DBRS Confirms Ratings on Cars Alliance Auto Loans Germany V 2016-1

DBRS Ratings Limited (DBRS) has today confirmed the following ratings on the Class A and Class B notes (the Notes) issued by Cars Alliance Auto Loans Germany V 2016-1 (the Issuer):

-- EUR 700.0 million Class A notes confirmed at AAA (sf)
-- EUR 22.8 million Class B notes confirmed at AA (sf)

The above-mentioned rating actions reflect an annual review of the transaction and are based on the following analytical considerations, as described more fully below:
-- The overall portfolio performance as of the April 2017 payment date, in particular with regards to low levels of cumulative net loss and delinquencies.
-- The ability of the transaction to withstand stressed cash flow assumptions and repay investors according to the terms and conditions of the Notes.
-- No Revolving Period Termination Events have occurred.
-- The current levels of credit enhancement available to the rated notes to cover expected losses.

The ratings of the Notes address the timely payment of interest and the ultimate payment of principal on or before the Final Maturity Date in May 2027.

The Issuer is a securitisation of German auto loans originated by RCI Banque S.A. Niederlassung Deutschland (RCI Banque-German Branch). The EUR 761.0 million portfolio as of the April 2017 payment date comprises loans for the purpose of new (87.8%) and used (12.2%) vehicles, granted entirely to retail customers. The transaction’s initial 12-month revolving period is expected to mature on the May 2017 payment date.

PORTFOLIO PERFORMANCE
As of the April 2017 payment date, 30- to 60-day delinquencies were 0.4% of the outstanding net discounted principal balance and 60- to 90-day delinquencies were 0.2%, while delinquencies greater than 90 days were 0.1%. The gross cumulative default ratio (as a percentage of the original portfolio and cumulative transferred receivables) was 0.2% as of April 2017, of which 57.2% has been recovered.

CREDIT ENHANCEMENT
Credit Enhancement (CE) for the Notes is provided by overcollateralisation, subordination of the respective junior obligations and the Cash Reserve. CE for the Notes has remained at 9.0% and 6.0%, respectively, since closing.

The transaction benefits from a Cash Reserve to cover senior fees and the interest due on the Notes. In the event of an Issuer default, it can also be used to cover principal payments on the rated Notes. At closing, it was funded with EUR 7.2 million by the seller, RCI Banque-German Branch. It amortises in line with the deleveraging of the Notes and has a target level of 1.0% of the aggregate principal outstanding of the Notes, at which it has remained throughout the life of the transaction.

The deal is exposed to potential commingling and set-off risks as debtors may open accounts with the Originator. As a mitigant, the Servicer undertakes to fund a Commingling Reserve, as well as a Set-Off Reserve, if the DBRS rating of RCI Banque-German Branch falls below specific thresholds as defined in the legal documentation. To date, these reserves continue to be unfunded, as none of the rating triggers have been breached.

A swap agreement with RCI Banque-German Branch is in place to hedge the interest rate mismatch between the Notes, indexed to one-month Euribor, and the fixed interest rate payments from the collateral portfolio. The Stand-by Swap Provider, Crédit Agricole Corporate and Investment Bank, guarantees the financial and operational terms of the swap agreements. Should RCI Banque-German Branch fail to meet its obligations as Swap Counterparty, Crédit Agricole Corporate and Investment Bank will step in. The Stand-by Swap Agreement defines collateral posting provisions in line with DBRS’s “Derivative Criteria for European Structured Finance Transactions” methodology.

Société Générale S.A. is the Account Bank for this transaction. The account bank reference rating of AA (low), which is one notch below the DBRS Long-Term Critical Obligations Rating of Société Générale S.A. at AA, complies with the Minimum Institution Rating, given the rating assigned to the Notes as described in DBRS’s “Legal Criteria for European Structured Finance Transactions” methodology.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the ratings is the: “Master European Structured Finance Surveillance Methodology”.

DBRS has applied the principal methodology consistently and conducted a review of the transaction in accordance with the surveillance section of the principal methodology.

An asset and a cashflow analysis were both conducted. Due to the inclusion of a revolving period in the transaction, the analysis continues to be based on the worst-case 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.

Other methodologies referenced in this transaction are listed at the end of this press release.

These may be found on www.dbrs.com at: http://www.dbrs.com/about/methodologies.

For a more detailed discussion of the sovereign risk impact on Structured Finance ratings, please refer to DBRS commentary “The Effect of Sovereign Risk on Securitisations in the Euro Area” on: http://www.dbrs.com/industries/bucket/id/10036/name/commentaries/.

The sources of data and information used for this rating include monthly investor reports provided by EuroTitrisation (the Management Company) and data from the European DataWarehouse GmbH.

DBRS did not rely upon third-party due diligence in order to conduct its analysis.

At the time of the initial rating DBRS was supplied with third-party assessments. However, this did not impact the rating analysis.

DBRS considers the data and information available to it for the purposes of providing this rating to be of satisfactory quality.

DBRS 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 25 May 2016, when DBRS finalised the provisional ratings assigned to the Class A and Class B notes.

The lead analyst responsibilities for this transaction have been transferred to Joana Seara da Costa.

Information regarding DBRS ratings, including definitions, policies and methodologies, is available on www.dbrs.com.

To assess the impact of changing the transaction parameters on the rating, DBRS considered the following stress scenarios, as compared to the parameters used to determine the rating (the “Base Case”):

-- DBRS expected a Base Case probability of default (PD) and loss given default (LGD) for the portfolio based on a review of the current assets and the transaction’s replenishment criteria. Adverse changes to asset performance may cause stresses to base case assumptions and, therefore, have a negative effect on credit ratings.

-- The Base Case of PD and LGD of the current pool of assets of receivables, without any additional stresses, are 2.8% and 47.2%, respectively.

-- The Risk Sensitivity overview below illustrates the ratings expected for the Notes if the PD and LGD increase by a certain percentage over the base case assumptions.

For example, if the LGD increases by 50%, the ratings for the Notes would be expected to remain at AAA (sf) and AA (sf), respectively, ceteris paribus. If the PD increases by 50%, the ratings for the Notes would be expected to remain at AAA (sf) and AA (sf), respectively, ceteris paribus. Furthermore, if both the PD and LGD increase by 50%, the ratings for the Notes would be expected to decrease to AA (sf) and A (high) (sf), respectively, ceteris paribus.

Class A notes risk sensitivity:
-- 25% increase in LGD, expected rating of AAA (sf)
-- 50% increase in LGD, expected rating of AAA (sf)
-- 25% increase in PD, expected rating of AAA (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of AAA (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of AA (high) (sf)
-- 50% increase in PD, expected rating of AAA (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of AA (high) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of AA (sf)

Class B notes risk sensitivity:
-- 25% increase in LGD, expected rating of AA (sf)
-- 50% increase in LGD, expected rating of AA (sf)
-- 25% increase in PD, expected rating of AA (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of AA (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of AA (sf)
-- 50% increase in PD, expected rating of AA (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of AA (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of A (high) (sf)

For further information on DBRS 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 Limited are subject to EU regulations only.

Lead Analyst: Joana Seara da Costa, Senior Financial Analyst
Rating Committee Chair: Vito Natale, Senior Vice President
Initial Rating Date: 21 April 2016

DBRS Ratings Limited
20 Fenchurch Street, 31st Floor, London EC3M 3BY United Kingdom
Registered in England and Wales: No. 7139960

The rating methodologies used in the analysis of this transaction can be found at: http://www.dbrs.com/about/methodologies.

-- Master European Structured Finance Surveillance Methodology
-- Legal Criteria for European Structured Finance Transactions
-- Operational Risk Assessment for European Structured Finance Originators
-- Operational Risk Assessment for European Structured Finance Servicers
-- Rating European Consumer and Commercial Asset-Backed Securitisations
-- Unified Interest Rate Model for European Securitisations
-- Derivative Criteria for European Structured Finance Transactions

A description of how DBRS analyses structured finance transactions and how the methodologies are collectively applied can be found at: http://www.dbrs.com/research/278375.