DBRS Ratings GmbH (DBRS Morningstar) downgraded its rating on the Class A Notes issued by Cars Alliance DFP Germany 2017 (CA Germany or the Issuer) to AA (sf) from AAA (sf) following an amendment to the transaction. From the amendment effective date, the existing Class A Notes is renamed Class A 2017-1 Notes (the Notes).
The rating on the Notes addresses the timely payment of interest and the ultimate payment of principal on or before the legal final maturity date.
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 SA and part of the automobile group Renault S.A. The portfolio consists of term loans and revolving credit lines to Renault, Nissan, Dacia and Alpine 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.
The downgrade is based on the following analytical considerations:
-- Portfolio performance, in terms of realised losses, principal payment rates, and yield, as of the July 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; and
-- An amendment to the transaction executed on 20 July 2022 and effective on 27 July 2022.
The amendment to the transaction involves the following:
-- A change of the transaction structure to a master trust, where the Issuer will be able to issue multiple series of notes, all ranking senior to the Class B Loan and receiving payments on a pari passu and pro rata basis. The existing Class A Notes will be renamed the Class A 2017-1 Notes and, together with the newly issued series, will constitute the Class A Notes. The new issuance size is planned for EUR 1 billion.
-- An extension of the revolving period end to September 2027 and the legal final maturity date to the payment date in August 2031.
-- The possibility for the series of notes to bear different margins, subject to a maximum of 1.00%.
-- A reduction of the subordination provided by the Class B Loan.
-- An increase in the general reserve balance.
-- A change in the dealer concentration limits.
As of the July 2022 payment date, the three-month average principal payment rate was 60.8% and cumulative defaults represented 0.1% of the total receivables purchased since closing. However, as of the July 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 July 2022 payment date, all limits were complied with.
From the amendment effective date, the largest single dealer concentration, the second-largest dealer concentration, the third-largest dealer concentration, the fourth- to eighth-largest single dealer concentration, the ninth- to tenth-largest single dealer concentration, and the “other” dealer concentration are limited to 5.0%, 4.0%, 3.0%, 2.75%, 2.5%, and 2.0%, respectively. DBRS Morningstar addressed the concentration risk in its analysis.
PORTFOLIO ASSUMPTIONS AND KEY DRIVERS
The key rating drivers are the base case rate loss of 5.2%, an increase in default rate up to 55.0% at the AA (sf) rating level, and a decline of the payment rate by 55.0% at the AA (sf) rating level.
Credit enhancement to the Notes consists of subordination provided by a Class B Loan and the general reserve. Since the initial rating, 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 July 2022 payment date, the required subordination was at 20.8% of the portfolio target balance or EUR 141.1 million. From the amendment effective date, the subordination level is fixed at 19.5% of the portfolio target balance or EUR 130.9 million.
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 the general reserve balance is sufficient to repay the principal on the Notes. As of the July 2022 payment date, 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. From the amendment effective date, the general reserve balance is set at 2.0% of the aggregate balance of the series of Class A Notes with a floor at EUR 2.0 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, S.A. acts as the account bank for the transaction. Based on DBRS Morningstar’s account bank reference rating of AA (low) on Société Générale, S.A. (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 in Intex DealMaker.
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 reflect a change from “default rate” referenced in the sensitivities section to “loss rate”.
All figures are in euros unless otherwise noted.
The principal methodologies applicable to the rating are: “Master European Structured Finance Surveillance Methodology” (19 May 2022) and “Rating European Auto Wholesale Securitisations” (5 November 2021).
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 methodologies consistently and conducted a review of the transaction in accordance with the principal methodologies.
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 conducted in the context of the above aforementioned amendment.
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, loan-level data provided by European DataWarehouse, and the following historical data provided by RCI Germany:
-- Inventory age from January 2017 to November 2021.
-- Dealer ratings from January 2018 to January 2022.
-- Dynamic dealer defaults and recoveries from June 2017 to December 2021.
-- Dilutions from January 2017 to December 2021.
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 2022, when DBRS Morningstar confirmed its AAA (sf) rating on the Notes.
The lead analyst responsibilities for this transaction have been transferred to Guglielmo Panizza.
Information regarding DBRS Morningstar ratings, including definitions, policies, and methodologies, is available on www.dbrsmorningstar.com.
Separate stresses were applied in DBRS Morningstar’s analysis of dealer concentration and liquidation scenarios.
-- Loss Rate: base case of 5.2%, 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 loss rate, expected rating of AA (sf)
-- 50% increase in loss rate, expected rating of AA (sf)
While holding the loss rate and the yield constant:
-- 25% decrease in MPPR, expected rating of AA (sf)
-- 50% decrease in MPPR, expected rating of BBB (low) (sf)
While holding the MPPR and the loss 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: Guglielmo Panizza, Vice President
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: https://www.dbrsmorningstar.com/about/methodologies.
-- Master European Structured Finance Surveillance Methodology (19 May 2022),
-- Rating European Auto Wholesale Securitisations (5 November 2021),
-- Rating European Structured Finance Transactions Methodology (15 July 2022),
-- Interest Rate Stresses for European Structured Finance Transactions (24 September 2021),
-- Legal Criteria for European Structured Finance Transactions (29 July 2021),
-- Operational Risk Assessment for European Structured Finance Servicers (16 September 2021),
-- Operational Risk Assessment for European Structured Finance Originators (16 September 2021),
-- DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (17 May 2022),
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.