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

DBRS Ratings Limited (DBRS) took the following rating actions on Cars Alliance Auto Loans Germany V 2016-1 (the Issuer):

-- Class A notes confirmed at AAA (sf)
-- Class B notes upgraded to AAA (sf) from AA (sf)

The above-mentioned rating actions follow an annual review of the transaction and are based on the following analytical considerations:
-- The overall portfolio performance as of the April 2018 payment date, particularly with regard to low levels of delinquencies and cumulative net losses;
-- Updated default rate and expected loss assumptions for the remaining collateral pool;
-- The current available credit enhancement (CE) to the Class A and Class B notes (the Rated Notes) to cover expected losses assumed in line with the AAA (sf) rating level.

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

The Issuer is a securitisation collateralised by a portfolio of auto loan receivables granted by RCI Banque S.A. Niederlassung Deutschland (RCI Germany), the German branch of RCI Group and Renault S.A.S. captive lender. The transaction closed in May 2016 and had a one-year revolving period.

As at 18 April 2018, the balance of the Class A notes was EUR 482.4 million, the balance of the Class B notes was EUR 22.8 million and the balance of the Class C notes was EUR 38.1 million. The EUR 543.0 million portfolio (excluding defaulted receivables) includes loans granted to finance the purchase of new (89.7%) and used (10.3%) vehicles.

PORTFOLIO PERFORMANCE
As at the April 2018 payment date, one- to -two month and two- to three-month delinquencies were 0.4% and 0.2% of the portfolio net discounted balance, respectively, while delinquencies greater than three months were 0.1%. Gross cumulative defaults represented 0.5% of the original portfolio and cumulative transferred receivables, with cumulative recoveries of 64.3%.

PORTFOLIO ASSUMPTIONS
DBRS conducted an analysis of the updated vintage data provided by RCI Germany. As a result, DBRS updated its expected default assumption to 1.5% and its base case recovery rate to 65.9%. For the AAA (sf) rating level, DBRS assumed a probability of default (PD) of 7.4% and a recovery rate of 44.1%. The base case assumptions were further ajusted to address the risks associated with set-off and credit insurance.

CREDIT ENHANCEMENT
CE for the Rated Notes is provided by the subordination of the respective junior obligations and the General Reserve account. As at the April 2018 payment date, Class A notes’ CE was 12.1% and Class B notes’ CE was 7.9%.

The transaction structure includes an amortising General Reserve account, which is available to cover senior expenses and missed interest payments on the Rated Notes. This account is currently funded with EUR 5.1 million, and its target balance is equal to 1.0% of the Rated Notes balance, subject to a EUR 3.6 million floor.

The structure also includes a Commingling Reserve Account and a Set-Off Reserve Account, which will be funded if certain triggers are breached. To date, these reserves continue to be unfunded.

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

The Issuer entered into two swap agreements with RCI Germany to hedge the interest rate mismatch between the Rated Notes, indexed to one-month Euribor, and the fixed interest rate payments from the securitised portfolio. The Issuer Stand-by Swap Counterparty, Credit Agricole Corporate & Investment Bank (CACIB), guarantees the financial and operational terms of the swap agreements. If RCI Germany fails to meet its obligations as swap counterparty, CACIB will step in to hedge the Issuer’s exposure. The Stand-by Swap Agreement defines downgrade provisions in line with DBRS’s “Derivative Criteria for European Structured Finance Transactions” methodology.

Notes:
All figures are in euros unless otherwise noted.

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

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

A review of the transaction’s legal documents was not conducted as the legal documents have remained unchanged since the most recent rating actions.

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 “Appendix C: The Impact of Sovereign Ratings on Other DBRS Credit Ratings” of the “Rating Sovereign Governments” methodology at: http://dbrs.com/research/319564/rating-sovereign-governments.pdf.

The sources of data and information used for these ratings include investor reports provided by EuroTitrisation (the Management Company).

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 these ratings 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 3 May 2017, when DBRS confirmed its rating on the Class A notes at AAA (sf) and its rating on the Class B notes at AA (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 ratings, DBRS considered the following stress scenarios, as compared to the parameters used to determine the rating (the Base Case):

-- DBRS expected a base case PD and LGD for the portfolio 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 are 1.5% and 34.1%, respectively. At the AAA (sf) rating level, the corresponding PD is 7.4% and the LGD 55.9%.

-- The Risk Sensitivity below illustrates the ratings expected for the Rated 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 rating of the Rated Notes would be expected to remain at AAA (sf), all else being equal. If the PD increases by 50%, the rating of the Rated Notes would be expected to remain at AAA (sf), all else being equal. Furthermore, if both the PD and LGD increase by 50%, the rating on the Class A would be expected remain at AAA (sf) and the rating on the Class B would be expected to decrease to AA (high) (sf), all else being equal.

Class A 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 AAA (sf)
-- 50% increase in PD, expected rating of AAA (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of AAA (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of AAA (sf)

Class B 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 AAA (sf)
-- 50% increase in PD, expected rating of AAA (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of AAA (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of AA (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 and US regulations only.

Lead Analyst: Joana Seara da Costa, Assistant Vice President
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: 21 April 2016

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.

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

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.

For more information on this credit or on this industry, visit www.dbrs.com or contact us at info@dbrs.com.