Morningstar DBRS Confirms Credit Rating on FCT Pulse France 2022

DBRS Ratings GmbH (Morningstar DBRS) confirmed its AAA (sf) credit rating on the Class A Notes issued by FCT Pulse France 2022 (the Issuer).

The credit rating on the Class A Notes addresses the timely payment of interest and the ultimate repayment of principal by the final maturity date in January 2035.

CREDIT RATING RATIONALE
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 August 2024 payment date;
-- Updated probability of default (PD), loss given default (LGD), and expected loss assumptions for the aggregate collateral pool; and
-- Current available credit enhancement to rated notes to cover the expected losses at their credit rating level.

The transaction is a securitisation of a portfolio of receivables related to long-term operating leases granted by Arval Service Lease SA (Arval or the Seller) to small and medium-size enterprises (SME) and corporate lessees residing or incorporated in the Republic of France. The residual value (RV) component of the operating leases is excluded, therefore the Issuer is not exposed to RV risk.

The Seller granted a pledge without dispossession (gage sans dépossession) over the leased vehicles in the Issuer's favour to guarantee any and all of Arval's (in its capacity as Seller, Servicer, and maintenance co-ordinator) present and future payment obligations. The transaction is managed by France Titrisation and the receivables are serviced by Arval, an ultimate subsidiary of BNP Paribas SA (BNP Paribas).

The transaction included a one-year revolving period, which ended in October 2023. The repayment of principal on the Class A Notes will be fully sequential with no payment of principal on the Class B Notes until the Class A Notes are redeemed in full.

PORTFOLIO PERFORMANCE
As of the July 2024 cut-off date, loans that were one to two months in arrears and two to three months in arrears represented 0.1% and 0.2% of the outstanding portfolio balance, respectively. Loans more than three months in arrears represented 0.2% of the outstanding portfolio balance. The gross cumulative default ratio was equal to 1.3% of the initial portfolio balance.

PORTFOLIO ASSUMPTIONS AND KEY DRIVERS
Morningstar DBRS updated its base case PD to 2.7% and maintained its base case LGD at 40.0%, based on its loan-by-loan analysis on the remaining pool of receivables.

CREDIT ENHANCEMENT
Overcollateralisation of the outstanding performing collateral portfolio provides credit enhancement to the rated notes. As of the August 2024 payment date, credit enhancement to the Class A Notes was 27.7%, up from 14.5% during the revolving period.

The Class A Notes are supported by a liquidity reserve, which covers senior fees, net swap payments, and interest payments on the Class A Notes. The liquidity reserve was funded at closing to its required level of EUR 2.5 million and remains at this target level. It amortises subject to a target required amount, which is the higher of 1.5% of the outstanding balance of the Class A Notes and EUR 500,000.

All lease receivables were sold to the Issuer at a fixed discount rate of 5.0% while the Class A Notes are indexed to one-month Euribor. Interest rate risk for the Class A Notes is mitigated through an interest rate swap provided by BNP Paribas. Morningstar DBRS' public Long-Term Issuer Rating of AA (low) with a Stable trend on BNP Paribas meets Morningstar DBRS' criteria to act in this capacity. The hedging documents contain downgrade provisions consistent with Morningstar DBRS criteria.

BNP Paribas has been appointed as the Issuer's account bank for the transaction. Morningstar DBRS' public Long-Term Issuer Rating of AA (low) with a Stable trend on BNP Paribas meets Morningstar DBRS' criteria to act in this capacity. The transaction documents contain downgrade provisions relating to the account bank consistent with Morningstar DBRS' legal criteria. The Issuer's accounts include the general account, the liquidity reserve account, the commingling reserve account, the set-off reserve account, the swap collateral account, and the maintenance reserve account.

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.

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.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factor(s) 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.

Morningstar DBRS 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 August 2024), https://dbrs.morningstar.com/research/437540.

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 principal methodology.

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 investor reports provided by BNP Paribas and additional information provided by Arval.

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 29 September 2023, when Morningstar DBRS confirmed its AAA (sf) credit rating on the Class A Notes.

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):

-- The base case PD and LGD of the current pool of loans for the Issuer are 2.7% and 40.0%, 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.

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

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: Pascale Kallas, Assistant Vice President
Rating Committee Chair: Mark Wilder, Senior Vice President
Initial Rating Date: 6 September 2022

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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.

-- Master European Structured Finance Surveillance Methodology (6 August 2024), https://dbrs.morningstar.com/research/437540.
-- Legal Criteria for European Structured Finance Transactions (28 June 2024), https://dbrs.morningstar.com/research/435165.
-- Operational Risk Assessment for European Structured Finance Originators and Servicers (18 September 2024), https://dbrs.morningstar.com/research/439571.
-- Interest Rate Stresses for European Structured Finance Transactions (28 June 2024), https://dbrs.morningstar.com/research/435278.
-- Rating European Consumer and Commercial Asset-Backed Securitisations (18 September 2024), https://dbrs.morningstar.com/research/439583.
-- Rating CLOs Backed by Loans to European SMEs (18 September 2024) and SME Diversity Model v.2.7.1.4, https://dbrs.morningstar.com/research/439574.
-- Rating European Structured Finance Transactions Methodology (18 September 2024), https://dbrs.morningstar.com/research/439581.
-- Derivative Criteria for European Structured Finance Transactions (6 September 2024), https://dbrs.morningstar.com/research/439043.
-- 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.