DBRS Confirms and Upgrades Notes of Cars Alliance Auto Loans Germany V 2013-1

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 Germany V 2013-1 (the Issuer):

-- Class A Notes were confirmed at AAA (sf)
-- Class B Notes were upgraded to AAA (sf) from AA (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 of the notes address the timely payment of interest and the ultimate payment of principal on or before the Final Maturity Date in December 2024.

Cars Alliance Auto Loans Germany V 2013-1 is a securitisation of German auto loans originated by RCI Banque S.A. Niederlassung Deutschland (RCI Banque-German Branch). The EUR 167.9 million portfolio as of the September 2017 payment date comprises loans for the purpose of new (84.7%) and used (15.3%) vehicles, granted entirely to retail customers. The transaction’s initial 12-month revolving period ended on the January 2015 payment date.

PORTFOLIO PERFORMANCE
The gross cumulative default ratio, as a percentage of the original portfolio plus all subsequent portfolios, was 0.9% as of September 2017 payment date, of which 72.5% has been recovered so far. The 90+ delinquency ratio was 0.2%.

PORTFOLIO ASSUMPTIONS
DBRS conducted an analysis of the remaining collateral pool and updated its cumulative net loss assumption to 2.6%.

CREDIT ENHANCEMENT
CE for the notes is provided by overcollateralisation, 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 65.7% from 12.9%; and CE for the Class B notes has increased to 31.9% from 6.7%.

The transaction’s cash reserve covers senior fees and the interest due on the Class A and Class B Notes. In the event of an Issuer default, it can also be used to cover principal payments on the Rated Notes. At closing, the reserve was funded with EUR 8.57 million. It amortises in accordance with the amortisation of the notes and has a target level of 1.0% of the aggregate principal outstanding of the Class A and Class B Notes, at which it has remained throughout the life of the transaction. The reserve had a balance of EUR 1.3 million as of September.

A swap agreement with RCI Banque-German Branch is in place to hedge the interest rate mismatch between the Class A Notes, indexed to one-month Euribor, and the fixed interest rate payments from the collateral portfolio. Two Stand-by Swap Providers, HSBC France S.A. and Crédit Agricole Corporate and Investment Bank, guarantee the financial and operational terms of the swap agreements. Should RCI Banque-German Branch fail to meet its obligations as Swap Counterparty, HSBC France S.A. and Crédit Agricole Corporate and Investment Bank will step in. The Stand-by Swap Agreements define collateral posting provisions in line with DBRS’s “Derivative Criteria for European Structured Finance Transactions” methodology.

HSBC France S.A. acts as Account Bank for the transaction. Its DBRS private rating complies with the Minimum Institution Rating given the rating assigned to the 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 this rating 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 this rating 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 20 October 2016, when DBRS confirmed its rating of the Class A Notes at AAA (sf) and upgraded its rating of the Class B Notes to AA (sf) from A (high) (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 probability of default (PD) and loss given default (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 4.1% and 64.2%, 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 ratings of both the Class A and Class B Notes would be expected to remain at AAA (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 AAA (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: 14 November 2013

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.