EUR 474 million ABS Notes rated, relating to a portfolio of French auto leases
Milan, October 27, 2020 -- Moody's Investors Service ("Moody's") has assigned the following definitive
ratings to Notes issued by Cars Alliance Auto Leases France Master:
....EUR 150M Class A2020-1 Notes due
21 January 2021, Assigned Aaa (sf)
....EUR 150M Class A2020-2 Notes due
22 February 2021, Assigned Aaa (sf)
....EUR 174M Class A2020-3 Notes due
22 March 2021, Assigned Aaa (sf)
Moody's has not assigned a rating to the EUR 58.9M Class B Fixed
Rate Notes due 2038.
RATINGS RATIONALE
Moody's may also assign ratings to future senior notes issued by Cars
Alliance Auto Leases France Master (the Class A 20xx-y Notes).
The issuance of subsequent series of Class A 20xx-y will be subject
to compliance with a number of Conditions Precedent as per the Terms and
Conditions of the Notes (such as maintaining minimum credit enhancement
levels). The Class A 20xx-y legal final maturity date is
October 2038.
The sum of all Class A 20xx-y Notes will not exceed a maximum amount
of EUR 5,000,000,000 at any one time.
This transaction is the second French auto leases securitisation program
sponsored by RCI Banque since 2002. Under this 4 years revolving
cash securitisation program, the issuer securitises a pool of leases
granted by DIAC S.A. ("DIAC") (NR), ultimately owned
by RCI Banque (Baa2/P-2, Baa1(cr)/P-2(cr)),
to individuals residing in France, in order to finance the purchase
of new (92.76% at closing) and used (7.24%
at closing) vehicles branded mainly Renault, Nissan and Dacia.
At closing, the portfolio of underlying assets consists of auto
leases distributed through Renault-Nissan franchised auto dealers.
As of September 30, 2020, the definitive portfolio consists
of non-delinquent contracts with a weighted average seasoning of
16.62 months and an outstanding discounted principal balance of
approximately EUR 532.8 million. The lease instalments of
the lease contracts are securitized but not the residual value cash flow.
Moody's analysis focused, amongst other factors, on:
(i) an evaluation of the underlying portfolio of leases and its possible
evolution overtime; (ii) historical performance information of the
total book and past ABS transactions; (iii) the credit enhancement
provided by the dynamic subordination and the reserve fund; (iv)
the liquidity support available in the transaction by way of the reserve
fund; and (v) the overall legal and structural integrity of the transaction.
According to Moody's, the transaction benefits from various credit
strengths such as a granular portfolio, credit enhancement provided
through subordination, excess spread, and an amortising general
reserve sized at 1% of Class A and B Notes balance. The
general reserve will be available to cover senior costs and Class A Notes
interest. At the final payment date the general reserve will also
be available to cover losses on the notes of the transaction.
However, Moody's notes that the transaction features some credit
weaknesses such as (i) an unrated servicer; (ii) a long revolving
period (4 years) and (iii) various complexities in the structure,
for example the possibility to issue short-term notes during the
replenishment period. Various mitigants to operational risk are
in place in the transaction, such as: (i) a dedicated servicer
account isolating the money from the servicer bankruptcy estate (French
"Compte a Affectation Speciale"); (ii) daily sweep of collections
from the servicer account to the Issuer collection account; (iii)
a separate cash manager; and (iv) an amortising liquidity reserve
in place to potentially cover around 6 months of senior costs and interest
coupons on the rated Notes. Performance triggers are also in place
to stop the revolving period, if the deal's performance deteriorates.
Certain conditions need to be satisfied in order to issue new series of
notes, among them: (i) Class B Notes need to provide a minimum
credit enhancement based on the pool composition; and (ii) the weighted
average interest rate on Class A Notes cannot exceed 1.75%.
Moody's determined the portfolio lifetime expected defaults of 2.75%
for receivables financed to purchase new cars and 4.5% for
used cars, expected recoveries of 45% and Aaa portfolio credit
enhancement ("PCE") of 9% and 13.5% for receivables
originated to finance new cars and used cars respectively. The
expected defaults and recoveries capture our expectations of performance
considering the current economic outlook, while the PCE captures
the loss we expect the portfolio to suffer in the event of a severe recession
scenario. Expected defaults and PCE are parameters used by Moody's
to calibrate its lognormal portfolio loss distribution curve and to associate
a probability with each potential future loss scenario in the cash flow
model to rate Auto ABS.
The coronavirus outbreak, the government measures put in place to
contain it, and the weak global economic outlook continue to disrupt
economies and credit markets across sectors and regions. Our analysis
has considered the effect on the performance of consumer assets from the
current weak French economic activity and a gradual recovery for the coming
months. Although an economic recovery is underway, it is
tenuous, and its continuation will be closely tied to containment
of the virus. As a result, the degree of uncertainty around
our forecasts is unusually high.
We regard the coronavirus outbreak as a social risk under our ESG framework,
given the substantial implications for public health and safety.
Portfolio expected defaults of 2.75% for new cars and 4.5%
for used cars are in line with the EMEA Auto ABS average and are based
on Moody's assessment of the lifetime expectation for the pool taking
into account: (i) historic performance of the book of the originator;
(ii) benchmark transactions; and (iii) other qualitative considerations,
like the 4 years revolving period and related revolving criteria.
Portfolio expected recoveries of 45% are in line with the EMEA
Auto ABS average and are based on Moody's assessment of the lifetime expectation
for the pool taking into account: (i) historic performance of the
originator's book; (ii) benchmark transactions; and (iii)
other qualitative considerations.
PCE of 9% for new cars and 13.5% for used cars are
in line with the EMEA Auto ABS average and are based on Moody's assessment
of the pool which is mainly driven by: (i) evaluation of the underlying
portfolio, complemented by the historical performance information
as provided by the originator; (ii) the relative ranking to originator
peers in the EMEA market; and (iii) other qualitative considerations.
The PCE level at closing results in an implied coefficient of variation
("CoV") of 49.92%.
AUTO SECTOR TRANSFORMATION:
Technological obsolescence, shifts in demand patterns and changes
in government policy will result in some segments of the portfolio experiencing
greater volatility in certain asset performance metrics compared to that
seen historically. Combustion engines are declining in popularity
and will face carbon, air pollution and emission regulations.
Rising popularity of Alternative Fuel Vehicles (AFVs) introduces uncertainty
in the future price trends of both legacy engine types and AFVs themselves
due to evolutions in technology, battery costs and government incentives.
The securitised portfolio is at low risk due to the exposure to 43.7%
diesel engines.
The principal methodology used in these ratings was "'Moody's Global Approach
to Rating Auto Loan- and Lease-Backed ABS" published in
July 2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBS_1236186.
Alternatively, please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
Factors that would lead to a downgrade of the ratings:
Factors that would lead to a downgrade of the ratings include: (i)
increased counterparty risk leading to potential operational risk of servicing
or cash management interruptions; and (ii) economic conditions being
worse than forecast resulting in higher arrears and losses.
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 at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
The analysis relies on an assessment of collateral characteristics to
determine the collateral loss distribution, that is, the function
that correlates to an assumption about the likelihood of occurrence to
each level of possible losses in the collateral. As a second step,
Moody's evaluates each possible collateral loss scenario using a
model that replicates the relevant structural features to derive payments
and therefore the ultimate potential losses for each rated instrument.
The loss a rated instrument incurs in each collateral loss scenario,
weighted by assumptions about the likelihood of events in that scenario
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 ratings
tab on the issuer/entity page for the respective issuer on www.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 www.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://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.
At least one ESG consideration was material to the credit rating action(s)
announced and described above.
Please see www.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 ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Francesca Pilu
Vice President - Senior Analyst
Structured Finance Group
Moody's Italia S.r.l
Corso di Porta Romana 68
Milan 20122
Italy
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
Armin Krapf
VP - Senior Credit Officer
Structured Finance Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
Releasing Office:
Moody's Italia S.r.l
Corso di Porta Romana 68
Milan 20122
Italy
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
