DBRS Morningstar Finalises Provisional Rating of AAA (sf) on Purple Master Credit Cards Class A2023-1 Notes

DBRS Ratings GmbH (DBRS Morningstar) finalised its provisional rating of AAA (sf) on the Class A2023-1 Notes (the notes) issued by Purple Master Credit Cards (the Issuer).

DBRS Morningstar did not rate the Class C2023-1 notes also issued in this transaction.

The rating of the Class A2023-1 Notes addresses the timely payment of scheduled interest and the ultimate repayment of principal by the legal final maturity date.

DBRS Morningstar also discontinued its rating of the Class A2020-1 Notes issued by the Issuer due to the full repayment. Prior to the repayment, the rating of the Class A2020-1 Notes was AAA (sf) with an outstanding principal balance of EUR 550,000,000.

The transaction is a securitisation of fixed rate, unsecured receivables generated from revolving credit agreements granted to individuals domiciled in France and serviced by BCPE Financement (the originator).

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.
-- The 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 on the Republic of France at AA (high) with a Stable 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 scheduled 24-month revolving period. The revolving period may end earlier than scheduled if certain events occur, such as the breach of performance triggers.

The transaction also includes an amortising liquidity reserve available to the Issuer to cover the shortfalls in senior expenses, swap payments and interests on the Class A2023-1 Notes.

The interest rate risk for the transaction is considered mitigated by an interest rate swap.

COUNTERPARTIES
Natixis S.A. (Natixis) is the account bank, specially dedicated account bank, and swap counterparty for the transaction. DBRS Morningstar has a private rating on Natixis, which meets the criteria to act in these capacities at closing. The downgrade provisions in the documentation are largely consistent with DBRS Morningstar’s criteria and the transaction will be monitored based on DBRS Morningstar’s rating of Natixis or its replacement.

PORTFOLIO ASSUMPTIONS
The monthly principal payment rates (MPPRs) of the portfolio have been largely stable above 5% over the reported period until April 2020, with a record low level of 4.3% due to the initial Coronavirus Disease (COVID-19) impact. The most recent performance in October 2022 shows an improved MPPR of 5.8%. DBRS Morningstar notes the MPPRs appear to have stabilised and remain close to the historical levels. Based on the historical trends and recent performance, DBRS Morningstar elected to maintain the expected MPPR at 4.5%.

Similarly, the portfolio yield excluding recoveries is largely stable over the reported period, with marginal declines over the past few years, reaching a low of 10.4% in March 2022. The most recent performance in October 2022 shows an interest yield of 11.1%, an improved but subdued level due to higher tranches of outstanding balances incurring lower yields based on the applicable usury rates. In spite of the observed downward trend, DBRS Morningstar, nonetheless, maintained the expected yield at 11.5%, recognising the usury rate increases to materialise in the medium term in response to European Central Bank rate hikes.

The reported historical charge-off rates have been declining since 2013 with an annualised charge-off rate of 2.1% in October 2022. In spite of the historically declining trends, DBRS Morningstar maintained the expected charge-off rate at 4.5% after considering the macroeconomic environment which includes current inflationary pressure, higher interest rates, and potential performance volatility.

The cumulative recovery rates are stable over the reported period, largely attributable to the prescriptive legislative process and long recovery period without statute of limitations. After considering the historical recovery performance, benchmarking against comparable portfolios and that France has a relatively favourable recovery experience, DBRS Morningstar elected to increase the expected recovery rate to 37.5% from 30.0%.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factors that had a significant or relevant effect on the credit analysis.

A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the “DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings” at https://www.dbrsmorningstar.com/research/396929/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings.

DBRS Morningstar analysed the transaction in Intex DealMaker.

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” (19 October 2022), https://www.dbrsmorningstar.com/research/404212/rating-european-consumer-and-commercial-asset-backed-securitisations.

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.

Other methodologies referenced in this transaction are listed at the end of this press release. These may be found at: https://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/401817/global-methodology-for-rating-sovereign-governments.

The DBRS Morningstar Sovereign group releases baseline macroeconomic scenarios for rated sovereigns. DBRS Morningstar analysis considered impacts consistent with the baseline scenarios as set forth in the following report: https://www.dbrsmorningstar.com/research/384482/baseline-macroeconomic-scenarios-application-to-credit-ratings

The sources of data and information used for this rating include performance and portfolio data relating to the receivables provided by the originator directly or through the arrangers, BPCE S.A. and Natixis.

DBRS Morningstar received the following information:
-- Monthly historical dynamic data from January 2006 to October 2022 for the entire managed book and by product types in respect of receivables balances, monthly payment rates, gross charge-offs, yield, delinquencies, recoveries, and purchase rates. Additional data was also provided with regard to utilisation rate, credit limits, dilutions, and interest rates.
-- Balance of eligible receivables split by Special Drawings as of October 2022.
-- Static vintage recovery data by monthly cohort from December 2016 to November 2022.

Stratification tables in relation to the portfolio as of December 2022 were also received.

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

DBRS Morningstar was supplied with third-party assessments. At the time of the initial Class A2020-1 Notes rating, DBRS Morningstar was also 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.

This is the first rating action since the Initial Rating Date.

The last rating action on the Class A2020-1 Notes took place on 3 October 2022, when DBRS Morningstar confirmed its rating on these notes.

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 Yield Rate: 11.5%
-- Expected MPPR: 4.5%
-- Expected Charge-Off Rate: 4.5%

Scenario 1: A 25% decrease in the expected yield rate
Scenario 2: A 25% decrease in the expected MPPR
Scenario 3: A 25% increase in the expected charge-off rate
Scenario 4: A 15% decrease in the expected yield rate, 15% decrease in the expected MPPR and 15% increase in the expected charge-off rate.
DBRS Morningstar concludes that the expected ratings of the Class A2023-1 Notes under the four stress scenarios are AA (high) (sf), AAA (sf), AA (high) (sf), and AA (sf).

For further information on DBRS Morningstar historical default rates published by the European Securities and Markets Authority (ESMA) in a central repository, see: https://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml. DBRS Morningstar understands further information on DBRS Morningstar historical default rates may be published by the Financial Conduct Authority (FCA) on its webpage: https://www.fca.org.uk/firms/credit-rating-agencies.

This rating is endorsed by DBRS Ratings Limited for use in the United Kingdom.

Lead Analyst: Kevin Chiang, Senior Vice President
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Dates:
Class A2023-1: 6 February 2023
Class A2020-1: 1 October 2020

DBRS Ratings GmbH
Neue Mainzer Straße 75
60311 Frankfurt am Main Deutschland
Tel. +49 (69) 8088 3500

Geschäftsführer: Detlef Scholz
Amtsgericht Frankfurt am Main, HRB 110259

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

-- Rating European Consumer and Commercial Asset Backed Securitisations (19 October 2022), https://www.dbrsmorningstar.com/research/404212/rating-european-consumer-and-commercial-asset-backed-securitisations.
-- Rating European Structured Finance Transactions Methodology (15 July 2022), https://www.dbrsmorningstar.com/research/399899/rating-european-structured-finance-transactions-methodology.
-- Legal Criteria for European Structured Finance Transactions (22 July 2022), https://www.dbrsmorningstar.com/research/400166/legal-criteria-for-european-structured-finance-transactions.
-- Operational Risk Assessment for European Structured Finance Originators (15 September 2022), https://www.dbrsmorningstar.com/research/402773/operational-risk-assessment-for-european-structured-finance-originators.
-- Operational Risk Assessment for European Structured Finance Servicers (15 September 2022), https://www.dbrsmorningstar.com/research/402774/operational-risk-assessment-for-european-structured-finance-servicers.
-- Interest Rate Stresses for European Structured Finance Transactions (22 September 2022), https://www.dbrsmorningstar.com/research/402943/interest-rate-stresses-for-european-structured-finance-transactions.
-- Derivative Criteria for European Structured Finance Transactions (20 September 2021), https://www.dbrsmorningstar.com/research/384624/derivative-criteria-for-european-structured-finance-transactions.
-- DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (17 May 2022),
https://www.dbrsmorningstar.com/research/396929/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings.

A description of how DBRS Morningstar analyses structured finance transactions and how the methodologies are collectively applied can be found at: https://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].