OREANDA-NEWS.Fitch Ratings has affirmed Cars Alliance Warehouse Italy S.r.l.'s notes as follows:

EUR432.8m Class A notes affirmed at 'AA+sf', Stable Outlook

The transaction is a securitisation of auto loans receivables originated and serviced by the Italian branch of RCI Banque SA, a 100% subsidiary of Renault SA (BBB-/Stable). The transaction featured a two-year revolving period that expired in June 2014.

As of end-December 2014, the portfolio comprised loans extended to Italian individuals for the purchase of new cars (89.3%) and used cars (4.2%), and to small businesses for the purchases of new cars (6.5%).

KEY RATING DRIVERS

Rapid Amortisation Following Revolving Period
After the end of the revolving period in June 2014, credit enhancement (CE) of the senior notes has been building up at a steady pace. This is due to rapid amortisation of the pool and the amortisation of the cash reserve, the released amount of which has speeded up the repayment of the class A notes. Current CE is 24.5% (vs. 18.5% at closing in 2012). Fitch expects the senior notes to be fully repaid within the next 24 months given the current rate of principal repayments.

Credit Quality Unchanged Despite Replenishments
During the revolving period the collateral had not shown substantial changes in terms of features, composition and overall quality. Exposures towards less creditworthy borrowers (small businesses) or higher-risk products (balloon loans) have remained below the limits envisaged by the transaction documentation. For example, balloon loans are now about 6% of the pool - the same as they were at closing - and below the maximum 7% they could have reached during the revolving period.

Recent Weakening Performance within Expectations
New defaults have picked up modestly in recent months with an average annualised default rate (ADR) of about 1% in 4Q14, compared with 0.8%-0.9% in previous quarters. Arrears volumes have been on the rise, with total arrears at 3.8% of the outstanding pool and 30+ days' arrears peaking at 1.6% in December 2014. This recent slight deterioration is, however, mitigated by the build-up in CE and by healthy levels of gross excess spread, which is stable at 4%.

Overall performance since deal inception is better than Fitch's initial expectations. At end-2014, gross cumulative defaults, as determined by Fitch, amounted to about EUR11m, or 0.8% of the initial portfolio balance plus subsequent purchases vs. our initial expectation of 1.6% for the same point in seasoning. Fitch's default assumption for the remaining pool is still 2.7%, in line with the default assumption set at closing for the initial pool.

As the current cumulative default rate of 0.8% is lower than what initially expected, the lifetime default assumption has therefore been revised to 2.1% from 2.7%, also by virtue of a better-than-expected portfolio composition at the end of the revolving period. As the lifetime recovery rate assumption is unchanged at 26%, Fitch's revised lifetime loss assumption is 1.6%, down from 2% previously.

Operational Risks Mitigated
The servicer is unrated and there is no back-up servicer in place. However, payment interruption risk is mitigated by the presence of a cash reserve amounting to 2% of the total notes, currently worth EUR12m. According to Fitch's calculations, the cash reserve would be available to cover for at least seven months of senior expenses and class A notes' interest. Fitch also found that commingling exposure to the servicer's collection account banks is adequately mitigated by the available CE.

RATING SENSITIVITIES

The rating is resilient to stressful assumptions on future defaults and recoveries. For example, if Fitch's lifetime base case default rate is increased by 25% and Fitch's lifetime base case recovery rate is decreased by 25%, the class A notes would not suffer any downgrade.

The class A notes' rating is capped by the highest achievable rating for structured finance transactions in Italy. A rating action, including an Outlook revision, of the Italian sovereign may result in a rating action on the transaction.