Madrid, October 17, 2022 -- Moody's Investors Service ("Moody's") has assigned the following definitive ratings to notes to be issued by Cars Alliance DFP Germany 2017 (the "Issuer"):
....EUR 490.0M Class A2022-1 Notes due August 2031, Assigned Aa2 (sf)
....EUR 50.0M Class A2022-2 Notes due August 2031, Assigned Aa2 (sf)
Moody's does not rate the existing EUR 176.8M (Current outstanding balance EUR 130.9M) Class B Loan.
Moody's may also assign ratings to Class A Notes issued in the future by Cars Alliance DFP Germany 2017. The sum of all Class A Notes will not exceed a maximum amount of EUR 1,000,000,000 at any one time.
The transaction is a five-year revolving cash securitisation of floorplan receivables extended to auto dealers in Germany by RCI Banque S.A., Germany ("RCI Germany"). RCI Germany is the German branch of the RCI Banque (Baa2 Deposits/Baa1(cr)). The transaction closed in 2017 with a five-year revolving period, which is being extended for a further five years, among other amendments.
The issuance of subsequent series of Class A Notes will be subject to compliance with a number of conditions precedent as per the Terms and Conditions of the Notes, including a requirement that the notes be no greater than the maximum amount of EUR 1bn, the general reserve is funded to the required amount, and such issuance will not lead to a downgrade of the notes. Subsequent Class A Notes will have a legal final maturity date in August 2031.
The portfolio of receivables backing the Notes consists of floorplan receivables extended to auto dealers in Germany.
As of the September report, the portfolio of underlying assets consists of non-defaulted floorplan receivables related to Renault (73.0%) and Nissan vehicles (27.0%) for a total amount of EUR 506.6M . We note that the securitized portfolio has a minimum volume of EUR 670.9 million based on the issuance amount of the notes and the required over-collateralization. These receivables finance new vehicles including demo cars (86.8%), used and buyback vehicles (8.0%) and Spare Parts (5.3%). There are concentration limits preventing the exposure to used vehicles (including buyback vehicles and former company vehicles) to increase above 15%, and spare parts increasing above 5% of the pool. The remaining assets needed to meet the required credit enhancement level are in the form of cash held in the general account.
The floorplan receivables are created via two financing methods: loan receivables or trade receivables. Loan receivables are generated by loan contracts between the seller and the dealer. They are generally originated for the purpose of funding the acquisition by dealers of new, demo or used vehicles related to the Renault, Nissan, Dacia and Alpine brands. Trade receivables are initially originated via a sale contract between the manufacturers and the dealers, which are then acquired pursuant to a factoring agreement by the seller. They are generally originated for the purposes of financing the acquisition of certain Renault branded vehicles as well as Renault and Nissan spare parts.
There is a single level of required subordination equal to 19.5% required subordination. If the three month payment rate falls below 25% the transaction will enter early amortisation. This rate is calculated as the percentage of assets outstanding that are repaid on a monthly basis and defines the speed at which the pool repays at the start of early amortisation.
RATINGS RATIONALE
The transaction's main credit strengths are (i) the credit quality of the two manufacturers of the financed vehicles Renault S.A. (Ba2 CFR) ("Renault") and Nissan Motor Co., Ltd. (Baa3 Issuer Rating) ("Nissan"); (ii) the credit quality and securitisation experience of the seller; (iii) the relatively good historical performance with low losses; (iv) the simple waterfall; and (v) the liquidity reserve defined as 2% of the Class A Notes. The reserve fund will be available to cover liquidity shortfalls on the senior bonds throughout the life of the transaction and can serve as credit enhancement. In addition, the contractual documents obligate the cash manager to estimate amounts due in the event a servicer report is not available. This reduces the risk of any technical non-payment of interest on the Notes.
However, Moody's notes that the transaction features some credit weaknesses. Typical of dealer floorplan deals, there is high exposure to the manufacturers (predominantly Renault and Nissan) whose vehicles are being financed, in addition to which there is dealer concentration risk in the pool, with exposure to the largest dealer limited to 5% of the pool, and the top five dealers to 17.5% of the pool. The transaction is also exposed to risk of seller default, due to the potential losses that could accrue from dilutions, commingling, and set-off. Reliance on the seller is further increased by the payment of a transfer fee to cover for interest payments in the waterfall, reflecting the absence of yield generated by the pool. Failure of the seller to pay interest on the notes would increase losses, a feature which is exacerbated by the absence of a swap to mitigate against the risk of a rising Euribor rate. These risks are partially mitigated by the level of credit enhancement and were considered by Moody's in its quantitative modelling.
Moody's analysis focused, amongst other factors, on (i) the strength and size of the manufacturers; (ii) risks associated with default of the seller; (iii) historical performance information of the total book; (iv) evaluation of the underlying floorplan receivables; (v) the credit enhancement provided by subordination; (vi) the liquidity support available in the transaction by way of the reserve fund and available principal to pay interest; and (vii) the legal and structural integrity of the issue.
MAIN MODEL ASSUMPTIONS
Moody's assumed an average dealer default rating equivalent of B3 as an input parameter for Moody's cash flow model and assumed Renault S.A and Nissan Motor Co., Ltd. ratings at B2 and Ba3, three notches below their current levels. Additional stressed quantitative cases assuming manufacturer default probability and consequent impacts on recoveries were also considered as per Moody's methodology.
The monthly payment rate assumptions for the deal are composed of three inputs, relating to a minimum, mode and a maximum amount. The minimum assumed was equal to 10%, while the maximum was modelled equal to the payment rate trigger level of 25% defined in the documentation. The mode was assumed to be 3% below the maximum modelled of 25%.
The recovery rate assumptions in a dealer floorplan deal differ by the insolvency scenario being modelled as well as the type of vehicle, new or used, being recovered. On average, our assumptions for recovery rates of repossessed cars from defaulted dealers was 75% for new cars and 70% for used cars. Average stressed recovery rates applied under manufacturer bankruptcy scenarios were generally between 35% and 65% with a low of 25% in a liquidation scenario.
Moody's modelled payment rates, consisting of a minimum 10% assumption as well as a mode of 22% and maximum of 25%, are in line with the typical assumptions used in EMEA floorplan deals. The payment rate assumptions reflect our expectations in a stressed scenario as well as the structural triggers included in the transaction.
Moody's expected recovery rates, which range between 25% and 40% in a liquidation scenario are slightly below the average for EMEA dealer floorplan deals. The expected recovery rates reflect (i) our expectations in a stressed scenario; (ii) other transactions used as benchmarks; and (iii) the potential cost from unpaid VAT by the seller when recovering new Renault vehicles in a liquidity scenario.
METHODOLOGY
The principal methodology used in these ratings was "Moody's Approach to Rating Floorplan Asset-Backed Securities" published in December 2020 and available at https://ratings.moodys.com/api/rmc-documents/69545. Alternatively, please see the Rating Methodologies page on https://ratings.moodys.com for a copy of this methodology.
FACTORS THAT WOULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS:
Moody's could upgrade the Notes if levels of credit enhancement are higher than necessary to protect investors against current expectations of portfolio losses. Additionally, a strengthening credit profile of manufacturers and/or dealers could decrease expectations for loss. Portfolio losses also depend greatly on German economic performance. Other reasons for better than expected performance include changes to servicing practices that enhance collections.
Moody's could downgrade the Notes if levels of credit enhancement are insufficient to protect investors against current expectations of portfolio losses. Additionally, a weakening credit profile of manufacturers and/or dealers could increase expectations for loss. Losses could rise above Moody's original expectations as a result of a higher number of dealer defaults or deterioration in the value of the assets securing a dealer's promise of payment. Other reasons for worse-than-expected performance include poor servicing, error on the part of transaction parties, inadequate transaction governance and fraud.
REGULATORY DISCLOSURES
For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found on https://ratings.moodys.com/rating-definitions.
The analysis relies on a Monte Carlo simulation that generates a large number of collateral loss or cash flow scenarios, which on average meet key metrics Moody's determines based on its assessment of the collateral characteristics. Moody's then evaluates each simulated scenario using model that replicates the relevant structural features and payment allocation rules of the transaction, to derive losses or payments for each rated instrument. The average loss a rated instrument incurs in all of the simulated collateral loss or cash flow scenarios, which Moody's weights based on its assumptions about the likelihood of events in such scenarios actually occurring, results in the expected loss of the rated instrument.
Moody's quantitative analysis entails an evaluation of scenarios that stress factors contributing to sensitivity of ratings and take into account the likelihood of severe collateral losses or impaired cash flows. Moody's weights the impact on the rated instruments based on its assumptions of the likelihood of the events in such scenarios occurring.
For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the issuer/deal page for the respective issuer on https://ratings.moodys.com.
For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.
The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.
These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website https://ratings.moodys.com.
Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.
Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://ratings.moodys.com/documents/PBC_1288235.
The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on https://ratings.moodys.com.
Please see https://ratings.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.
Please see the issuer/deal page on https://ratings.moodys.com for additional regulatory disclosures for each credit rating.
Greg O'Reilly
VP - Senior Credit Officer
Structured Finance Group
Moody's Investors Service Espana, S.A.
Calle Principe de Vergara, 131, 6 Planta
Madrid, 28002
Spain
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Anthony Parry
Senior Vice President/Manager
Structured Finance Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
Releasing Office:
Moody's Investors Service Espana, S.A.
Calle Principe de Vergara, 131, 6 Planta
Madrid, 28002
Spain
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
