DBRS Morningstar Assigns Rating to FCT Pyramides 2022

DBRS Ratings GmbH (DBRS Morningstar) assigned a rating of AA (high) (sf) to the Class A Notes issued by FCT Pyramides 2022 (Pyramides 2022 or the Issuer).

The rating of the Class A Notes addresses the timely payment of interest and the ultimate repayment of principal by the legal final maturity date in July 2056.

DBRS Morningstar did not assign ratings to the Class B Notes or the Residual Units also issued in this transaction.

The Issuer was established as a Fond Commun de Titrisation (FCT) governed by French regulations. At closing, the Issuer used the proceeds of the Class A Notes, Class B Notes, and the Residual Units to purchase a portfolio of home loans and their respective ancillary rights from BNP Paribas SA (BNPP or the Seller). The transaction features a 24-month revolving period during which time the Issuer may acquire additional home loans and their ancillary rights from the Seller subject to the availability of principal collections, eligibility criteria, and as long as no revolving period termination event has occurred. After the revolving period ends in April 2024, the Class A Notes will amortise sequentially. The Class B Notes will not begin to amortise until the Class A Notes have been redeemed in full. France Titrisation (the Management Company) will manage the transaction. BNPP will service the portfolio.

The home loans in the portfolio are secured by either a Crédit Logement guarantee (59.7%), a mortgage over the relevant property (31.9%), or other guarantees including personal and combined guarantees with only a small portion of loans without a guarantee.

The Class A Notes benefit from 5.0% credit enhancement, which consists of subordination of the Class B Notes. The Class A Notes will pay a fixed coupon of 0.02% per annum, while the Class B Notes will pay a fixed coupon of 0.50% during the life of the transaction. Both the Class A and Class B Notes will pay interest on a quarterly basis.

Additionally, the Class A Notes benefit from an amortising Liquidity Reserve Fund (LRF), which has been fully funded by the Seller at closing in an amount equal to 0.5% of the Class A Notes outstanding balance, equal to an amount of EUR 38.0 million at closing with a floor at 0.25% of the Class A Notes outstanding balance. The LRF will amortise in line with the Class A Notes outstanding balance and will be available to cover shortfall in senior fees, and Class A interest.

Furthermore, the transaction benefits from a Commingling Reserve, funded by the Servicer in case of a commingling reserve rating trigger event (Servicer long-term rating below BBB (low)). The commingling reserve required amount will be equal to 2.5% of the outstanding principal amount of the performing home loans. In addition, the Seller has agreed to make a cash deposit following a set-off reserve rating trigger event (Seller long-term rating below BBB (low)). The set-off reserve required amount will be the aggregate amount equal to the sum for each home loan, of the minimum between (i) the aggregate amount exceeding EUR 100,000; and (ii) the outstanding amount of such home loans.

As of 31 March 2022, the portfolio consisted of 39,345 loans granted to 35,490 borrowers. The total balance of the portfolio amounts to EUR 8.0 billion with the average loan per borrower being EUR 225,416. The weighted-average (WA) original loan-to-value (LTV) ratio stands at 87.2% whereas the WA current LTV is 80.6%. The home loan portfolio is distributed amongst the metropolitan regions of France with the top three regions based on current outstanding balance being Ile-de-France (47.4%), Provence-Alpes-Cote-d’Azur (8.8%), and Rhone-Alpes (7.4%). The home loans in the portfolio are all fixed-rate loans and pay on a repayment basis. Of the portfolio balance, 23.4% of the home loans were granted to self-employed borrowers and 29.8% are related to buy-to-let (BTL) borrowers. As of the cut-off date, none of the home loans were in arrears. The WA coupon of the home loans is 1.3% and the WA seasoning of the portfolio is 3.3 years.

BNP Paribas Securities Services (BNPSS) acts as the Account Bank in this transaction. BNPSS may be replaced in its respective roles following its downgrade below the rating thresholds. DBRS Morningstar privately rates BNPSS. Following the downgrade of the account bank below the account bank required rating level (i.e., DBRS Morningstar long-term rating of at least "A"), the Management Company shall appoint a new account bank having at least the account bank required rating level within 30 calendar days. The current account bank rating (DBRS Morningstar's private rating on BNPSS), replacement provisions, and investment criteria are consistent with DBRS Morningstar’s “Legal Criteria for European Structured Finance Transactions” methodology.

DBRS Morningstar based its rating on a review of the following analytical considerations:
--The transaction's capital structure, including the form and sufficiency of available credit enhancement.
--The credit quality of the home loan portfolio and the ability of the parties to perform servicing and collection activities.
--DBRS Morningstar calculated the portfolio default rate (PD), loss given default (LGD), and expected loss (EL) assumptions on the portfolio by using the European RMBS Credit Model.
--The ability of the transaction to withstand stressed cash flow assumptions and repay the noteholders according to the terms and conditions of the notes. The transaction cash flows were analysed using Intex DealMaker.
--The consistency of the transaction’s legal structure with DBRS Morningstar's “Legal Criteria for European Structured Finance Transactions” methodology and the presence of legal opinions addressing the assignment of the assets to the Issuer.
--The relevant counterparties, as rated by DBRS Morningstar, are appropriately in line with DBRS Morningstar legal criteria to mitigate the risk of counterparty default or insolvency.
--The structural mitigants in place to avoid potential payment disruptions caused by operational risk, such as a downgrade, and replacement language in the transaction documents.
--DBRS Morningstar’s sovereign rating of the Republic of France at AA (high) with a Stable trend as of the date of this press release.

ESG CONSIDERATIONS
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at: https://www.dbrsmorningstar.com/research/373262.

On 27 April 2022, DBRS Morningstar amended the above press release to include the disclosure related to the revolving period.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the rating in this transaction is the “Master European Residential Mortgage-Backed Securities Rating Methodology and Jurisdictional Addenda” (29 November 2021).

Other methodologies referenced in this transaction are listed at the end of this press release. These may be found at: https://www.dbrsmorningstar.com/about/methodologies.

DBRS Morningstar has applied the principal methodologies consistently and conducted a review of the transaction in accordance with the principal methodologies. An asset and a cash flow analysis were both conducted.

An asset and a cash flow analysis were both conducted. Due to the inclusion of a revolving period in the transaction, the analysis considers potential portfolio migration based on replenishment criteria set forth in the transaction legal documents.

For a more detailed discussion of the sovereign risk impact on Structured Finance 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://www.dbrsmorningstar.com/research/381451/global-methodology-for-rating-sovereign-governments.

The DBRS Morningstar Sovereign group releases baseline macroeconomic scenarios for rated sovereigns. DBRS Morningstar analysis considered impacts consistent with the baseline scenarios as set forth in the following report: https://www.dbrsmorningstar.com/research/384482/baseline-macroeconomic-scenarios-application-to-credit-ratings.

The sources of data and information used for this rating include those provided by BNPP and its representatives. DBRS Morningstar was provided with loan-level data as of 31 March 2022 and historical performance data: cumulative defaults for the period from January 2001 to December 2020, cumulative recoveries for the period from January 2003 to June 2020, and dynamic prepayment rates for the period from January 2014 until September 2021.

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

DBRS Morningstar was supplied with third-party assessments. However, this did not impact the rating analysis.

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

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

This rating concerns a newly issued financial instrument. This is the first DBRS Morningstar rating on this financial instrument.

Information regarding DBRS Morningstar ratings, including definitions, policies, and methodologies, is available on www.dbrsmorningstar.com.

To assess the impact of changing the transaction parameters on the rating, DBRS Morningstar considered the following stress scenarios, as compared to the parameters used to determine the rating (the Base Case):
-- In respect of the Class A Notes, a PDR of 22.1% and LGD of 37.2%, corresponding to the AA (high) (sf) rating scenario, was stressed assuming a 25% and 50% increase in the PD and LGD.

DBRS Morningstar concludes the following impact on the Class A Notes:
-- 25% increase of the PD, ceteris paribus, would lead to a downgrade to AA (sf);
-- 50% increase of the PD, ceteris paribus, would lead to a downgrade to AA (low) (sf);
-- 25% increase of the LGD, ceteris paribus, would lead to a downgrade to AA (sf);
-- 50% increase of the LGD, ceteris paribus, would lead to a downgrade to AA (low) (sf);
-- 25% increase of the PD and 25% increase of the LGD, ceteris paribus, would lead to a downgrade to A (high) (sf);
-- 50% increase of the PD and 25% increase of the LGD, ceteris paribus, would lead to a downgrade to A (low) (sf);
-- 25% increase of the PD and 50% increase of the LGD, ceteris paribus, would lead to a downgrade to A (sf);
-- 50% increase of the PD and 50% increase of the LGD, ceteris paribus, would lead to a downgrade to BBB (high) (sf).

For further information on DBRS Morningstar historical default rates published by the European Securities and Markets Authority (ESMA) in a central repository, see: https://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml. DBRS Morningstar understands further information on DBRS Morningstar historical default rates may be published by the Financial Conduct Authority (FCA) on its webpage: https://www.fca.org.uk/firms/credit-rating-agencies.

This rating is endorsed by DBRS Ratings Limited for use in the United Kingdom.

Lead Analyst: Ronja Dahmen, Vice President
Rating Committee Chair: Ketan Thaker, Managing Director
Initial Rating Date: 25 April 2022

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

-- Master European Residential Mortgage-Backed Securities Rating Methodology and Jurisdictional Addenda (29 November 2021) and EU RMBS Credit Model v.1.0.0.0, https://www.dbrsmorningstar.com/research/388848/master-european-residential-mortgage-backed-securities-rating-methodology-and-jurisdictional-addenda.
-- Legal Criteria for European Structured Finance Transactions (29 July 2021), https://www.dbrsmorningstar.com/research/382171/legal-criteria-for-european-structured-finance-transactions.
-- Interest Rate Stresses for European Structured Finance Transactions (24 September 2021), https://www.dbrsmorningstar.com/research/384920/interest-rate-stresses-for-european-structured-finance-transactions.
-- Derivative Criteria for European Structured Finance Transactions (20 September 2021), https://www.dbrsmorningstar.com/research/384624/derivative-criteria-for-european-structured-finance-transactions.
-- Operational Risk Assessment for European Structured Finance Servicers (16 September 2021), https://www.dbrsmorningstar.com/research/384513/operational-risk-assessment-for-european-structured-finance-servicers.
-- Operational Risk Assessment for European Structured Finance Originators (16 September 2021), https://www.dbrsmorningstar.com/research/384512/operational-risk-assessment-for-european-structured-finance-originators.
-- DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (3 February 2021), https://www.dbrsmorningstar.com/research/373262/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings.

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

For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at info@dbrsmorningstar.com.