DBRS Confirms Rating on Cars Alliance Auto Loans Italy 2015 S.r.l.

DBRS Ratings Limited (DBRS) has today confirmed its rating of AAA (sf) on the Class A Notes issued by Cars Alliance Auto Loans Italy 2015 S.r.l. (the Issuer).

The confirmation of the rating on the Class A Notes reflects an annual review of the transaction and is based on the following analytical considerations as described more fully below:

-- Portfolio performance, in terms of delinquencies and defaults, as of the June 2017 payment date.
-- Updated default rate, recovery rate and loss assumptions on the remaining collateral pool.
-- Current available credit enhancement (CE) to the Class A Notes to cover the expected losses at the AAA (sf) rating level.

Cars Alliance Auto Loans Italy 2015 S.r.l. is an Italian securitisation of auto loan receivables to both retail and commercial clients originated and serviced by the Italian branch of RCI Banque S.A. (RCI). The receivables in the portfolio comprise loans for purchasing new or used vehicles. The transaction closed in July 2015 and is currently in its 30-month revolving period that is scheduled to terminate in January 2018. There are eligibility criteria, concentration limits and performance triggers in place to mitigate any potential portfolio deterioration.

PORTFOLIO PERFORMANCE
As of the June 2017 payment date, the 90+ delinquency ratio arrears stood at 0.17% of the performing portfolio balance of the portfolio and the current gross cumulative default ratio has steadily increased over the year at 0.44% of the aggregate original portfolio balance. To date, the concentration limits and performance triggers in place because of the revolving period have been satisfied.

PORTFOLIO ASSUMPTIONS
DBRS conducted a loan-by-loan analysis on the outstanding pool of receivables and updated the probability of default (PD) and loss given default (LGD) assumptions on the remaining collateral pool to 3.55% and 90.85% (including sovereign adjustment), respectively.

CREDIT ENHANCEMENT
As of June 2017, CE to the Class A Notes was 22.66% of the performing portfolio balance, up from 22.63% as of June 2016. The credit enhancement is provided by the subordination of the junior notes, net of the proceeds utilised to fund the Reserve Fund.

The transaction benefits from a Reserve Fund, currently at the target level of EUR 12.45 million. The Reserve Fund covers senior fees and interest on the Class A Notes and starts to amortise after the end of the revolving period, being equal to 1% of the outstanding balance of the Notes as of the preceding payment date, up to a floor of EUR 1 million.

Crédit Agricole Corporate and Investment Bank, Milan Branch is the Account Bank for the transaction. DBRS’s private rating of the Account Bank complies with the minimum institution rating, given the rating assigned to the Class A 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 rating is: “Master European Structured Finance Surveillance Methodology”.

DBRS 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 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 investors report provided by Zenith Service S.p.A. and loan-by-loan 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 22 July 2016 when DBRS confirmed the Class A Notes at AAA (sf).

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 lifetime base-case probability of default (PD) and loss given default (LGD) for the pool based on a review of the current assets. Adverse changes to asset performance may cause stresses to base-case assumptions and therefore have a negative effect on credit ratings.
-- The base-case PD and LGD of the current pool of receivables for the Issuer are 3.55% (including sovereign stress) and 90.85%, respectively.
-- The Risk Sensitivity overview below illustrates the ratings expected if the PD and LGD increase by a certain percentage over the base-case assumption. For example, if the LGD increases by 50%, the rating of the Class A Notes would be expected to remain at AAA (sf), assuming no change in the PD. If the PD increases by 50%, the rating for the Class A Notes would be expected to be downgraded to AA (sf), assuming no change in the LGD. Furthermore, if both the PD and LGD increase by 50%, the rating of the Class A Notes would be expected to be downgraded to AA (sf).

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).
-- 50% increase in PD, expected rating of AA (sf).
-- 25% increase in PD and 25% increase in LGD, expected rating of AA (high) (sf).
-- 25% increase in PD and 50% increase in LGD, expected rating of AA (high) (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 AA (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: Antonio Di Marco, Senior Financial Analyst
Rating Committee Chair: Vito Natale, Senior Vice President
Initial Rating Date: 23 July 2015

DBRS Ratings Limited
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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

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

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