DBRS Morningstar Assigns Rating to Cars Alliance Auto Loans Germany Master, Series 2020-04, Class A Notes and Discontinues Rating on Series 2018-17, Class A Notes

DBRS Ratings GmbH (DBRS Morningstar) assigned a AAA (sf) rating to the EUR 194.3 million Series 2020-04, Class A Notes issued by Cars Alliance Auto Loans Germany Master (the Issuer). The rating was assigned following the note issuance on the 20 April 2020 payment date. As of the payment date, all portfolio revolving conditions were met. Additionally, DBRS Morningstar discontinued its AAA (sf) rating on the EUR 122.4 million Series 2018-17, Class A Notes because they were repaid in full.

The rating on the Class A Notes addresses the timely payment of interest and the ultimate repayment of principal by the final legal maturity date in March 2035.

The Issuer is a master trust securitisation backed by a pool of auto loan receivables related to new and used motor vehicles originated in Germany by RCI Banque SA Niederlassung Deutschland, a German subsidiary of RCI Banque SA. The transaction’s revolving period extends until the March 2022 payment date, subject to certain portfolio conditions being met. During the revolving period, the Issuer may acquire additional receivables and issue further series of Class A Notes with different expected maturities based on the amortisation profile of the additional receivables.

The transaction closed on 18 March 2014. Since closing, replenishment of the underlying receivables has met the portfolio revolving conditions on each payment date.

PORTFOLIO PERFORMANCE
As at the April 2020 payment date, loans that were one- to two-months delinquent and two- to three-months delinquent represented 0.5% and 0.2% of the portfolio net discounted balance, respectively, while delinquencies greater than three months were 0.1%. The cumulative gross default ratio was 0.7% of the original portfolio and cumulative transferred receivables, with principal cumulative recoveries of 70.9% so far.

CREDIT ENHANCEMENT
Credit enhancement for the outstanding series of Class A Notes comes from subordination of the Class B Notes and the general reserve fund. The current credit enhancement on the Class A Notes is 9%.

HSBC France SA acts as the account bank for the transaction. Based on DBRS Morningstar’s private rating on HSBC France SA, the downgrade provisions outlined in the transaction documents, and structural mitigants, DBRS Morningstar considers the risk arising from the exposure to HSBC France SA to be consistent with the rating assigned to the notes as described in DBRS Morningstar’s “Legal Criteria for European Structured Finance Transactions” methodology.

For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.

For more information regarding structured finance rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/358308.

ESG CONSIDERATIONS
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework and its methodologies can be found at: https://www.dbrsmorningstar.com/research/357792.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the ratings is: “Master European Structured Finance Surveillance Methodology” (13 December 2019).
A review of the transaction legal documents was not conducted as the legal documents have remained unchanged since the most recent rating action.

In DBRS Morningstar’s opinion, the changes under consideration do not warrant the application of the entire principal methodology. 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.

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.

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 “Global Methodology for Rating Sovereign Governments” at: https://www.dbrsmorningstar.com/research/350410/global-methodology-for-rating-sovereign-governments.

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

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 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.

This rating concerns a newly issued financial instrument. This is the first DBRS Morningstar rating on this financial instrument.

The last rating action on this transaction took place on 18 March 2020, when DBRS Morningstar assigned AAA (sf) ratings to the Series 2018-25 and Series 2018-26 Class A Notes and discontinued its rating on the Series 2018-16 Class A Notes.

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

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

-- DBRS Morningstar expected a base case probability of default (PD) and loss given default (LGD) for the portfolio based on an annual review of the transaction in February 2019. 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 3.3% and 61.5%, respectively. At the AAA (sf) rating level, the corresponding PD is 12.5% and the LGD is 67.0%.

-- The risk sensitivity below illustrates the ratings expected for each series of Class A 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 for each series of Class A Notes would be expected to remain at AAA (sf), ceteris paribus. If the PD increases by 50%, the rating for each series of Class A Notes would be expected to remain at AAA (sf), ceteris paribus. Furthermore, if both the PD and LGD increase by 50%, the rating for each series of Class A Notes would be expected to decrease to AA (low) (sf), ceteris paribus.

Class A Notes Risk Sensitivity:
-- 25% increase in LGD, expected rating of AA (high) (sf)
-- 50% increase in LGD, expected rating of AA (sf)
-- 25% increase in PD, expected rating of AA (high) (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 A (high) (sf)
-- 50% increase in PD, expected rating of AA (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of A (high) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of A (sf)

For further information on DBRS Morningstar 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 GmbH are subject to EU and US regulations only.

Lead Analyst: Petter Wettestad, Senior Analyst
Rating Committee Chair: Alfonso Candelas, Senior Vice President
Initial Rating Date: 18 March 2014

DBRS Ratings GmbH
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60311 Frankfurt am Main Deutschland
Tel. +49 (69) 8088 3500

Geschäftsführer: Detlef Scholz
Amtsgericht Frankfurt am Main, HRB 110259

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

-- Legal Criteria for European Structured Finance Transactions (11 September 2019),
https://www.dbrsmorningstar.com/research/350234/legal-criteria-for-european-structured-finance-transactions
-- Master European Structured Finance Surveillance Methodology (13 December 2019), https://www.dbrsmorningstar.com/research/354616/master-european-structured-finance-surveillance-methodology
-- Operational Risk Assessment for European Structured Finance Originators (28 February 2020), https://www.dbrsmorningstar.com/research/357430/operational-risk-assessment-for-european-structured-finance-originators
-- Operational Risk Assessment for European Structured Finance Servicers (28 February 2020), https://www.dbrsmorningstar.com/research/357429/operational-risk-assessment-for-european-structured-finance-servicers
-- Rating European Consumer and Commercial Asset-Backed Securitisations (13 January 2020), https://www.dbrsmorningstar.com/research/355533/rating-european-consumer-and-commercial-asset-backed-securitisations

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 info@dbrsmorningstar.com.