Press Release

DBRS Morningstar Confirms Credit Rating on BPCE Demeter Tria FCT Following Amendment

Consumer Loans & Credit Cards

October 24, 2023

DBRS Ratings GmbH (DBRS Morningstar) confirmed its AAA (sf) credit rating on the Class A Notes issued by BPCE Demeter Tria FCT (the Issuer).

The credit rating addresses the timely payment of interest and the ultimate repayment of principal by the legal final maturity date September 2041.

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

-- Portfolio performances, in terms of delinquencies, defaults, and losses as of the September 2023 payment date;
-- Probability of default (PD), loss given default (LGD), and expected loss assumptions on the revolving pool of receivables;
-- No early amortisation events have occurred so far;
-- Current available credit enhancement to the Class A Notes to cover the expected losses at the AAA (sf) credit rating level; and
-- The amendment of the transaction as described below.

The transaction represents the issuance of Class A and Class B Notes ultimately backed by a pool of fixed-rate, unsecured, and amortising consumer loans granted to individuals domiciled in France by the participating affiliate banks of BPCE Group. The transaction had an initial 24-month revolving period, which was scheduled to end on the July 2023 payment date. However, an additional three-month extension was added, and the revolving period was prolonged until 31 October 2023. During the revolving period, the Issuer purchases new receivables that the originator may offer, provided that certain conditions set out in the transaction documents are satisfied.

The following amendments to the transaction took effect on 23 October 2023:
-- Extension of the revolving period by 24 months until October 2025;
-- Replacement of the cap agreement by a swap agreement covering 50% of the Class A Notes outstanding balance: the Issuer will pay a fixed rate of 4.54% and receive the one-month Euribor rate + 0.93%; and
-- Increase of the liquidity reserve to 1.265% of the Class A Notes’ outstanding balance.

PORTFOLIO PERFORMANCE
As of the September 2023 payment date, no loans were in arrears or defaults, in line with the eligibility criteria during the revolving period.

PORTFOLIO ASSUMPTIONS AND KEY DRIVERS
In the context of the aforementioned amendment, DBRS Morningstar received updated historical default and recovery information from BPCE S.A. DBRS Morningstar conducted an analysis of the revolving pool of receivables and updated its lifetime gross default assumptions to 3.3% and kept unchanged its base case recovery assumptions of 39.5%.

CREDIT ENHANCEMENT
Credit enhancement to the Class A Notes is provided by the subordination of the unrated Class B Notes. As of the September 2023 payment date, because of the revolving period, the credit enhancement to the Class A Notes remained at 24.5%.

The transaction benefits from liquidity reserve fund, which equal to 1.27% of the Class A Notes’ balance following the amendment, subject to a floor of EUR 500,000. As of the September 2023 payment date, the reserve fund was at its initial level of EUR 7,875,000. As of the October 2023 payment date, the liquidity reserve fund will increase to EUR 9,487,000 in line with the aforementioned amendment.

A commingling reserve facility is expected to be available to the Issuer if BPCE S.A. is downgraded below BBB. The required amount is equal to two months of expected principal, interest, and prepayment collections.

BPCE S.A. acts as the Issuer’s account bank in this transaction. Based on DBRS Morningstar’s private credit rating on BPCE S.A., 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 credit rating assigned to the Class A Notes, as described in DBRS Morningstar's "Legal Criteria for European Structured Finance Transactions" methodology.

Natixis SA (Natixis) acts as the swap counterparty. DBRS Morningstar's private credit rating on Natixis is consistent with the first rating threshold as described in DBRS Morningstar's "Derivative Criteria for European Structured Finance Transactions" methodology.

DBRS Morningstar’s credit rating on the Class A Notes addresses the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents.

DBRS Morningstar’s credit rating does not address non-payment risk associated with contractual payment obligations contemplated in the applicable transaction documents that are not financial obligations.

DBRS Morningstar’s long-term credit ratings provide opinions on risk of default. DBRS Morningstar considers risk of default to be the risk that the Issuer will fail to satisfy the financial obligations in accordance with the terms under which a long-term obligation has been issued.

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/416784/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-credit ratings.

DBRS Morningstar analysed the transaction structure in Intex DealMaker.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the credit rating is the “Master European Structured Finance Surveillance Methodology” (6 October 2023), https://www.dbrsmorningstar.com/research/421598/master-european-structured-finance-surveillance-methodology.

Other methodologies referenced in this transaction are listed at the end of this press release.

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 continues to consider potential portfolio migration based on 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 credit rating action.

For a more detailed discussion of the sovereign risk impact on Structured Finance credit 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” at: https://www.dbrsmorningstar.com/research/421590/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 credit rating include investor reports provided by EuroTitrisation, the management company, loan-level data provided by the European DataWarehouse GmbH, and the following historical information received from BPCE S.A.:

-- Monthly static default vintage analysis from January 2011 to August 2023; and
-- Monthly recovery data vintage analysis from January 2011 to August 2023.

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

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

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

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

The last credit rating action took place on 21 July 2023, when DBRS Morningstar confirmed its AAA (sf) credit rating on the Class A Notes.

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

Sensitivity Analysis: To assess the impact of changing the transaction parameters on the credit rating, DBRS Morningstar considered the following stress scenarios as compared with the parameters used to determine the credit 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 revolving pool of loans are 3.3% and 60.5%, respectively.
-- The risk sensitivity overview below illustrates the credit rating 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 credit rating of the Class A Notes would be expected to fall to AA (sf), assuming no change in the PD. If the PD increases by 50%, the credit rating of the Class A Notes would be expected to fall to AA (sf), assuming no change in the LGD. Furthermore, if both the PD and LGD increase by 50%, the credit rating of the Class A Notes would be expected to fall to A (sf).

Class A Notes Risk Sensitivity:
-- 25% increase in LGD, expected credit rating of AA (high) (sf)
-- 50% increase in LGD, expected credit rating of AA (sf)
-- 25% increase in PD, expected credit rating of AA (high) (sf)
-- 50% increase in PD, expected credit rating of AA (sf)
-- 25% increase in PD and 25% increase in LGD, expected credit rating of AA (sf)
-- 25% increase in PD and 50% increase in LGD, expected credit rating of AA (low) (sf)
-- 50% increase in PD and 25% increase in LGD, expected credit rating of A (high) (sf)
-- 50% increase in PD and 50% increase in LGD, expected credit rating of A (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://registers.esma.europa.eu/cerep-publication. For further information on DBRS Morningstar historical default rates published by the Financial Conduct Authority (FCA) in a central repository, see https://data.fca.org.uk/#/ceres/craStats.

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

Lead Analyst: Shalva Beshia, Assistant Vice President
Credit Rating Committee Chair: Alfonso Candelas, Senior Vice President
Initial Credit Rating Date: 28 July 2021

DBRS Ratings GmbH
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60311 Frankfurt am Main Deutschland
Tel. +49 (69) 8088 3500
Geschäftsführer: Detlef Scholz
Amtsgericht Frankfurt am Main, HRB 110259

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

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].

ALL MORNINGSTAR DBRS RATINGS ARE SUBJECT TO DISCLAIMERS AND CERTAIN LIMITATIONS. PLEASE READ THESE DISCLAIMERS AND LIMITATIONS AND ADDITIONAL INFORMATION REGARDING MORNINGSTAR DBRS RATINGS, INCLUDING DEFINITIONS, POLICIES, RATING SCALES AND METHODOLOGIES.

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