DBRS Ratings GmbH (DBRS Morningstar) confirmed its AA (sf) rating of the Series 2018-1 FCT Notes (the Notes) issued by FCT Cars Alliance DFP France (CA France or the Issuer).
The rating of the Notes addresses the timely payment of interest and the ultimate payment of principal on or before the legal final maturity date.
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 2022 payment date.
-- Current available credit enhancement to the Notes to cover the expected losses at the AA (sf) rating level in various dealer concentration and liquidation scenarios.
-- No early amortisation events have occurred.
CA France is a securitisation of auto wholesale receivables originated in France by Diac S.A., a subsidiary of RCI Banque S.A. and part of the automobile group Renault S.A. The portfolio consists of term loans and revolving credit lines to Renault, Nissan, and Infiniti (the luxury segment of Nissan) dealers in France, which are secured by new vehicles (including demonstration vehicles), used vehicles, and spare parts.
The transaction is currently in its revolving period, scheduled to terminate in July 2023, and its legal maturity date is on the payment date in July 2028.
As of the June 2022 payment date, the three-month average principal payment rate was 66.2% and the annualised portfolio yield was 7.6% (including additional interest income generated through the discount mechanism). Realised losses were zero. As of the June 2022 payment date, the subordination factor to the Notes was 17.5%.
The collateral is subject to certain concentration limits on the product type securing the receivables (spare parts, second-hand vehicles). As of the June 2022 payment date, all the limits had been met. The limit option for the dealer group concentration was 3.5% of the portfolio balance. DBRS Morningstar has addressed the concentration risk in its analysis.
PORTFOLIO ASSUMPTIONS AND KEY DRIVERS
The key rating drivers are the base case probability of default (PD) of 5.8%, a yield of 3.0%, an increase in the default rate up to 41.7% at the AA (sf) rating level, and a decline of the payment rate by 53.3% at the AA (sf) rating level. The base case PD corresponds to the most constraining dealer group concentration limit option of 2.5% for the transaction cash flow analysis.
The subordination to the Notes is subject to a minimum level, calculated as a percentage of the Notes balance, and is variable according to the three-month average payment rate on the portfolio and the dealer group concentration limit option used. As of the June 2022 payment date, the required subordination represents 21.2% of the Notes balance. The general reserve provides liquidity support and can be used to repay the Notes principal at the legal final maturity date. The general reserve is amortising and is currently at its target amount of EUR 6.1 million.
DBRS Morningstar notes that in the current inflationary environment and should the one-month Euribor rates increase substantially, the liquidity support provided by the general reserve to the Notes may be negatively affected. The transaction doesn’t benefit from a hedging agreement, which would mitigate the interest rate risk in a rising interest scenario. DBRS Morningstar incorporates rising interest rate stress scenarios as part of its standard cash flow analysis.
Commingling risk in the transaction is limited, as the collections are transferred to the account bank on a daily basis. A minimum overcollateralisation level driven by the amounts standing in the dealers’ factory accounts held at the manufacturer acts as a mitigant for the set-off risk in the transaction.
Société Générale, S.A. acts as the account bank for the transaction. Based on DBRS Morningstar’s 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 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 using its proprietary Excel-based cash flow engine.
ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factors that had a significant or relevant effect on the credit analysis.
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/396929/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings.
On 26 July 2022, DBRS Morningstar amended the above press release to include its sensitivity analysis on the rated notes in the disclosures.
All figures are in euros unless otherwise noted.
The principal methodology applicable to the rating is “Master European Structured Finance Surveillance Methodology” (19 May 2022).
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.
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 consider potential portfolio migration based on 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.
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/381451/global-methodology-for-rating-sovereign-governments.
The DBRS Morningstar Sovereign group releases baseline macroeconomic scenarios for rated sovereigns. DBRS Morningstar analysis considered impacts consistent with the baseline scenarios as set forth in the following report: https://www.dbrsmorningstar.com/research/384482/baseline-macroeconomic-scenarios-application-to-credit-ratings.
The sources of data and information used for this rating include investor reports provided by Eurotitrisation and loan-level data provided by European DataWarehouse.
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 1 July 2021, when DBRS Morningstar confirmed its AA (sf) rating on the Notes.
The lead analyst responsibilities for this transaction have been transferred to Preben Cornelius Overas.
Information regarding DBRS Morningstar ratings, including definitions, policies, and methodologies, is available on www.dbrsmorningstar.com.
Sensitivity Analysis: 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). Separate stresses were applied in DBRS Morningstar’s analysis of dealer concentration and liquidation scenarios.
-- Default Rate: base case of 5.8%, stressed with a 25% and 50% increase
-- Monthly Principal Payment Rate (MPPR): base case of 15% (in line with the payment rate early amortisation trigger), stressed with a 25% and 50% decrease
-- Yield: base case of 3.0%, stressed with a 25% and 50% decrease
Whilst holding the MPPR and the yield constant:
-- 25% increase in default rate, expected rating of AA (sf)
-- 50% increase in default rate, expected rating of AA (sf)
Whilst holding the default rate and the yield constant:
-- 25% decrease in MPPR, expected rating of BBB (sf)
-- 50% decrease in MPPR, expected rating of B (high) (sf)
Whilst holding the MPPR and the default rate constant:
-- 25% decrease in yield, expected rating of AA (sf)
-- 50% decrease in yield, expected rating of AA (sf)
For further information on DBRS Morningstar historical default rates published by the European Securities and Markets Authority (ESMA) in a central repository, see: https://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml. DBRS Morningstar understands further information on DBRS Morningstar historical default rates may be published by the Financial Conduct Authority (FCA) on its webpage: https://www.fca.org.uk/firms/credit-rating-agencies.
This rating is endorsed by DBRS Ratings Limited for use in the United Kingdom.
Lead Analyst: Preben Cornelius Overas, Senior Analyst
Rating Committee Chair: Alfonso Candelas, Senior Vice President
Initial Rating Date: 23 July 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: https://www.dbrsmorningstar.com/about/methodologies.
-- Master European Structured Finance Surveillance Methodology (19 May 2022), https://www.dbrsmorningstar.com/research/397033/master-european-structured-finance-surveillance-methodology.
-- Rating European Auto Wholesale Securitisations (5 November 2021), https://www.dbrsmorningstar.com/research/387537/rating-european-auto-wholesale-securitisations.
-- Rating European Structured Finance Transactions Methodology (19 May 2022), https://www.dbrsmorningstar.com/research/397034/rating-european-structured-finance-transactions-methodology.
-- Interest Rate Stresses for European Structured Finance Transactions (24 September 2021), https://www.dbrsmorningstar.com/research/384920/interest-rate-stresses-for-european-structured-finance-transactions.
-- Legal Criteria for European Structured Finance Transactions (29 July 2021), https://www.dbrsmorningstar.com/research/382171/legal-criteria-for-european-structured-finance-transactions.
-- Operational Risk Assessment for European Structured Finance Servicers (16 September 2021), https://www.dbrsmorningstar.com/research/384513/operational-risk-assessment-for-european-structured-finance-servicers.
-- Operational Risk Assessment for European Structured Finance Originators (16 September 2021), https://www.dbrsmorningstar.com/research/384512/operational-risk-assessment-for-european-structured-finance-originators.
-- DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (17 May 2022), https://www.dbrsmorningstar.com/research/396929/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings.
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 email@example.com.