Morningstar DBRS Upgrades and Confirms Credit Ratings on FCT CA LEASING 2023-1

DBRS Ratings GmbH (Morningstar DBRS) took the following credit rating actions on the bonds (collectively, the rated notes) issued by FCT CA LEASING 2023-1 (the Issuer):

-- Class A Notes confirmed at AAA (sf)
-- Class B Notes upgraded to AA (high) (sf) from AA (sf)

The credit rating on the Class A Notes addresses the timely payment of scheduled interest and the ultimate repayment of principal by the legal maturity date in February 2042. The credit rating on the Class B Notes addresses the ultimate repayment of interest (timely when it is the senior-most class of notes outstanding) and the ultimate repayment of principal by the legal maturity date.

CREDIT RATING RATIONALE
The credit rating actions follow an annual review of the transaction and are based on the following analytical considerations:
-- Portfolio performance, in terms of delinquencies, defaults, and losses, as of the August 2024 payment date;
-- Probability of default (PD), loss given default (LGD), and expected loss assumptions on the remaining receivables; and
-- Current available credit enhancement to the rated notes to cover the expected losses at their respective credit rating levels.

The transaction is a static securitisation of fixed lease receivable instalments and their ancillary rights (excluding the residual value component), related to equipment lease contracts granted by Lixxbail (the seller) to small and medium enterprises located in France. The transaction closed in November 2023 with an initial portfolio balance of approximately EUR 498.6 million and is serviced by Crédit Agricole Leasing & Factoring (CAL&F, the servicer).

PORTFOLIO PERFORMANCE
As of the August 2024 payment date, one- to two-month in arrears represented 0.5% of the outstanding portfolio balance and the two- to three-month delinquency ratio was 0.4%. The gross cumulative default ratio was 2.4%, of the initial collateral balance, of which 12.2% has been recovered.

PORTFOLIO ASSUMPTIONS AND KEY DRIVERS
Morningstar DBRS conducted a loan-by-loan analysis of the remaining pool of receivables and updated its base case PD assumption to 8.0% from 9.0% and maintained its LGD assumption at 48.0%.

CREDIT ENHANCEMENT
The subordination of the junior obligations provides credit enhancement to the rated notes. As of the August 2024 payment date, the credit enhancement to the Class A and Class B Notes was 42.1% and 29.0%, up from 29.8% and 20.8%, respectively, at closing.

The transaction benefits from an amortising general reserve, which was fully funded at closing. The reserve has a target balance equal to 2.0% of the outstanding balance of the rated notes, subject to a floor of 0.5% of the initial balance of the rated notes. The general reserve is available to cover senior expenses, fees and interest on the rated notes. The general reserve is currently at its target level as of the August 2024 payment date.

CACEIS Bank SA acts as the account bank for the transaction. Based on Morningstar DBRS' private credit rating on CACEIS Bank SA, 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 CACEIS Bank SA to be consistent with the credit ratings of the rated notes, as described in Morningstar DBRS' "Legal Criteria for European Structured Finance Transactions" methodology.

Credit Agricole Corporate and Investment Bank (CA - CIB) acts as the swap counterparty for the transaction. Morningstar DBRS' private credit rating on CA - CIB is consistent with the first rating threshold as described in Morningstar DBRS' "Derivative 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 (13 August 2024) 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 ratings 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 these credit ratings include investor reports provided by Eurotitrisation (as the management company), and loan-level data provided by the European DataWarehouse GmbH.

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 these credit ratings 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 issuer took place on 15 November 2023, when Morningstar DBRS finalised its provisional credit ratings on the Class A Notes and Class B Notes at AAA (sf) and AA (sf), respectively.

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):

-- Morningstar DBRS 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 current pool of loans for the Issuer are 8.0% and 48.0% respectively.
-- The Risk Sensitivity overview below illustrates the credit 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 AA (high) (sf)
-- 50% increase in PD and 25% increase in LGD, expected credit rating of AA (high) (sf)
-- 50% increase in PD and 50% increase in LGD, expected credit rating of AA (low) (sf)

Class B Notes Risk Sensitivity:
-- 25% increase in LGD, expected credit rating of AA (high) (sf)
-- 50% increase in LGD, expected credit rating of AA (high) (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 A (high) (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 (low) (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.

These credit ratings are endorsed by DBRS Ratings Limited for use in the United Kingdom.

Lead Analyst: Preben Cornelius Overas, Assistant Vice President
Rating Committee Chair: Mark Wilder, Senior Vice President
Initial Rating Date: 13 October 2023

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://dbrs.morningstar.com/about/methodologies.

Legal Criteria for European Structured Finance Transactions (28 June 2024),
https://dbrs.morningstar.com/research/435165.
Derivative Criteria for European Structured Finance Transactions (6 September 2024),
https://dbrs.morningstar.com/research/439043.
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 (24 September 2024), https://dbrs.morningstar.com/research/439913.
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.
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/439604.

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