Morningstar DBRS Upgrades Credit Rating on FCT Lafayette 2021

DBRS Ratings GmbH (Morningstar DBRS) upgraded its credit rating on the Class A Notes issued by FCT Lafayette 2021 (the Issuer) to AA (high) (sf) from AA (sf).

The credit rating on the Class A Notes addresses the timely payment of interest and the ultimate repayment of principal on or before the legal final maturity date in January 2051. Morningstar DBRS does not rate the Class B Notes (together with the Class A Notes, the Notes) also issued in the transaction.

CREDIT RATING RATIONALE
The upgrade follows an annual review of the transaction and is based on the following analytical considerations:
-- The portfolio performance, in terms of the level of delinquencies and defaults, as of the February 2025 payment date.
-- The one-year base case probability of default (PD) and default and recovery rates on the receivables.
-- The current available credit enhancement to the Class A Notes to cover the expected losses at the AA (high) (sf) credit rating level.
-- The absence of purchase termination events, breach of concentration limits, or trigger events to date.

FCT Lafayette 2021 is a revolving cash flow securitisation collateralised by a portfolio of performing secured and unsecured loans to French micro, small, or medium-size enterprises by BNP Paribas S.A. (BNPP or the originator). The transaction closed in February 2021 and was structured with an 18-month revolving period that was scheduled to end in August 2022 but was extended until November 2022 (included). Following a restructuring in February 2023, the revolving period was further extended by 24 months and ended in February 2025 payment date.

PORTFOLIO PERFORMANCE
As of the February 2025 payment date, one- to two-month arrears represented 0.2% of the outstanding portfolio balance, stable from last annual review, and 60- to 90-day arrears were 0.1%. As of the February 2025 payment date, the gross cumulative default ratio was equal to 3.4% of the aggregate portfolio balance (initial plus subsequent portfolios), up from 2.2% in November 2023, with recoveries standing at 25.6% of the cumulative defaulted loans.

PORTFOLIO ASSUMPTIONS AND KEY DRIVERS
Morningstar DBRS maintained its one-year base case PD assumptions to 2.5% and 1.9% on retail and corporate borrowers, respectively. The purchase conditions during the revolving period limit the maximum WA internal PD of the aggregate and the further portfolios to 3.5%. After the end of the revolving period in February 2025 payment date, Morningstar DBRS bases its analysis on the current portfolio. Morningstar DBRS conducted a loan-by-loan analysis of the remaining pool of receivables and updated its lifetime default and recovery assumptions on the outstanding portfolio to 38.8% and 34.0%, respectively, at the AA (high) (sf) credit rating level. The improved analytical assumptions as a result of the end of the revolving period prompted the upgrade on the credit rating on the Class A Notes.

CREDIT ENHANCEMENT
The Class A Notes benefit from a total credit enhancement of 27.0% (down from 30.0% at closing), which is provided by the overcollateralisation of the portfolio. The credit enhancement is unchanged from last annual review given the transaction was still in the revolving period. The transaction includes a non-amortising liquidity reserve, which is available to cover expenses, senior fees, cash swap payments, and interest on the Class A Notes. Any released amount will not be used to redeem the Class A Notes and will therefore not provide any credit enhancement. The target liquidity reserve is equal to 1.0% of the original balance of the Class A Notes.

BNPP is a dominant counterparty for the transaction as it acts as servicer and holds the servicer collection account. It also covers the roles of account bank and paying agent and holds the general account, the principal account, the interest account, the liquidity reserve account, the commingling reserve account, and the set-off reserve deposit account. Based on the account bank's credit rating and the replacement provisions included in the transaction documents, Morningstar DBRS considers the risk arising from the exposure to BNPP to be consistent with the credit rating assigned to the Class A Notes, in accordance with the "Legal and Derivative Criteria for European Structured Finance Transactions" methodology.

BNPP is also the cash swap counterparty for this transaction. Morningstar DBRS has not given full credit to the derivative agreement as the swap documentation is not consistent with "DBRS Morningstar's Legal and Derivative Criteria for European Structured Finance Transactions" methodology, given the credit rating assigned to the Class A Notes.

Morningstar DBRS' credit ratings on the Class A Notes addresses 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 transaction's 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.

Morningstar DBRS analysed the transaction structure in its proprietary Excel-based cash flow engine.

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" (19 November 2024), https://dbrs.morningstar.com/research/443198.

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.

A review of the Amendment Agreement to the Master Definitions Agreement was conducted last September 2024, in the context of the correction of an error in the definition of "Cumulative Defaulted Purchased SME Loan Receivable Ratio". A review of the rest 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://dbrs.morningstar.com/research/421590.

The sources of data and information used for this credit rating include transaction reports and information provided by the Management Company, France Titrisation (Groupe BNP Paribas), 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 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 28 February 2024, when Morningstar DBRS confirmed its credit rating on the Class A Notes at AA (sf).

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):
-- Probability of Default Rates Used: Base-case PD of 2.9%, a 10% and 20% increase on the base-case PD.
-- Recovery Rates Used: Base-case recovery rate of 34.0% at the AA (high) (sf) stress level, 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% or a hypothetical decrease of the recovery rate by 20%, ceteris paribus, would each lead to a confirmation on the Class A Notes at AA (high) (sf). A scenario combining both an increase in the PD by 10% and a decrease in the recovery rate by 10% would also lead to a confirmation on the Class A Notes at AA (high) (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: Helvia Meana, Assistant Vice President
Rating Committee Chair: Carlos Silva, Senior Vice President
Initial Rating Date: 26 February 2021

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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 (4 February 2025)
https://dbrs.morningstar.com/research/447080
-- Rating CLOs Backed by Loans to European SMEs (19 November 2024) and SME Diversity Model v2.7.1.5., https://dbrs.morningstar.com/research/443198
-- Global Methodology for Rating CLOs and Corporate CDOs (19 November 2024),
https://dbrs.morningstar.com/research/443207
-- Legal and Derivative Criteria for European Structured Finance Transactions (19 November 2024),
https://dbrs.morningstar.com/research/443196
-- 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
-- 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.