DBRS Morningstar Assigns AAA (sf) Rating to Noria 2020 Class A Notes

DBRS Ratings Limited (DBRS Morningstar) assigned a rating of AAA (sf) to the Class A Notes issued by Noria 2020 (the Issuer).

Class B Notes are also issued in this transaction but are not rated by DBRS Morningstar.

The rating of the Class A Notes addresses timely payment of scheduled interest and ultimate repayment of principal by the legal final maturity date of 25 September 2040.

DBRS Morningstar based its rating on information provided by the Issuer and its agents as of the date of this press release.

The notes are backed by a portfolio of fixed-rate, unsecured, amortising personal loans, debt consolidation loans and sales finance loans granted to individuals domiciled in France and serviced by BNP Paribas Personal Finance (the originator).

DBRS Morningstar has rated several consumer loans ABS transactions in Europe where BNP Paribas Personal Finance is also the originator. Recent examples include Noria 2018-1 and Noria 2015.

The rating is based on a review of the following analytical considerations:
-- The transaction’s capital structure, including form and sufficiency of available credit enhancement.
-- Credit enhancement level is sufficient to support the projected expected net losses under various stress scenarios.
-- The ability of the transaction to withstand stressed cash flow assumptions and repay investors according to the terms of the notes.
-- The originator and servicer’s financial strength and capabilities with respect to originations, underwriting, and servicing.
-- The operational risk review of the originator, which DBRS Morningstar deems to be an acceptable servicer.
-- The transaction parties’ financial strength regarding their respective roles.
-- The credit quality, diversification of the collateral, and historical and projected performance of the originator’s portfolio.
-- DBRS Morningstar’s sovereign rating of the Republic of France at AAA with a negative trend.
-- The consistency of the transaction’s legal structure with DBRS Morningstar’s “Legal Criteria for European Structured Finance Transactions” methodology.

TRANSACTION STRUCTURE
The transaction includes a 24-month revolving period. During this period, the Issuer may purchase additional receivables, provided that the eligibility criteria and concentration limits set out in the transaction documents are satisfied. The revolving period may end earlier than scheduled if certain events occur, such as the breach of performance triggers.

Following the scheduled revolving period, the transaction enters into the normal redemption period with sequential amortisation, unless a pro rata event occurs.

The transaction includes a liquidity reserve available to the Issuer during the revolving period and the normal redemption period in restricted scenarios where the interest and principal collections are not sufficient to cover the shortfalls in senior expenses and interests on the Class A Notes. During the accelerated redemption period, the amount in the liquidity reserve is not available to the Issuer and is instead returned directly to the liquidity provider.

COUNTERPARTIES
BNP Paribas Securities Services is the account bank and BNP Paribas is the specially dedicated account bank for the transaction. Based on DBRS Morningstar’s ratings of BNP Paribas Securities Services and BNP Paribas, and downgrade provisions outlined in the transaction documents, DBRS Morningstar considers the risk arising from the exposure to the account bank and specially dedicated account bank to be commensurate with the rating assigned.

BNP Paribas Personal Finance is the cash swap counterparty for the transaction. DBRS Morningstar notes for the rating assigned to the notes the downgrade provisions in the transaction documents are not consistent with Morningstar’s Derivative Criteria for European Structure Finance Transactions, which has been considered in the cash flow analysis.

DBRS Morningstar analysed the transaction cash flow structure in Intex DealMaker.

The Coronavirus Disease (COVID-19) and the resulting isolation measures have caused an economic contraction, leading to sharp increases in unemployment rates and income reductions for many borrowers. DBRS Morningstar anticipates that delinquencies may arise in the coming months for many ABS transactions, some meaningfully. The rating is based on additional analysis and adjustments to expected performance as a result of the global efforts to contain the spread of the coronavirus. For this transaction DBRS Morningstar assumed a moderate decline in the expected recovery rate.

On 16 April 2020, the DBRS Morningstar Sovereign group released a set of macroeconomic scenarios for the 2020-22 period in select economies. These scenarios were last updated on 10 September 2020. For details, see the following commentaries: https://www.dbrsmorningstar.com/research/366542/global-macroeconomic-scenarios-september-update, and https://www.dbrsmorningstar.com/research/359903/global-macroeconomic-scenarios-application-to-credit-ratings. DBRS Morningstar analysis considered impacts consistent with the moderate scenario in the referenced reports.
For more information on DBRS Morningstar considerations for European ABS transactions and Coronavirus Disease (COVID-19), please see the following commentary: https://www.dbrsmorningstar.com/research/360734/
For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.

For more information regarding structured finance rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/358308.

ESG CONSIDERATIONS
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework and its methodologies can be found at: https://www.dbrsmorningstar.com/research/357792.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the rating is: “Rating European Consumer and Commercial Asset-Backed Securitisations” (3 September 2020).

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 cash flow analysis were both conducted. Due to the inclusion of a revolving period in the transaction, the analysis is based on the worst-case replenishment criteria set forth in the transaction legal documents.

Other methodologies referenced in this transaction are listed at the end of this press release. These may be found at: http://www.dbrsmorningstar.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 Morningstar Credit Ratings” of the “Global Methodology for Rating Sovereign Governments” methodology at: https://www.dbrsmorningstar.com/research/364527global-methodology-for-rating-sovereign-governments.

The data and information used for the rating include performance and portfolio data relating to the receivables provided by the originator directly or through the arranger, BNP PARIBAS as follows:

-- Quarterly default vintage analysis from Q3 2010 to Q2 2020;
-- Quarterly recovery vintage analysis from Q3 2010 to Q2 2020;
-- Dynamic monthly prepayment analysis from July 2010 to June 2020; and
-- Dynamic monthly delinquency data from January 2014 to June 2020

DBRS Morningstar also received stratification tables in relation to the loan pool as of 9 September 2020 and its related contractual amortisation profile.

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

DBRS Morningstar was 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 purposes 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.

This rating concerns a newly issued financial instrument. This is the first DBRS Morningstar rating on this financial instrument.

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

To assess the impact of changing the transaction parameters on the rating, DBRS Morningstar considered the following stress scenarios, as compared to the parameters used to determine the rating:

-- Expected Default Rate of 6.54%, a 25% and 50% increase.
-- Expected Loss Given Default (LGD) of 60%, a 25% and 50% increase.

Scenario 1: A 25% increase in the expected default rate.
Scenario 2: A 50% increase in the expected default rate.
Scenario 3: A 25% increase in the LGD.
Scenario 4: A 25% increase in the expected default rate and a 25% increase in the LGD.
Scenario 5: A 50% increase in the expected default rate and a 25% increase in the LGD.
Scenario 6: A 50% increase in the LGD.
Scenario 7: A 25% increase in the expected default rate and a 50% increase in the LGD.
Scenario 8: A 50% increase in the expected default rate and a 50% increase in the LGD.

DBRS Morningstar concludes that the expected ratings under the eight stress scenarios are:
-- Class A Notes: AA (sf), A (high) (sf), AA (sf), A (high) (sf), A (low) (sf), AA (low) (sf), A (sf), BBB (high) (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: Jeffrey Cespon, Senior Analyst
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: 18 September 2020

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

-- Rating European Consumer and Commercial Asset Backed Securitisations (3 September 2020),
https://www.dbrsmorningstar.com/research/355533/rating-european-consumer-and-commercial-asset-backed-securitisations
-- Rating European Structured Finance Transactions Methodology (28 February 2020),
https://www.dbrsmorningstar.com/research/357428/rating-european-structured-finance-transactions-methodology
-- Legal Criteria for European Structured Finance Transactions (11 September 2019),
https://www.dbrsmorningstar.com/research/350234/legal-criteria-for-european-structured-finance-transactions
-- Derivative Criteria for European Structured Finance Transactions (26 September 2019),
https://www.dbrsmorningstar.com/research/350907/derivative-criteria-for-european-structured-finance-transactions
-- Operational Risk Assessment for European Structured Finance Originators (28 February 2020),
https://www.dbrsmorningstar.com/research/357430/operational-risk-assessment-for-european-structured-finance-originators
-- Operational Risk Assessment for European Structured Finance Servicers (28 February 2020),
https://www.dbrsmorningstar.com/research/357429/operational-risk-assessment-for-european-structured-finance-servicers

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

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