DBRS Ratings GmbH (DBRS Morningstar) assigned ratings of AA (sf) to the EUR 490 million Class A 2022-1 Notes and EUR 50 million Class A 2022-2 Notes (together, the Notes) issued by Cars Alliance DFP Germany 2017 (the Issuer). DBRS Morningstar assigned the ratings following the issuance of the Notes on the 17 October 2022 payment date.
The ratings on the Notes address the timely payment of interest and the ultimate repayment of principal by the legal maturity date.
DBRS Morningstar also discontinued its AA (sf) rating on the Issuer’s Class A 2017-1 Notes, following their repayment in full on the 17 October 2022 payment date. Prior to their redemption, the outstanding balance of the Class A 2017-1 Notes was EUR 540 million.
The transaction represents 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, demonstration vehicles, used vehicles, and spare parts.
The transaction closed in July 2017 and, following an amendment to the transaction effective on 27 July 2022, the Issuer may now issue multiple series of notes. The transaction’s revolving period ends in September 2027 and its legal final maturity date is in August 2031. For further information on the amendment, please see: https://www.dbrsmorningstar.com/research/400111/dbrs-morningstar-downgrades-rating-on-cars-alliance-dfp-germany-2017-following-amendment.
The ratings are based on the following analytical considerations:
-- Portfolio performance, in terms of realised losses, principal payment rates, and yield, as of the September 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;
-- The transaction parties’ financial strength, historical presence, and RCI Germany’s capabilities with respect to managing the wholesale operations and the dealer network in Germany;
-- The sovereign rating on Germany, currently at AAA with a Stable trend; and
-- The consistency of the transaction’s legal structure with DBRS Morningstar’s “Legal Criteria for European Structured Finance Transactions” methodology.
As of the September 2022 payment date, the three-month average principal payment rate was 60.0%, above the trigger set at 25.0%, while cumulative defaults represented 0.1% of the total receivables purchased since closing. DBRS Morningstar notes that, as of the September 2022 payment date, RCI Germany repurchased almost all the defaulted receivables with an outstanding defaulted balance of EUR 454,754.
The collateral is subject to certain limits on the specific products securing the receivables (spare parts, used vehicles) and on dealer concentration levels. As of the September 2022 payment date, the Issuer was in compliance with all limits.
PORTFOLIO ASSUMPTIONS AND KEY DRIVERS
The key rating drivers are the base case loss rate of 5.2%; an increase in the default rate up to 55.0% in the AA (sf) rating stress scenario; and a decline in the payment rate of 55.0% in the AA (sf) rating stress scenario.
Credit enhancement to the Notes consists of subordination provided by a Class B loan and the general reserve. The subordination level is fixed at 19.5% of the portfolio target balance, or EUR 670.9 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 of the Notes. As of the September 2022 payment date, the general reserve was at its target balance of EUR 10.8 million, with the target set at 2.0% of the aggregate balance of the series of Class A Notes with a EUR 2.0 million floor.
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 the 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 DBRS Morningstar’s 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.
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 (17 May 2022).
All figures are in euros unless otherwise noted.
The principal methodologies applicable to the ratings are: “Rating European Auto Wholesale Securitisations” (5 November 2021) and “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 reviewed the transaction legal documents related to the issuance of the Notes. A review of the other transaction legal documents was not conducted as the documents have remained unchanged since the most recent rating action on the Class A 2017-1 Notes.
In DBRS Morningstar’s opinion, the changes under consideration do not warrant the application of the entire principal methodologies. Given the master trust structure, no asset or cash flow analysis was conducted as the asset portfolio complies with the composition limits set forth in the transaction legal documents and current transaction performance is within expectations.
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/401817/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 these rating actions include notice related to the redemption of the Class A 2017-1 Notes and legal documents related to the issuance of the Notes provided by Société Générale Corporate & Investment Banking.
DBRS Morningstar did not rely upon third-party due diligence in order to conduct its analysis.
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.
Regarding the Class A 2022-1 Notes and Class A 2022-2 Notes, the ratings concern newly issued financial instruments. These are the first DBRS Morningstar ratings on these financial instruments.
Regarding the Class A 2017-1 Notes, the last rating action took place on 20 July 2022, when DBRS Morningstar downgraded the rating to AA (sf) from AAA (sf) following an amendment to the transaction.
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.
Class A 2022-1 Notes and Class A 2022-2 Notes Sensitivity:
-- Loss rate (LR): 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 LR 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 LR 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.
These ratings are 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 Dates:
-- Class A 2022-1 Notes: 17 October 2022
-- Class A 2022-2 Notes: 17 October 2022
-- Class A 2017-1 Notes: 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.
-- Rating European Auto Wholesale Securitisations (5 November 2021),
-- Master European Structured Finance Surveillance Methodology (19 May 2022),
-- Rating European Structured Finance Transactions Methodology (15 July 2022),
-- Interest Rate Stresses for European Structured Finance Transactions (22 September 2022),
-- Legal Criteria for European Structured Finance Transactions (22 July 2022),
-- Operational Risk Assessment for European Structured Finance Servicers (15 September 2022),
-- Operational Risk Assessment for European Structured Finance Originators (15 September 2022),
-- 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.