Press Release

DBRS Morningstar Assigns Credit Rating to FCT Cars Alliance DFP France, Series 2023-1 T1 Notes and Discontinues Credit Rating on Series 2018-1 FCT Notes Following Amendment

Auto

July 20, 2023

DBRS Ratings GmbH (DBRS Morningstar) assigned a credit rating of AA (sf) to the Series 2023-1 T1 Notes (the Notes) issued by FCT Cars Alliance DFP France (CA DFP France or the Issuer).

The credit rating on the Notes addresses the timely payment of interest and the ultimate repayment of principal on or before the final maturity date.

Simultaneously, DBRS Morningstar also discontinued its AA (sf) credit rating on the Series 2018-1 FCT Notes, following their repayment in full on the 20 July 2023 payment date. Prior to their redemption, the outstanding balance of the Series 2018-1 FCT Notes was EUR 1 billion.

CA DFP France is a securitisation of auto wholesale receivables originated in France by Diac S.A., a subsidiary of RCI Banque S.A. (RCI France) and part of the automobile group Renault S.A. The portfolio consists of term loans and revolving credit lines to Renault, Nissan, and Mitsubishi dealers in France, which are secured by new vehicles (including demonstration vehicles), used vehicles, and spare parts.

Following an amendment on 20 July 2023 (the Amendment), the revolving period of the securitisation is scheduled to end in July 2028 and its legal maturity date is on the payment date in July 2033.

The credit ratings are based on the following analytical considerations:
-- the Amendment;
-- Portfolio performance, in terms of realised losses, principal payment rates, and yield, as of the June 2023 payment date;
-- Current available credit enhancement to the Notes to cover the expected losses at the AA (sf) credit rating level in various dealer concentration and liquidation scenarios;
-- The transaction parties’ financial strength, historical presence, and RCI France’s capabilities with respect to managing the wholesale operations and the dealer network in France;
-- No early amortisation events have occurred;
-- The sovereign rating on France, currently at AA (high) 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.

AMENDMENT
The following amendments to the transaction took effect on 20 July 2023:
-- Repayment of the Series 2018-1 FCT Notes and issuance of the Series 2023-1 T1 Notes;
-- Revolving period extended by five years, from July 2023 to July 2028;
-- Final maturity date is extended by five years, from July 2028 to July 2033;
-- Increase the general reserve required amount to 0.90% from 0.50% of the sum of the series adjusted invested amount and the series available subordination on such payment date;
-- Increase to 0.5% from 0% the subordination add-on factor for Option A;
-- The coupon of the Notes is now set at one-month Euribor + 1.0%;
-- Certain changes to the early amortisation events;
-- Inclusion of receivables related to Mitsubishi's dealers up to a max of 10% of the required pool balance and receivables related to electric vehicles.

PORTFOLIO PERFORMANCE
As of the June 2023 payment date, the three-month average principal payment rate was 46.5% and the annualised portfolio yield was 9.1% (including additional interest income generated through the discount mechanism). Realised losses were zero. As of the June 2023 payment date, the subordination factor to the Notes was 17.5%.

The collateral is subject to certain concentration limits on the product type securing the receivables (spare parts, second-hand vehicles). As of the June 2023 payment date, all the limits had been met. The limit option for the dealer group concentration was 3.5% of the portfolio balance. DBRS Morningstar has addressed the concentration risk in its analysis.

PORTFOLIO ASSUMPTIONS AND KEY DRIVERS
The key credit rating drivers are the base case probability of default (PD) of 5.8%, a yield of 3.0%, a default rate of 41.7% at the AA (sf) credit rating level, and a payment rate of 53.3% at the AA (sf) credit rating level. The base case PD corresponds to the most constraining dealer group concentration limit option of 2.5% for the transaction cash flow analysis.

CREDIT ENHANCEMENT
The subordination to the Notes is subject to a minimum level, calculated as a percentage of the Notes balance, and is variable according to the three-month average payment rate on the portfolio and the dealer group concentration limit option used. The general reserve provides liquidity support and can be used to repay the Notes principal at the legal final maturity date.

DBRS Morningstar notes that in the current inflationary environment and should the one-month Euribor rates increase substantially, the liquidity support provided by the general reserve to the Notes may be negatively affected. The transaction doesn’t benefit from a hedging agreement, which would mitigate the interest rate risk in a rising interest scenario. DBRS Morningstar incorporates rising interest rate stress scenarios as part of its standard cash flow analysis.

Commingling risk in the transaction is limited, as the collections are transferred to the account bank on a daily basis. A minimum overcollateralisation level driven by the amounts standing in the dealers’ factory accounts held at the manufacturer acts as a mitigant for the set-off risk in the transaction.

Société Générale, S.A. acts as the account bank for the transaction. Based on DBRS Morningstar’s account bank reference rating of Société Générale, S.A. at AA (low), which is one notch below the DBRS Morningstar 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 credit rating assigned to the Notes, as described in DBRS Morningstar's "Legal Criteria for European Structured Finance Transactions" methodology.

DBRS Morningstar’s credit rating on the Notes addresses the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents. The associated financial obligations for the Notes are the related interest payment amounts and the related class balance.

DBRS Morningstar’s credit rating does not address non-payment risk associated with contractual payment obligations contemplated in the applicable transaction documents that are not financial obligations.

DBRS Morningstar’s long-term credit ratings provide opinions on risk of default. DBRS Morningstar considers risk of default to be the risk that an issuer will fail to satisfy the financial obligations in accordance with the terms under which a long-term obligation has been issued.

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/416784/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings.

DBRS Morningstar analysed the transaction using its proprietary Excel-based cash flow engine.

Notes:
All figures are in euros unless otherwise noted.

The principal methodologies applicable to the ratings are: “Rating European Auto Wholesale Securitisations” (9 November 2022), https://www.dbrsmorningstar.com/research/405138/rating-european-auto-wholesale-securitisations, and “Master European Structured Finance Surveillance Methodology” (7 February 2023), https://www.dbrsmorningstar.com/research/409485/master-european-structured-finance-surveillance-methodology.

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

DBRS Morningstar has applied the principal methodologies consistently and conducted a review of the transaction in accordance with the principal methodologies.

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 consider potential portfolio migration based on replenishment criteria set forth in the transaction legal documents.

A review of the transaction legal documents was conducted in the context of the above aforementioned amendment.

For a more detailed discussion of the sovereign risk impact on Structured Finance credit 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 this credit rating include investor reports provided by Eurotitrisation and loan-level data provided by European DataWarehouse, and the following historical information received from RCI France and its agent:
-- Dynamic delinquency data from January 2019 to October 2022;
-- Payment rate data from January 2010 to October 2022;
-- Information on dealers (including dealers rating, number of doubtful dealers) from 2017 to 2022 and dealer breakdown as of October 2022;
-- Balance and utilisation rate data from January 2018 to October 2022.

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

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

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

DBRS Morningstar does not audit or independently verify the data or information it receives in connection with the credit rating process.

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

Regarding the Series 2018-1 FCT Notes, the last credit rating action on this transaction took place on 1 July 2022, when DBRS Morningstar confirmed its AA (sf) credit rating.

The lead analyst responsibilities for this transaction have been transferred to Guglielmo Panizza.

Information regarding DBRS Morningstar credit 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 credit rating, DBRS Morningstar considered the following stress scenarios as compared with the parameters used to determine the credit rating (the base case). Separate stresses were applied in DBRS Morningstar’s analysis of dealer concentration and liquidation scenarios.

Series 2023-1 T1 Notes Sensitivity:
-- Loss rate (LR): Base case of 5.8%, stressed with a 25% and 50% increase
-- Monthly principal payment rate (MPPR): Base case of 53.3%, stressed with a 25% and 50% decrease
-- Yield: Base case of 3.0%, stressed with a 25% and 50% decrease

While holding the MPPR and the yield constant:
-- 25% increase in loss rate, expected credit rating of A (sf)
-- 50% increase in loss rate, expected credit rating of BBB (sf)

While holding the LR and the yield constant:
-- 25% decrease in MPPR, expected credit rating of BBB (high) (sf)
-- 50% decrease in MPPR, expected credit rating of B (high) (sf)

While holding the MPPR and the LR constant:
-- 25% decrease in yield, expected credit rating of AA(sf)
-- 50% decrease in yield, expected credit 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://registers.esma.europa.eu/cerep-publication/. For further information on DBRS Morningstar historical default rates published by the Financial Conduct Authority (FCA) in a central repository, see https://data.fca.org.uk/#/ceres/craStats.

This credit rating is endorsed by DBRS Ratings Limited for use in the United Kingdom.

Lead Analyst: Guglielmo Panizza, Vice President
Rating Committee Chair: Alfonso Candelas, Senior Vice President
Initial Rating Date: Series 2023-1 T1 Notes - 20 July 2023
Initial Rating Date: Series 2018-1 FCT Notes - 23 July 2018

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.

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.

ALL MORNINGSTAR DBRS RATINGS ARE SUBJECT TO DISCLAIMERS AND CERTAIN LIMITATIONS. PLEASE READ THESE DISCLAIMERS AND LIMITATIONS AND ADDITIONAL INFORMATION REGARDING MORNINGSTAR DBRS RATINGS, INCLUDING DEFINITIONS, POLICIES, RATING SCALES AND METHODOLOGIES.

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