Morningstar DBRS Finalises Provisional Credit Ratings on FCT Ponant 1

DBRS Ratings GmbH (Morningstar DBRS) finalized its provisional credit ratings on the notes (the Rated Notes) issued by FCT Ponant 1 (the Issuer):

-- Class A Notes at AAA (sf)
-- Class B Notes at AA (sf)
-- Class C Notes at A (high) (sf)
-- Class D Notes at BBB (sf)
-- Class E Notes at BB (high) (sf)
-- Class F Notes at BB (low) (sf)

The credit rating assigned to the Class C, Class D, Class E and Class F Notes differ from the provisional credit ratings previously assigned of A (sf), BBB (low) (sf), BB (sf) and B (high) (sf), respectively, due to the lower final spreads of the Notes, which resulted in higher excess spread and improved the results of the analysis conducted by Morningstar DBRS upon the finalisation of its provisional credit ratings.

Morningstar DBRS does not rate the Class G Notes (collectively with the Rated Notes, the Notes) also issued in this transaction.

The credit rating of the Class A Notes addresses the timely payment of scheduled interest and the ultimate repayment of principal by the final maturity date. The credit ratings of the Class B Notes, Class C Notes, Class D Notes, Class E Notes, and the Class F Notes address the ultimate payment of interest (timely when most senior) and the ultimate repayment of principal by the final maturity date.

The securitisation transaction constitutes the issuance of notes backed by a portfolio of approximately EUR 320 million worth of fixed lease receivable instalments and their ancillary rights (excluding the residual value component), related to equipment lease contracts granted by Leasecom (the Seller) mainly to small and medium-sized enterprises (SMEs) in France. Leasecom (the Servicer) also services the portfolio.

CREDIT RATING RATIONALE
The credit ratings are based on the following analytical considerations:
-- The transaction's structure, including form and sufficiency of available credit enhancement to withstand stressed cash flow assumptions and repay the Issuer's financial obligations according to the terms under which the Rated Notes are issued;
-- The credit quality of the collateral, historical and projected performance of Leasecom's portfolio, and Morningstar DBRS' projected performance under various stress scenarios;
-- An operational risk review of Leasecom´s capabilities with regard to its originations, underwriting, servicing, and financial strength;
-- An operational risk review of Interpath´s (the Back-Up Servicer) capabilities with regard to its monitoring, servicing, and financial strength as Back-up Servicer;
-- The transaction parties' financial strength with regard to their respective roles;
-- Morningstar DBRS' long-term sovereign credit rating on the Republic of France, currently at AA (high) with a Stable trend;
-- The expected consistency of the transaction's structure with Morningstar DBRS' "Legal and Derivative Criteria for European Structured Finance Transactions".

TRANSACTION STRUCTURE
The transaction is static and its cash flows follow separate interest and principal waterfalls. Both waterfalls allow for the fully sequential payment of both interest and principal on the Notes. Available revenue receipts can be used to cover principal deficiencies, and, in certain scenarios, principal may be diverted to pay interest on the Rated Notes. The principal-to-interest mechanism is designed to cover senior interest shortfalls where there are insufficient available interest collections to cover senior expenses and fees as well as interest on the Rated Notes outstanding. Such principal-to-interest reallocations, along with any defaults, are recorded on the applicable principal deficiency ledgers in a reverse-sequential order.

The transaction benefits from a general reserve, fully funded at the closing date. Amounts standing to the credit of the general reserve will be available to cover senior expenses and fees and to pay interest on the most senior class of Rated Notes. The general reserve is amortising and funded at closing with an amount equal to 1.3% of the initial balance of the Rated Notes subject to a floor of EUR 750,000.

The Notes pay floating interest rates based on one-month Euribor, whereas the portfolio comprises only fixed-rate leases. The interest rate mismatch risk between the Notes and the portfolio is mitigated by an interest rate swap agreement.

The weighted-average final portfolio yield is 8.6%.

COUNTERPARTIES
Natixis has been appointed as the Issuer's specially dedicated account bank for the transaction. Morningstar DBRS privately rates Natixis S.A. The transaction documents contain downgrade provisions relating to the specially dedicated account bank that are consistent with Morningstar DBRS' criteria.

BNP Paribas has been appointed as the Issuer's account bank for the transaction. Based on Morningstar DBRS' Long-Term Issuer Rating of AA (low) on BNP Paribas, the downgrade provisions outlined in the transaction documents and other mitigating factors in the transaction structure, Morningstar DBRS considers the risk arising from the exposure to the account bank to be consistent with the credit ratings assigned to the Rated Notes.

Natixis has been appointed as the hedge counterparty for the transaction. Morningstar DBRS privately rates Natixis. The hedging documents contain downgrade provisions that are consistent with Morningstar DBRS' criteria.

PORTFOLIO ASSUMPTIONS
Morningstar DBRS determined its credit rating based on the following analytical considerations:
-- The probability of default (PD) for the portfolio was determined using the historical performance information supplied. Morningstar DBRS assumed an annualised PD of 3.2% for tangible asset leases and 5.8% for intangible asset leases, according to portfolio condition maximum percentage of intangible asset leases will represent 6.3% of the portfolio balance.
-- The assumed weighted-average life (WAL) of the portfolio is 1.9 years.
-- The recovery rate used is 32.5% at the B (low) (sf) credit rating level.

Morningstar DBRS' credit ratings on the Rated Notes address the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents. The associated financial obligations for each class of the Rated Notes are the related Interest Amounts and Principal.

Morningstar DBRS' credit ratings do not address nonpayment risk associated with contractual payment obligations contemplated in the applicable transaction document(s) that are not financial obligations.

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, considering the default rates at which the rated notes did not return all specified cash flows.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the credit ratings is: Rating European Consumer and Commercial Asset-Backed Securitisations (18 September 2024) https://dbrs.morningstar.com/research/439583.

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.

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 the historical data provided by the originator as below:
-- Monthly dynamic arrears data from Q1 2019 to Q4 2024;
-- Monthly dynamic prepayment data from Q1 2019 to Q4 2024;
-- Quarterly static default data from Q1 2019 to Q4 2024;
-- Quarterly static recovery data from Q1 2019 to Q4 2024; and
-- Lease-level portfolio breakdown as at 12 February 2025 and its related amortisation schedule.

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

Morningstar DBRS was supplied with one third-party assessment. 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.

These credit ratings concern newly issued financial instruments. These are the first Morningstar DBRS credit ratings on this financial instrument.

This is the first credit rating action since the Initial Credit Rating Date.

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):

-- Expected default: 9.0%.
-- Expected recovery rate: 32.5%.
-- Loss given default (LGD): 75.9% for the AAA (sf) scenario, 73.6% for the AA (sf) scenario, 73.2% for the A (high) (sf) scenario, 72.2% for the BBB (sf) scenario, 69.2% for the BB (high) (sf) scenario, and 67.6% for the BB (low) (sf) scenario.

Morningstar DBRS modelled the following eight stress scenarios:
-- Scenario 1: A 25% increase in the expected default.
-- Scenario 2: A 50% increase in the expected default.
-- Scenario 3: A 25% increase in LGD.
-- Scenario 4: A 50% increase in LGD.
-- Scenario 5: A 25% increase in both the expected default and LGD.
-- Scenario 6: A 25% increase in the expected default and 50% increase in LGD.
-- Scenario 7: A 50% increase in the expected default and 25% increase in LGD.
-- Scenario 8: A 50% increase in both the expected default and LGD.

Morningstar DBRS concludes that the expected credit ratings under the eight stress scenarios will be:
-- Class A Notes: AA (sf), A (high) (sf), AA (sf), A (high) (sf), A (sf), A (low) (sf), BBB (high) (sf), BBB (high) (sf).
-- Class B Notes: A (high) (sf), BBB (high) (sf), A (high) (sf), A (low) (sf), BBB (high) (sf), BBB (high) (sf), BBB (low) (sf), BB (high) (sf).
-- Class C Notes: BBB (high) (sf), BBB (low) (sf), BBB (high) (sf), BBB (high) (sf), BBB (low) (sf), BB (high) (sf), BB (high) (sf), BB (sf).
-- Class D Notes: BB (high) (sf), BB (sf), BB (high) (sf), BB (high) (sf), BB (sf), B (high) (sf), B (high) (sf), B (low) (sf).
-- Class E Notes: B (high) (sf), B (low) (sf), B (high) (sf), B (low) (sf), B (low) (sf), CCC (high) (sf), CCC (high) (sf), CCC (sf).
-- Class F Notes: B (sf), CCC (high) (sf), B (sf), B (low) (sf), CCC (high) (sf), CCC (high) (sf), CCC (high) (sf), CCC (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: Maria Lopez, Senior Vice President,
Rating Committee Chair: Paolo Conti, Associate Managing Director
Initial Rating Date: 5 February 2025

DBRS Ratings GmbH, Sucursal en España
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Tel. +34 (91) 903 6500

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 and Derivative Criteria for European Structured Finance Transactions (19 November 2024), https://dbrs.morningstar.com/research/443196.
Rating European Structured Finance Transactions Methodology (19 November 2024),
https://dbrs.morningstar.com/research/443199.
Rating CLOs Backed by Loans to European SMEs (19 November 2024) and SME Diversity Model v.2.7.1.5,
https://dbrs.morningstar.com/research/443198.
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.