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Rating Action:

Moody's places on review for downgrade Notes in two European dealer floorplan ABS

07 Apr 2020

Frankfurt am Main, April 07, 2020 -- Moody's Investors Service, ("Moody's") has today placed on review for downgrade the ratings of Series 2018-1 FCT Notes in FCT Cars Alliance DFP France - Series 2018-1 and Class A Notes in Cars Alliance DFP Germany 2017.

Issuer: FCT Cars Alliance DFP France - Series 2018-1

....EUR1000M Series 2018-1 FCT Notes, Aa2 (sf) Placed on Review for Downgrade; previously on Jul 20, 2018 Assigned Aa2 (sf)

Issuer: Cars Alliance DFP Germany 2017

....EUR675M Class A Notes, Aa2 (sf) Placed on Review for Downgrade; previously on Jul 25, 2017 Assigned Aa2 (sf)

In FCT Cars Alliance DFP France - Series 2018-1 the notes are backed by dealer floorplan receivables extended to auto dealers in France by Diac S.A. (NR), directly owned by RCI Banque (A3(cr) ratings on review for downgrade/P-2(cr)). Diac S.A. also acts as the servicer.

In Cars Alliance DFP Germany 2017 the notes are backed by dealer floorplan receivables extended to auto dealers in Germany by RCI Banque S.A. Niederlassung Deutschland ("RCI Germany"), a branch of RCI Banque (A3(cr) ratings on review for downgrade/P-2(cr)). RCI Germany also acts as the servicer.

RATINGS RATIONALE

The rating action is prompted by the uncertainty relating to the effect of the coronavirus outbreak on the business of car dealerships in France and Germany as well as the recent deterioration of the financial strength of the Automotive manufacturers Renault S.A. (Ba1, ratings on review for downgrade) and Nissan Motor Co., Ltd. (Baa3, ratings on review for downgrade).

Our analysis has considered the increased uncertainty relating to the effect of the coronavirus outbreak on the French and German economies as well as the effects that the announced government measures put in place to contain the virus will have on the performance of corporate assets. We regard the coronavirus outbreak as a social risk under our ESG framework, given the substantial implications for public health and safety. It is a global health shock, which makes it extremely difficult to provide an economic assessment. The degree of uncertainty around our forecasts is unusually high.

In both France and Germany the government measures implemented to contain the spread of the coronavirus have, among other things, caused the car dealerships to close. As a result, it is likely that the payment rates in both transactions will significantly decline in the near future. Depending on the duration of the measures put in place, this could lead to a breach of the payment rate triggers in these transactions with the ultimate consequence that both deals would enter early amortization. Furthermore, extended government measures aimed at containing the coronavirus could have a negative impact on vehicle demand, vehicle prices, reducing the collateral value of the securitized receivables, and on the dealerships' financial strength.

Both transactions benefit from fully funded reserve funds. The reserves in FCT Cars Alliance DFP France - Series 2018-1 and Cars Alliance DFP Germany 2017 are sized at approximately 0.57% and 1.50% of the respective notes' balances. Under the prevailing low interest rate environment the liquidity provided through these reserves can cover senior expenses and rated notes' coupon payments for an extended period of time. Moreover, in Cars Alliance DFP Germany 2017, RCI Germany provides ongoing liquidity by means of a transfer fee, which covers, among other things, Class A notes' coupon payments and provides excess spread of 0.57%. Here, the reserve fund is only needed in case RCI Germany does not pay the transfer fee to the issuer.

In FCT Cars Alliance DFP France - Series 2018-1 the three-month average monthly payment rate has been approximately 51% as of the end of February 2020, which is above the highest credit enhancement step-up trigger of 45% and the early amortization trigger of 25%. The notes currently benefit from 13.0% of hard credit enhancement. Hard credit enhancement for the notes consists of a reserve fund and overcollateralization. The overcollateralization steps up by up to 3.5%, depending on the three-month average monthly payment rate.

In Cars Alliance DFP Germany 2017 the three-month average monthly payment rate has been approximately 39% as of the end of February 2020, which is above the highest credit enhancement step-up trigger of 35% and the early amortization trigger of 25%. The notes currently benefit from 21.9% of hard credit enhancement. Hard credit enhancement for the notes consists of a reserve fund and overcollateralization. The overcollateralization steps up by up to 1.3%, depending on the three-month average monthly payment rate.

Floorplan ABS in which a captive finance company of a manufacturer acts as the sponsor are highly dependent on the underlying manufacturer's credit quality and business strategy. Failure of an automotive manufacturer can negatively impact consumer demand for the vehicles, lead to reduced recovery proceeds upon liquidation and negatively impact the dealerships' financial strength, causing a deterioration in performance of the floorplan receivables. On Mar 25, 2020, we placed Renault S.A. (Ba1) on review for downgrade and on March 26, 2020, we downgraded Nissan Motor Co., Ltd. to Baa3 from Baa1 and placed it on review for further downgrade.

For the securities under review, we will evaluate the financial strength of the automotive manufacturers and the servicers, assess the underlying collateral pool performance and pool composition as well as the transactions' structural features to update the final ratings on the rated notes.

The principal methodology used in these ratings was "Moody's Approach to Rating Floorplan Asset-Backed Securities" published in November 2018 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBS_1131442. Alternatively, please see the Rating Methodologies page on www.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 the securitized portfolio performs better than expected. Losses could decline from Moody's original expectations as a result of a lower number of dealer defaults or appreciation in the value of the assets securing a dealer's promise of payment. Additionally, a strengthening credit profile of manufacturers and/or dealers could decrease expectations for loss. Portfolio losses also depend greatly on French and 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. 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. Additionally, a weakening credit profile of manufacturers and/or dealers could increase loss expectations. Portfolio losses also depend greatly on French and German economic performance. Other reasons for worse-than-expected performance include poor servicing, 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 at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.

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.

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 one of the credit rating outcomes 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.

Michal Kuehnel
Analyst
Structured Finance Group
Moody's Deutschland GmbH
An der Welle 5
Frankfurt am Main 60322
Germany
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 Deutschland GmbH
An der Welle 5
Frankfurt am Main 60322
Germany
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

No Related Data.
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