DBRS Ratings GmbH (DBRS Morningstar) confirmed its AAA (sf) rating of the Class A Notes (the Notes) issued by Cars Alliance DFP Germany (CA Germany 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 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 in Germany by RCI Banque S.A. Niederlassung Deutschland (RCI Germany), 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 Germany, 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 August 2022, and its legal maturity date is on the payment date in June 2026.
As of the June 2022 payment date, the three-month average principal payment rate was 61.3% and cumulative defaults represented 0.1% of the total receivables purchased since closing. However, as of the June 2022 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). As of the June 2022 payment date, all limits were met. 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.
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.
At the October 2021 payment date, the Seller exercised a Partial Amortisation Option. Consequently, the Notes and Class B Loan balances were reduced to approach the size of the portfolio, while maintaining the required subordination level. As of the June 2022 payment date, the required subordination was equal to EUR 141.1 million, or 20.8% 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 balance was at its target amount of EUR 8.1 million, with the target set at 1.5% of the Notes balance with a floor at EUR 2.5 million. The general reserve balance decreased along with the resizing of the Notes following the exercise of the Partial Amortisation Option at the October 2021 payment date.
DBRS Morningstar notes that in the current inflationary environment and should the one-month Euribor rates increase substantially, the liquidity support 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. 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, 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 AAA (sf) rating on the Notes.
The lead analyst responsibilities for this transaction have been transferred to Preben Cornelius Overas.
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 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
While 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)
While 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)
While 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)
Information regarding DBRS Morningstar ratings, including definitions, policies, and methodologies, is available on www.dbrsmorningstar.com.
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
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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 firstname.lastname@example.org.