Morningstar anticipates that delinquencies may arise in the coming months for many ABS transactions, some meaningfully. The rating is based on additional analysis as a result of the global efforts to contain the spread of the coronavirus. More information about DBRS Morningstar’s view on the impact of the coronavirus pandemic on auto-wholesale securitisations can be found at: https://www.dbrsmorningstar.com/research/359606/the-impact-of-covid-19-on-global-auto-wholesale-transactions.
The DBRS Morningstar Sovereign group released on 16 April 2020 a set of macroeconomic scenarios for the 2020-22 period in select economies. These scenarios were last updated on 22 July 2020. For details, see the following commentaries: https://www.dbrsmorningstar.com/research/364318/global-macroeconomic-scenarios-july-update and https://www.dbrsmorningstar.com/research/359903/global-macroeconomic-scenarios-application-to-credit-ratings. DBRS Morningstar analysis considered impacts consistent with the moderate scenario in the referenced reports.
On 8 May 2020, DBRS Morningstar published a commentary outlining how the coronavirus crisis is likely to affect DBRS Morningstar-rated ABS transactions in Europe. For more details, please see: https://www.dbrsmorningstar.com/research/360734/european-abs-transactions-risk-exposure-to-coronavirus-covid-19-effect and https://www.dbrsmorningstar.com/research/362712/european-structured-finance-covid-19-credit-risk-exposure-roadmap.
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 rating is the “Master European Structured Finance Surveillance Methodology” (22 April 2020).
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: http://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 this rating include investor reports and issuer data provided by Paris Titrisation as well as loan-level data from 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 not 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 this rating 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 23 July 2019, when DBRS Morningstar confirmed the rating on the Notes at AAA (sf).
The lead analyst responsibilities for this transaction have been transferred to Natalia Coman.
Information regarding DBRS Morningstar ratings, including definitions, policies, and methodologies, is available on www.dbrsmorningstar.com.
To assess the impact of changing the transaction parameters on the rating, DBRS Morningstar considered the following stress scenarios, as compared to the parameters used to determine the rating (the Base Case):
To assess the impact of changing the transaction parameters on the rating, DBRS considered the following stress scenarios, as compared to the parameters used to determine the rating (the Base Case):
Separate stresses were applied in its analysis of dealer concentration and liquidation scenarios.
-- Default Rate: base case of 9.4%, stressed with a 25% and 50% increase
-- Monthly Principal Payment Rate (MPPR): base case of 25% (in line with the payment rate early amortisation trigger), stressed with a 25% and 50% decrease
-- Yield: base case of 0.0%, stressed with a 25% and 50% decrease
Whilst holding the MPPR and the yield constant:
-- 25% increase in default rate, expected rating of AAA (sf)
-- 50% increase in default rate, expected rating of AAA (sf)
Whilst holding the default rate and the yield constant:
-- 25% decrease in MPPR, expected rating of AAA (sf)
-- 50% decrease in MPPR, expected rating of A (high) (sf)
Whilst holding the MPPR and the default rate constant:
-- 25% decrease in yield, expected rating of AAA (sf)
-- 50% decrease in yield, 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 Limited are subject to EU and U.S. regulations only.
Lead Analyst: Natalia Coman, Senior Analyst
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: 25 July 2017
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The rating methodologies used in the analysis of this transaction can be found at: http://www.dbrsmorningstar.com/about/methodologies.
--Master European Structured Finance Surveillance Methodology (22 April 2020) https://www.dbrsmorningstar.com/research/359884/master-european-structured-finance-surveillance-methodology
--Rating European Auto Wholesale Securitisations (19 November 2019) https://www.dbrsmorningstar.com/research/352957/rating-european-auto-wholesale-securitisations
--Rating European Structured Finance Transactions Methodology (21 July 2020) https://www.dbrsmorningstar.com/research/364305/rating-european-structured-finance-transactions-methodology
--Interest Rate Stresses for European Structured Finance Transactions (10 October 2019) https://www.dbrsmorningstar.com/research/351557/interest-rate-stresses-for-european-structured-finance-transactions
--Legal Criteria for European Structured Finance Transactions (11 September 2019) https://www.dbrsmorningstar.com/research/350234/legal-criteria-for-european-structured-finance-transactions
--Operational Risk Assessment for European Structured Finance Originators (28 February 2020) https://www.dbrsmorningstar.com/research/357430/operational-risk-assessment-for-european-structured-finance-originators
--Operational Risk Assessment for European Structured Finance Servicers (28 February 2020) https://www.dbrsmorningstar.com/research/357429/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: http://www.dbrsmorningstar.com/research/278375
For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at email@example.com.