Press Release

DBRS Morningstar Finalises Its Provisional Rating on FCT Pulse France 2022

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October 06, 2022

DBRS Ratings GmbH (DBRS Morningstar) finalised its AAA (sf) provisional rating on the Class A Notes issued by FCT Pulse France 2022 (the Issuer), a French fonds commun de titrisation.

DBRS Morningstar did not assign a rating to the Class B Notes or the Residual Units also issued in this transaction. The rating on the Class A Notes addresses the timely payment of scheduled interest and the ultimate repayment of principal by the final maturity date.

The transaction represents the issuance of notes backed by a portfolio of approximately EUR 409 million in receivables related to long-term operating leases granted by Arval Service Lease S.A. (Arval or the Seller) to SME and corporate lessees residing or incorporated in the Republic of France. The residual value (RV) component of the operating leases is excluded. The Issuer is not exposed to RV risk. Of the portfolio, 100% relates to new vehicles.

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 coordinator) 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 includes a one-year revolving period, during which time the originator may offer additional receivables that the Issuer may purchase, subject to eligibility and portfolio criteria set out in the transaction documents being satisfied. The revolving period may end earlier than scheduled if certain events occur, such as a breach of performance triggers, the termination of the servicer, or maintenance coordinator, a Seller event of default, or the reserve balances not being funded to their required levels.

DBRS Morningstar based its rating on a review of the following analytical considerations:
-- The transaction capital structure, including form and sufficiency of available credit enhancement;
-- Relevant credit enhancement in the form of subordination, the liquidity reserve, and excess spread;
-- Credit enhancement levels that are sufficient to support DBRS Morningstar's projected cumulative net loss assumptions under various stressed cash flow assumptions for the Class A Notes;
-- The ability of the transaction to withstand stressed cash flow assumptions and repay investors according to the terms under which they have invested;
-- Arval's capabilities with regard to originations, underwriting, and servicing;
-- The transaction parties’ financial strength with regard to their respective roles;
-- The credit quality of the collateral, and the historical and projected performance of the originator’s portfolio;
-- DBRS Morningstar's sovereign rating on the Republic of France, currently at AA (high) with a Stable trend; and
-- 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 that address the true sale of the assets to the Issuer.

TRANSACTION STRUCTURE
The transaction is subject to a revolving period of 12 months, during which time the Seller will assign additional lease receivables subject to certain eligibility portfolio criteria, performance triggers, and other conditions set out in the transaction documents being met. 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.

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 is funded at closing to its required level, EUR 5.3 million, and it amortises subject to a target required amount being the higher of 1.5% of the outstanding balance of the Class A Notes and EUR 500,000.

All lease receivables are sold using a fixed discount rate of 5.0% and 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.

COUNTERPARTIES
BNP Paribas (BNPP) has been appointed as the Issuer’s account bank for the transaction. DBRS Morningstar's public Long-Term Issuer Rating of BNPP at AA (low) with a Stable trend meets DBRS Morningstar’s criteria to act in this capacity. The transaction documents contain downgrade provisions relating to the account bank consistent with DBRS Morningstar’s 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.

BNPP has been appointed as the swap counterparty for the transaction. DBRS Morningstar's public Long-Term Issuer Rating of BNPP at AA (low) with a Stable trend meets DBRS Morningstar’s criteria to act in this capacity. The hedging documents contain downgrade provisions consistent with DBRS Morningstar criteria.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factors that had a significant or relevant effect on the credit analysis.

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/396929/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings (17 May 2022).

DBRS Morningstar analysed the transaction structure in Intex Dealmaker.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the rating is “Rating European Consumer and Commercial Asset-Backed Securitisations” (29 October 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 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 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/401817/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 Arval and the arranger, BNPP.

DBRS Morningstar received the following data and information:
-- Quarterly static gross default data from Q1 2015 to Q1 2022 split into total and retail small and medium-size (SME) and medium and large corporate borrowers subsets;
-- Quarterly static recovery data from Q1 2015 to Q2 2022 split into total and retail SME and medium and large corporate borrowers subsets;
-- Monthly dynamic delinquency and early settlement data and portfolio outstanding data from January 2015 to May 2022;
-- Portfolio lease-by-lease data and the related stratification tables as at 31 August 2022; and
-- A theoretical amortisation of the selected pool.

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

DBRS Morningstar was supplied with one or more 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.

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

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

Sensitivity Analysis: To assess the impact of changing the transaction parameters on the rating, DBRS Morningstar considered the following stress scenarios, as compared with the parameters used to determine the rating (the base case):

-- Expected default rate: 3.2%
-- Expected recovery rate: 60.0%.
-- Loss given default (LGD): 58.0% for the AAA (sf) scenario

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.

DBRS Morningstar concludes that the expected ratings under the eight stress scenarios will be:
-- Class A Notes: AA (high) (sf), AA (sf), AA (high) (sf), AA (high) (sf), AA (sf), A (high) (sf), A (high) (sf), and A (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: Ricardo Garcia, Vice President, Credit Ratings
Rating Committee Chair: David Lautier, Senior Vice President
Initial Rating Date: 6 September 2022

DBRS Ratings GmbH, Sucursal en España
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Plantas 26 & 27
28046 Madrid, Spain
Spain
Tel. +34 (91) 903 6500

DBRS Ratings GmbH
Neue Mainzer Straße 75
60311 Frankfurt am Main Deutschland
Tel. +49 (69) 8088 3500
Geschäftsführer: Detlef Scholz
Amtsgericht Frankfurt am Main, HRB 110259

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

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.

ALL MORNINGSTAR DBRS RATINGS ARE SUBJECT TO DISCLAIMERS AND CERTAIN LIMITATIONS. PLEASE READ THESE DISCLAIMERS AND LIMITATIONS AND ADDITIONAL INFORMATION REGARDING MORNINGSTAR DBRS RATINGS, INCLUDING DEFINITIONS, POLICIES, RATING SCALES AND METHODOLOGIES.

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