DBRS Takes Rating Actions on Cars Alliance Auto Loans France V 2014-1

DBRS Ratings Limited (DBRS) took the following rating actions on the Class A Notes and Class B Notes (the Rated Notes) issued by Cars Alliance Auto Loans France V 2014-1 (the Issuer):
-- Class A Notes confirmed at AAA (sf)
-- Class B Notes upgraded to AAA (sf) from AA (high) (sf)

The rating actions follow an annual review of the transaction and are based on the following analytical considerations, as described more fully below:

-- The overall portfolio performance as of the September 2017 payment date, particularly with regard to low levels of cumulative net loss and delinquencies;
-- Updated default, recovery and loss assumptions on the remaining receivables;
-- The increased levels of credit enhancement (CE) available to the rated Notes to cover expected losses are in line with their respective rating levels.

The ratings on the Rated Notes address the timely payment of interest and the ultimate payment of principal on or before the Legal Maturity Date in January 2026.

The Issuer is a securitisation of French auto loan receievables originated by Diac SA (DIAC), Renault Nissan Alliance’s captive lender in France, to retail and corporate customers. The EUR 154.8 million portfolio, as of the September 2017 payment date, consisted of loans for the purchase of both new (61.2%) and used (38.8%) vehicles.

PORTFOLIO PERFORMANCE
The gross cumulative default ratio, as a percentage of the original portfolio plus all subsequent portfolios, was 1.9%, as of the September 2017 payment date, of which 58.7% has been recovered so far. The percentage of loans between 30-60 days and 60-90 days was 0.6% and 0.3%, respectively.

PORTFOLIO ASSUMPTIONS
DBRS has conducted an analysis of the remaining collateral pool and updated its cumulative net loss assumption to 2.3%.

CREDIT ENHANCEMENT
CE is provided by the subordination of the respective junior obligations and the Cash Reserve. As of September 2017 and since closing, CE for the Class A Notes has increased to 51.4% from 12.5%; and CE for the Class B Notes has increased to 23.0% from 6.0%.

The transaction structure includes a General Reserve Account that is available to cover senior expenses and missed interest payments on the Rated Notes and, as soon as the portfolio balance is reduced to zero or on the final maturity date, to repay principal on the Notes. This account was funded at closing with EUR 6.8 million, and its target balance is equal to 1.0% of the aggregate principal balance of the Notes. It has been at its required balance since closing, and currently stands at EUR 1.6 million.

The Issuer entered into a Swap Agreement with DIAC in order to hedge the interest rate mismatch between the Rated Notes, indexed to 1-month Euribor, and the fixed interest rate payments from the collateral portfolio. The structure also includes a Stand-By Swap, where BNP Paribas SA provides a financial and operational guarantee to DIAC; if DIAC fails to meet its obligations as Swap Counterparty, BNP Paribas SA will step in to hedge the Issuer’s exposure. The FCT Stand-By Swap Agreement defines downgrade provisions in line with DBRS’s “Derivative Criteria for European Structured Finance Transactions” methodology.

Société Générale, S.A. is the Account Bank for this transaction, and Crédit Industriel et Commercial acts as Servicer Collection Account Bank. The Account Bank reference rating of AA (low) – being one notch below the DBRS Long Term Critical Obligations Rating of Société Générale, S.A. at AA – 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.

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 these ratings include monthly 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 not 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 13 October 2016, when DBRS confirmed the rating of the Class A Notes at AAA (sf) and upgraded the rating of the Class B Notes to AA (high) (sf) from AA (low) (sf).

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

To assess the impact of the 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 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 assets of receivables are 4.6% and 49.5%, respectively.

For example, if the LGD increases by 50%, the ratings of both the Class A and Class B Notes would be expected to remain at AAA (sf), ceteris paribus. If the PD increases by 50%, the ratings of both the Class A and Class B Notes would be expected to remain at AAA (sf), ceteris paribus. Furthermore, if both the PD and LGD increase by 50%, the rating of the Class A Notes would be expected to remain at AAA (sf) while the rating of the Class B Notes would be expected to decrease to AA (high) (sf), ceteris paribus.

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)
-- 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 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)
-- 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, Senior Financial Analyst
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: 24 September 2014

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
-- Legal Criteria for European Structured Finance Transactions
-- Operational Risk Assessment for European Structured Finance Servicers
-- Rating European Consumer and Commercial Asset-Backed Securitisations
-- Unified Interest Rate Model for European Securitisations
-- Derivative Criteria for European Structured Finance Transactions

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