Morningstar DBRS Assigns Credit Rating to Cars Alliance Auto Loans Germany Master, Series 2024-03, Class A Notes and Discontinues Credit Rating on Series 2023-11, Class A Notes

DBRS Ratings GmbH (Morningstar DBRS) assigned a AAA (sf) credit rating to the EUR 254.0 million Series 2024-03, Class A Notes issued by Cars Alliance Auto Loans Germany Master (the Issuer). Morningstar DBRS assigned the credit rating following the note issuance on the 18 March 2024 payment date. As of the payment date, all portfolio revolving conditions had been met. Additionally, Morningstar DBRS discontinued its AAA (sf) credit rating on the EUR 232.5 million Series 2023-11, Class A Notes because they were repaid in full.

The credit ratings on the Class A Notes address the timely payment of interest and the ultimate repayment of principal by the legal final maturity date in March 2039.

The transaction 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 2026 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 March 2024 payment date, loans that were one to two months delinquent and two to three months delinquent represented 0.2% 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 82.5% so far.

PORTFOLIO ASSUMPTIONS AND KEY CREDIT RATING DRIVERS
Morningstar DBRS maintained its base-case probability of default (PD) and loss given default (LGD) assumptions based on the worst-case portfolio composition at 1.6% and 38.9%, respectively.

CREDIT ENHANCEMENT
Credit enhancement to the outstanding series of Class A Notes is provided by the subordination of the Class B Notes and a general reserve fund. The current credit enhancement to the Class A Notes is 7.7%.
The transaction also benefits from an amortising general reserve account, which is available to cover senior expenses and missed interest payments on the Class A Notes. This account is currently funded with EUR 7.9 million and its target balance is equal to 0.75% of the notes’ aggregate balance.

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.

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

Morningstar DBRS’ 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 Class A Notes are the related Interest Payment Amounts and the related Class Balances.

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

Morningstar DBRS’ long-term credit ratings provide opinions on risk of default. Morningstar DBRS 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, AND GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factors that had a significant or relevant effect on the credit analysis.

A description of how Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the “DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings” at https://dbrs.morningstar.com/research/427030.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the credit ratings is: “Master European Structured Finance Surveillance Methodology” (7 March 2024), https://dbrs.morningstar.com/research/429051.

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

A review of the transaction legal documents was not conducted as the legal documents have remained unchanged since the most recent credit rating action.

In Morningstar DBRS’ 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.

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://dbrs.morningstar.com/research/421590.

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

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

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

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

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

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

The last credit rating action on this transaction took place on 19 February 2024, when Morningstar DBRS assigned a AAA (sf) credit rating to the Series 2024-02, Class A Notes and discontinued its credit rating on the Series 2023-10, Class A Notes because they were repaid in full. Morningstar DBRS also confirmed its AAA (sf) rating on the Series 2023-11, Series 2023-12, and Series 2024-01, Class A Notes.

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

Sensitivity Analysis: To assess the impact of changing the transaction parameters on the credit ratings, Morningstar DBRS considered the following stress scenarios as compared with the parameters used to determine the credit ratings (the base case):

-- Morningstar DBRS expected a base-case PD and LGD for the portfolio based on an annual review of the transaction in February 2024. Adverse changes to asset performance may cause stresses to base-case assumptions and, therefore, have a negative effect on credit ratings.
-- Morningstar DBRS expected a lifetime base-case PD and 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 loans for the Issuer are 1.6% and 38.9%, respectively.
-- The risk sensitivity overview below illustrates the credit ratings expected if the PD and LGD increase by a certain percentage over the base-case assumption.

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

For further information on Morningstar DBRS 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 Morningstar DBRS historical default rates published by the Financial Conduct Authority (FCA) in a central repository, see https://data.fca.org.uk/#/ceres/craStats.

These credit ratings are endorsed by DBRS Ratings Limited for use in the United Kingdom.

Lead Analyst: Preben Cornelius Overas, Assistant Vice President
Rating Committee Chair: Alfonso Candelas, Senior Vice President
Initial Rating Date: 18 March 2014

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Tel. +49 (69) 8088 3500
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The credit rating methodologies used in the analysis of this transaction can be found at: https://www.dbrs.morningstar.com/about/methodologies.

-- Legal Criteria for European Structured Finance Transactions (30 June 2023), https://dbrs.morningstar.com/research/416730.
-- Master European Structured Finance Surveillance Methodology (7 March 2024), https://dbrs.morningstar.com/research/429051.
-- Operational Risk Assessment for European Structured Finance Originators (7 March 2024), https://dbrs.morningstar.com/research/429054.
-- Operational Risk Assessment for European Structured Finance Servicers (15 September 2023), https://dbrs.morningstar.com/research/420572.
-- Rating European Consumer and Commercial Asset-Backed Securitisations (8 January 2024), https://dbrs.morningstar.com/research/426219.
-- Rating European Structured Finance Transactions Methodology (11 December 2023), https://dbrs.morningstar.com/research/425149.
-- Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (23 January 2024), https://dbrs.morningstar.com/research/427030.

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

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