DBRS Morningstar Takes Rating Actions on Auto ABS French Leases 2018

DBRS Ratings GmbH (DBRS Morningstar) took the following rating actions on the bonds issued by Auto ABS French Leases 2018 (the Issuer):

-- Class A Notes confirmed at AAA (sf)
-- Class B Notes upgraded to AA (high) (sf) from AA (low) (sf)

The ratings on the Class A Notes and Class B Notes address the timely payment of interest and ultimate payment of principal on or before the legal final maturity date in May 2030.

The rating actions follow an annual review of the transaction and are based on the following analytical considerations:
-- The portfolio performance, in terms of delinquencies, defaults, and losses as of the October 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.
-- Current economic environment and an assessment of sustainable performance, as a result of the Coronavirus Disease (COVID-19) pandemic.

Auto ABS French Leases 2018 is a securitisation of lease receivables related to auto lease agreements including residual value (RV) granted by Compagnie Générale de Crédit aux Particulier S.A. (Crédipar or the Seller) to private, commercial, and professional lessees in France. The transaction had a six-month revolving period, which ended on the May 2019 payment date, and the transaction has been amortising since.

PORTFOLIO PERFORMANCE
As of the October 2020 payment date, leases that were one- to two-months and two- to three-months delinquent represented 0.1% and 0.03% of the portfolio balance, respectively, while leases more than three-months delinquent represented 0.08%. Gross cumulative defaults amounted to 0.8% of the aggregate original balance of which 50.2% has been recovered so far.

PORTFOLIO ASSUMPTIONS AND KEY DRIVERS
DBRS Morningstar conducted a loan-by-loan analysis on the remaining pool and updated its base case PD and LGD assumptions to 2.5% and 30.8%, respectively.

CREDIT ENHANCEMENT
The subordination of the respective junior tranches provide credit enhancement to the rated notes. As of the October 2020 payment date, credit enhancement to the Class A and Class B Notes was 51.8% and 31.1%, up from 27.7% and 16.6%, respectively, one year ago.

The transaction benefits from an amortising cash reserve account, which is available to cover senior expenses and missed interest payments on the notes. This account was funded at closing with EUR 4.1 million, and its target balance is equal to 0.8% of the outstanding principal of the rated notes, with a floor of EUR 1.0 million. The reserve currently stands at EUR 1.7 million and has been at its target since closing.

Société Générale, S.A. acts as the account bank for the transaction. Based on the account bank reference rating of Société Générale, S.A. at AA (low), which is one notch below the DBRS Morningstar Long-Term Critical Obligations Rating (COR) 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 Class A Notes, as described in DBRS Morningstar's "Legal Criteria for European Structured Finance Transactions" methodology.

DZ BANK AG Deutsche Zentral-Genossenschaftsbank acts as the swap counterparty for the transaction. DBRS Morningstar's Long-Term COR of DZ BANK AG Deutsche Zentral-Genossenschaftsbank at AA is above the First Rating Threshold as described in DBRS Morningstar's "Derivative Criteria for European Structured Finance Transactions" methodology.

DBRS Morningstar analysed the transaction structure in Intex DealMaker.

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 increase in the coming months for many ABS transactions, some meaningfully. The ratings are based on additional analysis and adjustments to expected performance as a result of the global efforts to contain the spread of the coronavirus. For this transaction, DBRS Morningstar applied and additional haircut to its base case recovery rate and conducted additional sensitivity analysis to determine that the transaction benefits from sufficient liquidity support to withstand high levels of payment moratoriums in the portfolio.

On 16 April 2020, the DBRS Morningstar Sovereign group released a set of macroeconomic scenarios for the 2020-22 period in select economies. These scenarios were last updated on 10 September 2020. For details, see the following commentaries: https://www.dbrsmorningstar.com/research/366542/global-macroeconomic-scenarios-september-update and https://www.dbrsmorningstar.com/research/359903/global-macroeconomic-scenarios-application-to-credit-ratings. The 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.

ESG CONSIDERATIONS
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.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the ratings 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.

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 Morningstar Credit Ratings” of the “Global Methodology for Rating Sovereign Governments” at: https://www.dbrsmorningstar.com/research/364527/global-methodology-for-rating-sovereign-governments.

The sources of data and information used for these ratings include investor reports provided by France Titrisation, 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 22 November 2019, when DBRS Morningstar confirmed the rating of the Class A Notes at AAA (sf) and upgraded the rating of the Class B Notes to AA (low) (sf) from A (high) (sf).

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 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 2.5% and 30.8%, respectively.
-- A residual value (RV) haircut of 36.4% and 33.7% was applied at the AAA (sf) and AA (high) (sf) rating levels, respectively.
-- The risk sensitivity overview below illustrates the ratings expected if the PD, LGD and RV haircut increase by a certain percentage over the base case assumption. For example, if the PD and LGD increases by 50%, the rating of the Class A Notes would be expected to remain at AAA (sf), ceteris paribus. If the RV haircut increases by 50%, the rating of the Class A Notes would be expected to remain at AAA (sf), ceteris paribus. Furthermore, if the PD, LGD and RV haircut increase by 50%, the rating of the Class A Notes would also be expected to remain at AAA (sf), ceteris paribus.

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

Class B Notes Risk Sensitivity:
-- 25% increase in RV haircut, expected rating of AA (sf)
-- 50% increase in RV haircut, expected rating of A (high) (sf)
-- 25% increase in both PD and LGD, expected rating of AA (high) (sf)
-- 50% increase in both PD and LGD, expected rating of AA (high) (sf)
-- 25% increase in both PD and LGD and 25% increase in RV haircut, expected rating of AA (sf)
-- 25% increase in both PD and LGD and 50% increase in RV haircut, expected rating of A (sf)
-- 50% increase in both PD and LGD and 25% increase in RV haircut, expected rating of AA (low) (sf)
-- 50% increase in both PD and LGD and 50% increase in RV haircut, expected rating of A (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 U.S. regulations only.

Lead Analyst: Petter Wettestad, Senior Analyst
Rating Committee Chair: Alfonso Candelas, Senior Vice President
Initial Rating Date: 22 October 2018

DBRS Ratings GmbH
Neue Mainzer Straße 75
60311 Frankfurt am Main Deutschland
Tel. +49 (69) 8088 3500

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.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 Consumer and Commercial Asset-Backed Securitisations (3 September 2020), https://www.dbrsmorningstar.com/research/366294/rating-european-consumer-and-commercial-asset-backed-securitisations.
--Rating European Structured Finance Transactions Methodology (21 July 2020)
https://www.dbrsmorningstar.com/research/364305/rating-european-structured-finance-transactions-methodology.
-- Legal Criteria for European Structured Finance Transactions (11 September 2019),
https://www.dbrsmorningstar.com/research/350234/legal-criteria-for-european-structured-finance-transactions.
-- Derivative Criteria for European Structured Finance Transactions (24 September 2020), https://www.dbrsmorningstar.com/research/367092/derivative-criteria-for-european-structured-finance-transactions.
-- 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.
-- Interest Rate Stresses for European Structured Finance Transactions (28 September 2020), https://www.dbrsmorningstar.com/research/367292/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.dbrsmorningstar.com/research/278375.

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