DBRS Morningstar Confirms AAA (sf) Rating on Master Credit Cards PASS Compartment France Class A2022-1 Notes

DBRS Ratings GmbH (DBRS Morningstar) confirmed its AAA (sf) rating on the Class A2022-1 Notes (Class A Notes) issued by Master Credit Cards PASS Compartment France (the Issuer).

DBRS Morningstar did not rate the Class B2022-1 Notes (collectively with the Class A2022-1 Notes, the Notes) also issued in the transaction.

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

As of today, the Notes are the only outstanding debt of the Issuer.

The transaction is supported by a pool of unsecured receivables from drawings made by individuals under revolving consumer credit agreements originated and serviced by Carrefour Banque (the seller) in France.

RATING RATIONALE
The rating confirmation is based on the following analytical considerations:
-- The transaction’s capital structure, including form and sufficiency of available credit enhancement;
-- Credit enhancement levels are sufficient to support DBRS Morningstar’s expected charge-off, payment, and yield rates under various stress scenarios;
-- The ability of the transaction to withstand stressed cash flow assumptions and repay the Class A Notes according to the terms of the notes;
-- DBRS Morningstar’s operational risk review of Carrefour Banque with regard to originations, financial strength, underwriting, and servicing;
-- The transaction parties’ financial strength with regard to their respective roles;
-- The credit quality of the collateral and historical and projected performance of the seller's portfolio;
-- DBRS Morningstar’s sovereign rating of 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.

TRANSACTION STRUCTURE
The transaction includes an amortising liquidity reserve funded by the seller at closing, which is available to the Issuer if the interest collections were not sufficient to cover the shortfalls in senior expenses, swap costs, and interest on all the outstanding Class A notes of the Issuer. The current liquidity reserve amount remains at EUR 3.6 million, equal to 1.2% of the outstanding balance of the Class A Notes.

Principal collections can be used to cover remaining shortfalls after the liquidity reserve. Potential principal deficiencies would be cured before excess spread is released out of the structure

The interest rate risk for the transaction is largely mitigated by an interest rate swap where the Issuer pays a fixed rate in return for one-month Euribor plus Class A Notes margins based on a notional amount equal to the lower of the principal outstanding balance of the Class A Notes and the non-defaulted receivables.

COUNTERPARTIES
BNP Paribas Securities Services (now a department of BNP Paribas) remains the account bank for the transaction. Based on BNP Paribas’ Long-Term Issuer Rating of AA (low), the downgrade provisions outlined in the transaction documents, and other mitigating factors inherent in the transaction structure, DBRS Morningstar considers the risk arising from the exposure to the account bank to be commensurate with the rating assigned as described in DBRS Morningstar’s criteria.

Crédit Agricole Corporate and Investment Bank, Natixis S.A., and Société Générale, S.A. remain the swap counterparties for the transaction. DBRS Morningstar has a Long-Term Issuer Rating of A (high) on Société Générale, S.A. and private ratings on Crédit Agricole Corporate and Investment Bank and Natixis S.A., all of which meet the criteria to act in such capacity. The downgrade provisions in the swap documentation are largely consistent with DBRS Morningstar’s criteria and the transaction is monitored based on DBRS Morningstar’s ratings or their replacement(s).

PORTFOLIO ASSUMPTIONS
DBRS Morningstar noted that there are signs of deterioration in the managed book’s over 90 days in arrears, with a three-month average of 0.5% as of April 2023 increased from 0.3% in December 2022. The three-month average of charge-offs also increased to 6.4% as of April 2023 from 5.0% in December 2022.

However, the charge-off rates reported by the Issuer since the programme inception in 2019 have been approximately 3-4% lower than those of the managed book. The better performance is due to the eligibility criteria that excludes delinquent receivables.

While the trends have worsened recently, DBRS Morningstar maintained the expected charge-off rate at 6.5% in consideration of the positive selection effect. DBRS Morningstar will continue to monitor the performance closely.

The monthly principal payment rates (MPPRs) have been in the range of 4% to 5% since the programme inception with some volatility observed in early 2020 during the initial Coronavirus Disease (COVID-19) pandemic outbreak. The levels have since returned to be within the historical range, with the latest three-month average as of April 2023 at 4.6%. Based on the largely stable performance trends, DBRS Morningstar maintained the expected MPPR at 4.5%.

The stable portfolio yield including recoveries is largely driven by the legislative usury rate in France with the latest three-month average as of April 2023 at 13.8%. Based on the observed stable trend, DBRS Morningstar maintained the expected yield (without recoveries) at 13%.

DBRS Morningstar did not receive updated cumulative recovery data after March 2022. Based on the quality of historical data, DBRS Morningstar maintained the expected recovery rate at 35.5%, which is subject to 30% reduction at the AAA (sf) level.

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.

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” (19 October 2022).

Other methodologies referenced in this transaction are listed at the end of this press release.

DBRS Morningstar has applied the principal methodology consistently and conducted a review of the transaction in accordance with the principal methodology.

An asset and a cash flow analysis were both conducted.

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” methodology 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 the following data provided by the arranger, Natixis and the monthly investor report:
-- Monthly historical dynamic data from January 2005 to April 2023 of origination, receivables balances, payment rates, yield, purchase rates, delinquencies, and charge-off rates for the entire managed portfolio.
-- Monthly static cumulative recovery data for accelerated contracts from January 2007 to March 2022.
-- Monthly static cumulative recovery data for over-indebtedness contracts from January 2003 to March 2022.
-- Investor reports provided by the management company.

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

At the time of the initial rating, DBRS Morningstar was not supplied with third-party assessments at the transaction closing. 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.

The last rating action on this transaction took place on 27 June 2022 when DBRS Morningstar finalised its provisional rating of AAA (sf) on the Class A Notes and discontinued its rating on Class A2019-1 under the notes series 2019-1 due to repayment.

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:
-- Expected Charge-Off Rate: 6.5%
-- Expected MPPR: 4.5%
-- Expected Yield Rate: 13%

Scenario 1: 25% increase on the expected charge-off rate
Scenario 2: 25% decrease on the expected MPPR
Scenario 3: 25% decrease on the expected yield rate
Scenario 4: 15% increase on the expected charge-off rate, 15% decrease on the expected MPPR and 15% decrease on the expected yield rate

DBRS Morningstar concludes that the expected rating on the Class A Notes under the four stress scenarios is
AAA (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. For further information on DBRS Morningstar historical default rates published by the Financial Conduct Authority (FCA) in a central repository, see https://data.fca.org.uk/#/ceres/craStats.

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

Lead Analyst: Roberto Perez, Assistant Vice President
Rating Committee Chair: Christian Aufsatz, Head of European Structured Finance
Initial Rating Date on Class A2022-1: 25 May 2022
Initial Rating Date on Class A2019-1: 1 October 2019

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

DBRS Ratings GmbH
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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.

-- Rating European Consumer and Commercial Asset-Backed Securitisations (19 October 2022),
https://www.dbrsmorningstar.com/research/404212/rating-european-consumer-and-commercial-asset-backed-securitisations.
-- Master European Structured Finance Surveillance Methodology (7 February 2023),
https://www.dbrsmorningstar.com/research/409485/master-european-structured-finance-surveillance-methodology.
-- Rating European Structured Finance Transactions Methodology (15 July 2022),
https://www.dbrsmorningstar.com/research/399899/rating-european-structured-finance-transactions-methodology.
-- Legal Criteria for European Structured Finance Transactions (22 July 2022),
https://www.dbrsmorningstar.com/research/400166/legal-criteria-for-european-structured-finance-transactions.
-- Operational Risk Assessment for European Structured Finance Originators (15 September 2022),
https://www.dbrsmorningstar.com/research/402773/operational-risk-assessment-for-european-structured-finance-originators.
-- Operational Risk Assessment for European Structured Finance Servicers (15 September 2022),
https://www.dbrsmorningstar.com/research/402774/operational-risk-assessment-for-european-structured-finance-servicers.
-- Interest Rate Stresses for European Structured Finance Transactions (22 September 2022), https://www.dbrsmorningstar.com/research/402943/interest-rate-stresses-for-european-structured-finance-transactions.
-- Derivative Criteria for European Structured Finance Transactions (16 June 2023), https://www.dbrsmorningstar.com/research/415976/derivative-criteria-for-european-structured-finance-transactions.
-- DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (17 May 2022),
https://www.dbrsmorningstar.com/research/396929/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.