DBRS Morningstar Confirms Rating of FCT Opera 2014 Class A Notes

DBRS Ratings Limited (DBRS Morningstar) confirmed its rating of the Class A Notes issued by FCT Opera 2014 (the Issuer) at AAA (sf).

The rating addresses the timely payment of interest and the ultimate payment of principal on or before the legal final maturity date on 25 May 2057.

The confirmation follows an annual review of the transaction and is based on the following analytical considerations:

-- Portfolio performance, in terms of delinquencies, defaults, and losses, as of the 24 January 2020 settlement date.
-- Probability of default (PD), loss given default (LGD), and expected loss assumptions on the remaining receivables.
-- Current available credit enhancement to the Class A Notes to cover the expected losses at the AAA (sf) rating level.

FCT Opera 2014, which closed in November 2014, is a securitisation of French home loans and their ancillary rights originated and serviced by BNP Paribas S.A. The transaction was recently restructured in February 2019 whereby the balances of Class A Notes and Class B Notes were increased to EUR 7,406,121,087 and EUR 649,678,913, respectively, and a third revolving period was added (https://www.dbrs.com/research/340266/dbrs-confirms-rating-of-fct-opera-2014-class-a-notes).

The transaction is currently in its third revolving period, which is expected to end on 25 November 2020 (inclusive).

PORTFOLIO PERFORMANCE
As of the January 2020 settlement date, two- to three-month arrears and above three-month arrears represented 0.1% and 0.0% of the outstanding portfolio balance, respectively, both stable compared with last year’s annual review. As of the January 2020 settlement date, the cumulative default ratio represented 0.7% of the initial portfolio balance including all additional purchases since the transaction’s closing date.

PORTFOLIO ASSUMPTIONS
DBRS Morningstar has reduced its base case PD and LGD to 5.2% and 23.9%, respectively, from 5.7% and 24.8%, respectively. The decrease reflects a lower-than-expected prepayment rate and better-than-expected asset composition during the first year of the third revolving period.

CREDIT ENHANCEMENT
As of the January 2020 settlement date, credit enhancement to the Class A Notes was 13.1%, stable since the last transaction restructure in February 2019 given that the transaction is still in its revolving period. The credit enhancement consists of subordination and the reserve fund. The reserve fund provides both credit and liquidity support to the Class A Notes. The transaction also benefits from a commingling reserve fund available to cover the payment disruptions. Both the reserve fund and the commingling reserve fund are held at the account bank.
As of the January 2020 settlement date, both the reserve fund and the commingling reserve fund are at their target levels of EUR 402.8 million and EUR 320.0 million, respectively.

BNP Paribas Securities Services SCA acts as the account bank for the transaction. Based on the DBRS Morningstar private rating of BNP Paribas Securities Services SCA, the downgrade provisions outlined in the transaction documents, and other mitigating factors inherent in the transaction structure, DBRS Morningstar considers the risk arising from the exposure to the account bank to be consistent with the rating assigned to the Class A Notes, as described in DBRS Morningstar's "Legal Criteria for European Structured Finance Transactions" methodology.

BNP Paribas S.A. acts as the swap counterparty for the transaction. DBRS Morningstar's public Long-Term Critical Obligations Rating of BNP Paribas S.A. at AA (high) is above the First Rating Threshold as described in DBRS Morningstar's "Derivative Criteria for European Structured Finance Transactions" methodology.

DBRS Morningstar analysed the transaction structure in Intex DealMaker.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the rating is the “Master European Structured Finance Surveillance Methodology”. DBRS Morningstar has applied the principal methodology consistently and conducted a review of the transaction in accordance with the principal methodology.

An asset and a cashflow analysis were both conducted. Due to the inclusion of a revolving period in the transaction, the analysis continues to be based on the worst-case replenishment criteria set forth in the transaction legal documents.

A review of the transaction legal documents was not conducted as the legal documents have remained unchanged since the most recent rating action.

Other methodologies referenced in this transaction are listed at the end of this press release. These may be found on www.dbrs.com at: https://www.dbrs.com/about/methodologies.

For a more detailed discussion of the sovereign risk impact on Structured Finance ratings, please refer to “Appendix C: The Impact of Sovereign Ratings on Other DBRS Credit Ratings” of the “Global Methodology for Rating Sovereign Governments” at: https://www.dbrs.com/research/350410/global-methodology-for-rating-sovereign-governments.

The sources of data and information used for this rating include investor reports provided by France Titrisation and loan-level data provided by the European DataWarehouse GmbH.

DBRS Morningstar did not rely upon third-party due diligence in order to conduct its analysis.

At the time of the initial rating, DBRS Morningstar was not supplied with third-party assessments. However, this did not impact the rating analysis.

DBRS Morningstar considers the data and information available to it for the purpose of providing this rating to be of satisfactory quality.

DBRS Morningstar does not audit or independently verify the data or information it receives in connection with the rating process.

The last rating action on this transaction took place on 22 February 2019, when DBRS Morningstar confirmed the rating of the Class A Notes at AAA (sf).

The lead analyst responsibilities for this transaction have been transferred to Natalia Coman.

Information regarding DBRS Morningstar ratings, including definitions, policies, and methodologies is available at www.dbrs.com.

To assess the impact of changing the transaction parameters on the rating, DBRS Morningstar considered the following stress scenarios as compared with the parameters used to determine the rating (the “Base Case”):

-- DBRS Morningstar expected a lifetime base case PD and LGD for the pool based on a review of the current assets. Adverse changes to asset performance may cause stresses to base case assumptions and therefore have a negative effect on credit ratings.
-- The base case PD and LGD of the current pool of loans for the Issuer are 5.2% and 23.9%, respectively.
-- The Risk Sensitivity overview below illustrates the ratings expected if the PD and LGD increase by a certain percentage over the base case assumption. For example, if the LGD increases by 50%, the rating of the Class A Notes would be expected to fall to AA (high) (sf), assuming no change in the PD. If the PD increases by 50%, the rating of the Class A Notes would be expected to fall to AA (high) (sf), assuming no change in the LGD. Furthermore, if both the PD and LGD increase by 50%, the rating of the Class A Notes would be expected to fall to AA (low) (sf).

Class A Notes Risk Sensitivity:
-- 25% increase in LGD, expected rating of AAA (sf)
-- 50% increase in LGD, expected rating of AA (high) (sf)
-- 25% increase in PD, expected rating of AAA (sf)
-- 50% increase in PD, expected rating of AA (high) (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of AA (high) (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of AA (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of AA (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of AA (low) (sf)

For further information on DBRS Morningstar historical default rates published by the European Securities and Markets Authority (ESMA) in a central repository, see:
http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml.

Ratings assigned by DBRS Ratings Limited are subject to EU and US regulations only.

Lead Analyst: Natalia Coman, Senior Financial Analyst
Rating Committee Chair: Alfonso Candelas, Senior Vice President
Initial Rating Date: 4 November 2014

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The rating methodologies used in the analysis of this transaction can be found at: http://www.dbrs.com/about/methodologies.

-- Master European Structured Finance Surveillance Methodology
-- Master European Residential Mortgage-Backed Securities Rating Methodology and Jurisdictional Addenda
-- Legal Criteria for European Structured Finance Transactions
-- Interest Rate Stresses for European Structured Finance Transactions
-- Derivative Criteria for European Structured Finance Transactions
-- Operational Risk Assessment for European Structured Finance Servicers
-- Operational Risk Assessment for European Structured Finance Originators

A description of how DBRS Morningstar analyses structured finance transactions and how the methodologies are collectively applied can be found at: http://www.dbrs.com/research/278375.

For more information on this credit or on this industry, visit www.dbrs.com or contact us at [email protected].