Morningstar DBRS Confirms Credit Rating on FCT Bpifrance SME 2019-1

DBRS Ratings GmbH (Morningstar DBRS) confirmed its credit rating on the Class A Notes issued by FCT Bpifrance SME 2019-1 (the Issuer) at AAA (sf).

The credit rating on the Class A Notes addresses the timely payment of interest and the ultimate payment of principal on or before the legal final maturity date.

The transaction is a securitisation of mortgage and nonmortgage loans originated by Bpifrance S.A. (Bpifrance, formerly Bpifrance Financement) to small and medium-size enterprises based in France.

The transaction is currently in its revolving period, ending on 25 November 2025. During the revolving period, Bpifrance has the option to sell new loans at par to the Issuer, subject to portfolio eligibility criteria and provided that no early amortisation triggers are breached. The legal final maturity date is on 25 October 2052.

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 31 July 2024;
-- The one-year base case probability of default (PD) and default and recovery rates on a potential portfolio migration based on the replenishment criteria;
-- Current available credit enhancement to the Class A Notes to cover the expected losses at the AAA (sf) rating level; and
-- No revolving termination events.

PORTFOLIO PERFORMANCE
Delinquencies have been low since closing. As of 31 July 2024, two- to three-month arrears and the 90+-day delinquency ratio represented 0.1% and 0.2%, respectively compared to 0.1% for both at the last annual review. The cumulative defaults are low, representing 2.3% of the initial portfolio balance as of the October 2021 amendment. Defaults are based on a definition of 180 days in arrears.

The transaction is subject to a delinquency ratio trigger of 3.5% and a cumulative default ratio trigger of 3.5% (the latter increasing to 4.5% after the October 2024 payment date), both ending the revolving period upon a breach. The delinquency ratio and the cumulative default ratio trigger of 0.5% and 2.3%, respectively, were well within their respective triggers as of 31 July 2024. As of the same date, the defaulted loans amounting to approximately EUR 79.1 million had all been repurchased at par.

PORTFOLIO ASSUMPTIONS AND KEY DRIVERS
Given that the transaction is currently in its revolving period, Morningstar DBRS' analysis is based on a potential portfolio migration based on the replenishment criteria. Morningstar DBRS maintained the one-year base case PD at 0.8%. Morningstar DBRS' lifetime default rate assumption at the AAA (sf) credit rating level decreased to 28.5% from 29.0% at the last annual review, to account for the remaining defaults allowed under the cumulative default ratio limit and the repurchase of all the defaulted loans since closing. Morningstar DBRS's recovery rate assumption at the AAA (sf) credit rating level increased to 23.0% for both, the unsecured and mortgage-backed portions of the stressed portfolio, compared to 18.0% and 20.7%, respectively, at the last annual review. The improvement is driven by the introduction of Morningstar DBRS' "Global Methodology for Rating CLOs and Corporate CDOs" in October 2023, which saw a positive change in the Republic of France's recovery tier assumptions. Please see https://dbrs.morningstar.com/research/422283/dbrs-morningstar-finalizes-its-global-methodology-for-rating-clos-and-corporate-cdos-and-dbrs-morningstar-clo-insight-model for further information.

CREDIT ENHANCEMENT
The credit enhancement to the Class A Notes is provided by the subordination of the junior notes. The credit enhancement has remained stable at 20.0% since the October 2021 amendment as the transaction is still in the revolving period.

The transaction benefits from a cash reserve, which is available to cover senior expenses and interest on the Class A Notes and to redeem the remaining principal on the Class A Notes on the date of their redemption. The reserve is nonamortising and was at its target level of EUR 5.95 million at the latest payment date in July 2024.

BNP Paribas SA acts as the account bank for the transaction. Based on Morningstar DBRS' reference rating of AA on BNP Paribas SA (one notch below its Long Term Critical Obligations Rating of AA (high)), the downgrade provisions outlined in the transaction documents, and other mitigating factors inherent in the transaction structure, Morningstar DBRS 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 Morningstar DBRS' "Legal Criteria for European Structured Finance Transactions" methodology.

Morningstar DBRS' credit ratings on the applicable classes address the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents. Where applicable, a description of these financial obligations can be found in the transactions' respective press releases at issuance.
Morningstar DBRS' long-term credit ratings provide opinions on risk of default. Morningstar DBRS considers risk of default to be the risk that an issuer will fail to satisfy the financial obligations in accordance with the terms under which a long-term obligation has been issued.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factors that had a significant or relevant effect on the credit analysis.
 
A description of how Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings at https://dbrs.morningstar.com/research/437781.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the credit rating is: "Rating CLOs Backed by Loans to European SMEs" (20 June 2024)
https://dbrs.morningstar.com/research/434775/.

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

Morningstar DBRS has applied the principal methodology consistently and conducted a review of the transaction in accordance with the surveillance section of 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 Credit Ratings on Other Morningstar DBRS Credit Ratings" of the "Global Methodology for Rating Sovereign Governments" at: https://dbrs.morningstar.com/research/436000.

The sources of data and information used for this credit rating include loan-level data and management reports provided by Eurotitrisation.

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

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

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

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

The last credit rating action on this transaction took place on 19 October 2023, when Morningstar DBRS upgraded its credit rating on the Class A Notes to AAA (sf) from AA (high) (sf) following an amendment to the transaction.

Information regarding Morningstar DBRS credit ratings, including definitions, policies, and methodologies, is available on https://dbrs.morningstar.com.

Sensitivity Analysis: To assess the impact of changing the transaction parameters on the credit rating, Morningstar DBRS considered the following stress scenarios as compared with the parameters used to determine the credit rating (the base case):

-- PD rates used: Base case PD of 0.8%, a 10% and 20% increase on the base case PD.
-- Recovery rates used: Base case recovery rate of 23.0% for the unsecured portion and for the secured portion at the AAA (sf) credit rating level, and a 10% and 20% decrease in the base case recovery rate.

Morningstar DBRS concludes that a hypothetical increase of the base case PD by 20%, ceteris paribus, would not have an impact on the credit rating on the Class A Notes. A hypothetical decrease of the recovery rate by 20%, ceteris paribus, would not have an impact on the credit rating on the Class A Notes. A scenario combining both a hypothetical increase in the PD by 10% and a hypothetical decrease in the recovery rate by 10% would not have an impact on the credit rating on the Class A Notes.

For further information on Morningstar DBRS 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 Morningstar DBRS 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: Helvia Meana Ramon, Assistant Vice President
Rating Committee Chair: Carlos Silva, Senior Vice President
Initial Rating Date: 17 October 2019

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

--Rating CLOs Backed by Loans to European SMEs (20 June 2024) and Morningstar DBRS SME Diversity Model v2.7.1.4,
https://dbrs.morningstar.com/research/434775/
--Master European Structured Finance Surveillance Methodology (6 August 2024),
https://dbrs.morningstar.com/research/437540
--Global Methodology for Rating CLOs and Corporate CDOs (23 February 2024),
https://dbrs.morningstar.com/research/428544
--Interest Rate Stresses for European Structured Finance Transactions (28 June 2024),
https://dbrs.morningstar.com/research/435278
--Legal Criteria for European Structured Finance Transactions (28 June 2024),
https://dbrs.morningstar.com/research/435165
--Operational Risk Assessment for European Structured Finance Servicers (6 August 2024),
https://dbrs.morningstar.com/research/437543
--Operational Risk Assessment for European Structured Finance Originators (6 August 2024),
https://dbrs.morningstar.com/research/437541
--Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings (13 August 2024),
https://dbrs.morningstar.com/research/437781

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

For more information on this credit or on this industry, visit https://dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.