EUR 700 Million of Debt Securities rated
London, 28 November 2012 -- Moody's Investors Service has today assigned definitive rating to ABS notes issued by Cars Alliance Auto Loans France V 2012-1:
EUR 700M Class A Notes, Assigned Aaa (sf)
EUR 109.2M Class B Notes were not rated by Moody's.
The rating addresses the expected loss posed to investors by the legal final maturity of the Notes. In Moody's opinion, the structure allows for timely payment of interest and ultimate payment of principal with respect to the Notes by legal final maturity. Moody's ratings address only the credit risks associated with the transaction. Other non-credit risks have not been addressed but may have a significant effect on yield to investors.
Cars Alliance Auto Loans France V 2012-1 is a revolving cash securitisation of a portfolio of auto loan receivables originated by RCI Banque through its French subsidiary Diac. The pool results from amortising loans as well as balloon loans granted to Diac retail clients in order to finance the purchase of new and used vehicles branded mainly Renault, Nissan and Dacia. Investors should note that this transaction is a separate stand-alone securitisation and it is not part of the Cars Alliance Auto Loans France Master Programme which issued Notes on 25 May 2012 nor the Cars Alliance Auto Loans France F 2012-1 static transaction which issued Notes on 27 June 2012.
According to Moody's, the transaction benefits from a highly granular portfolio on which over eight years of historical data was provided. Further strengths of the transaction include an experienced originator, positive performance of past similar French transactions, and a discount rate mechanism envisioned to create a minimum fixed interest rate of at least 7% on each loan in the portfolio.
Moody's notes that the transaction features some credit weaknesses such as significant proportion of contracts which include a balloon payment (approx. 20%) and approx. 35% of the portfolio consisting of used car loans. The portfolio also revolves for 12 months. Triggers and eligibility criteria provide certain structural protections against these risks and Moody's has factored these aspects in its quantitative analysis. In addition, certain commingling risk exposure may exist following the servicer insolvency. However, this is mitigated by the daily sweep of funds from the servicer collection account (French compte à affectation spéciale) to the issuer account and a dedicated reserve to be funded upon Diac rating downgrade below P-2.
The V-Score analysis for the transaction is Low/Medium. One aspect of note is the assessment absence of back-up servicing arrangement poses some increased uncertainty as the structure relies strongly on Diac as servicer for the portfolio. As of the closing date, there is no back-up servicer in place and no trigger is incorporated to identify a back-up servicer prior to a potential servicer termination event such as actual servicer insolvency. Nevertheless, in Moody's opinion, the likelihood of severe disruptions in the servicing process is reduced as (1) Diac ( (P)Baa2/P-2) is a wholly owned subsidiary of RCI Banque (Baa2/P-2) which is highly integrated in the Renault S.A. (Ba1 / NP) group and considered to be strategically important for the Renault group to support the sale of vehicles across Europe even in times of deteriorating credit standing of the manufacturer itself, (2) the likelihood that a default on any of Renault group's financial obligations would result in the immediate liquidation of the Renault group (including Diac operations) is low; and (3) the structure envisions the management company, Eurotitrisation, to take over the role as back-up servicer facilitator, i.e. finding a potential back-up servicer, if needed. Nonetheless, in case of significant deteriorations of Renault group's and / or RCI Banque's credit standing or strategic importance, some rating volatility could occur. For more information, the V-Score has been assigned accordingly to the report "V Scores and Parameter Sensitivities in the Non-U.S. Vehicle ABS Sector", published in January 2009.
The principal methodology used in this rating was Moody's Approach to Rating European Auto ABS published in November 2002. Please see the Credit Policy page on http://www.moodys.com for a copy of this methodology.
Other factors used in this rating are described in The Lognormal Method Applied to ABS Analysis published in July 2000.
In rating this transaction, Moody's used ABSROM to model the cash flows and determine the loss for each tranche. The cash flow model evaluates all default scenarios that are then weighted considering the probabilities of the lognormal distribution assumed for the portfolio default rate. In each default scenario, the corresponding loss for each class of notes is calculated given the incoming cash flows from the assets and the outgoing payments to third parties and noteholders. Therefore, the expected loss or EL for each tranche is the sum product of (i) the probability of occurrence of each default scenario; and (ii) the loss derived from the cash flow model in each default scenario for each tranche." As such, Moody's analysis encompasses the assessment of stressed scenarios.
In its quantitative assessment, Moody's assumed a mean default rate of 4.60%, with a coefficient of variation of 45% and a recovery rate of 40%. Moody's also tested other set of assumptions under its Parameter Sensitivities analysis. The results show that the model output would be one notch lower if the mean default rate assumption was to increase to 5.60%, all other parameters being kept unchanged. Similarly, the model output would be one notch lower if the recovery rate assumption was to decrease to 30%. For more details, please refer to the full Parameter Sensitivity analysis included in Moody's Report of this transaction.
Provisional ratings have been assigned on 15 October 2012. Please note that the notes issuance amounts has changed from provisional ratings due to the final portfolio securitised but in substance remains consistent from a credit analysis perspective.
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