Research: Rating Action: Moody’s assigns a provisional rating to the bonds to be issued by BPCE CONSUMER LOANS FCT 2022, a securitization of French consumer loans

1000 million euros ABS bonds provisionally rated, relating to a French consumer credit portfolio

Milan, July 19, 2022 — Moody’s Investors Service (“Moody’s”) has assigned the following provisional rating to the Bonds to be issued by BPCE CONSUMER LOANS FCT 2022:

….€1,000 million A-Class Floating Rate Notes, due April 2043, assigned (P)Aaa (sf)

Moody’s has not rated the 219.5 million euros of fixed rate bonds backed by Class B assets due April 2043.

RATINGS RATIONALE

This is a 43-month revolving cash securitization of consumer credit receivables granted by Groupe BPCE to debtors located in France. Borrowers use the loans for several purposes, such as home improvement, acquiring a car, and other undefined or general purposes. The service is provided by the group’s 26 regional mutuals and BPCE Financement, the central service entity.

At the reporting date, the securitized portfolio consists of 180,383 non-defaulted loan contracts with a weighted average seasoning of 1.2 years and a principal outstanding balance of EUR 1.72 billion. The weighted average remaining term is 5.3 years and the current average loan size is EUR 9,516. All loans are standard French amortizing loans.

According to Moody’s, the operation benefits from credit advantages such as the granularity of the portfolio, the financial solidity of Groupe BPCE (BPCE, the central body of Groupe BPCE, is rated A1/P-1) and the credit enhancement benefiting the Class A rated Notes through a total subordination of 18.0% of the Class B plus a depreciable reserve fund of 1.0% of the initial principal balance of the Class A Notes and the Class B Notes. During the amortization period, the amount of the general reserve required will be 1.0% of the current performance account balance. In addition, the transaction benefits from asset performance triggers and an early termination of the revolving period.

However, Moody’s notes that the transaction has certain credit weaknesses such as (i) a high concentration on the BPCE group given the number of roles performed by the entities of this group such as salesperson, servicer, issuer account bank, ( (ii) a 43-month revolving structure that could increase volatility in the performance of the underlying portfolio; and (iii) interest rate mismatch. These risks are partially mitigated by early amortization triggers, substitution criteria at both individual loan and portfolio level, and portfolio eligibility criteria. A fixed-floating interest rate swap hedges the fixed-floating mismatch arising from the floating rate Class A Notes and fixed rate loans in the securitized portfolio.

Moody’s analysis focused on, among other factors, (i) an assessment of the underlying portfolio of loans; (ii) information about the historical performance of ABS’s total portfolio and past transactions; (iii) credit enhancement provided by subordination; (iv) liquidity support available in the transaction through the reserve fund; and (v) the overall legal and structural integrity of the transaction.

MAIN ASSUMPTIONS OF THE MODEL

Moody’s has determined expected defaults over the life of the portfolio of 3.0%, expected recoveries of 30.0% and portfolio credit enhancement Aaa (“PCE”) of 13.0%. The expected defaults and recoveries reflect our performance expectations given the current economic outlook, while the PCE reflects the loss we expect for the portfolio in the event of a severe recession scenario. Expected defaults and PCE are parameters used by Moody’s to calibrate its lognormal portfolio loss distribution curve and to associate a probability to each potential future loss scenario in our ABSCORE cash flow model to score loan ABS to consumption.

The expected portfolio defaults of 3.0% are below the average for French consumer ABS and are based on Moody’s assessment of the life expectancy of the pool taking into account: (i) the historical performance of the portfolio of the initiator; (ii) macroeconomic trends, (iii) other similar transactions used as reference; and (iv) other qualitative considerations.

Expected portfolio recoveries of 30.0% are in line with the average for French consumer ABS and are based on Moody’s assessment of the life expectancy of the portfolio taking into account: (i) the historical performance of the portfolio of the initiator; (ii) reference transactions; and (iii) other qualitative considerations.

The PCE of 13.0% is lower than the French average for Consumer ABS and is based on Moody’s valuation of the pool taking into account: (i) the unsecured nature of the loans; and (ii) the relative ranking against the peers of the initiators in the French market and EMEA Consumer ABS. The PCE level of 13.0% translates to an implied coefficient of variation (“CoV”) of approximately 51.37%.

The main methodology used in this rating is “Moody’s Approach to Rating Consumer Loan-Backed ABS” published in July 2022 and available on https://ratings.moodys.com/api/rmc-documents/390487. Otherwise, please see the Scoring Methodologies page on https://ratings.moodys.com for a copy of this methodology.

Factors that would lead to a rating increase or decrease:

Significantly higher losses than our closing loss forecast, due to either a change in economic conditions or idiosyncratic performance factors, could result in a downgrade of rated notes. In addition, a significant weakening of the credit profile of the counterparties to the transaction could lead to a downgrading of the Ratings.

REGULATORY INFORMATION

For details on key rating assumptions and Moody’s sensitivity analysis, see the Methodological Assumptions and Sensitivity to Assumptions sections in the Disclosure Form. Moody’s rating symbols and definitions can be found at https://ratings.moodys.com/rating-definitions.

The analysis relies on an assessment of the characteristics of the collateral to determine the distribution of collateral losses, ie the function correlated to an assumption about the probability of occurrence of each level of possible collateral losses. Secondly, Moody’s assesses each possible collateral loss scenario using a model that reproduces the relevant structural characteristics to deduce the payouts and therefore the ultimate potential losses for each rated instrument. The loss incurred by a rated instrument in each collateral loss scenario, weighted by assumptions about the likelihood of events in that scenario occurring, results in the expected loss of the rated instrument.

Moody’s quantitative analysis involves an evaluation of scenarios that focus on factors contributing to rating sensitivity and consider the likelihood of material collateral losses or impaired cash flows. Moody’s weights the impact on rated instruments based on its assumptions of the likelihood of events in such scenarios occurring.

For ratings issued on a program, series, category/class of debt or security, this announcement provides certain regulatory information regarding each rating of a subsequently issued bond or note of the same series, category/class of debt, security or under a program for which ratings are derived exclusively from existing ratings in accordance with Moody’s rating practices. For ratings issued on a media provider, this announcement provides certain regulatory information relating to the credit rating action on the media provider and each particular credit rating action for securities whose credit ratings are derived from the support provider’s credit rating. For the provisional ratings, this press release provides certain regulatory information relating to the provisional rating assigned, and to a final rating that may be assigned after the final issuance of the debt, in each case where the structure and conditions of the transaction n have not changed prior to the final rating being assigned in a way that would have affected the rating. For more information, please see the issuer/transaction page of the respective issuer at https://ratings.moodys.com.

For all relevant securities or rated entities receiving direct credit support from the lead entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action , the associated regulatory information will be that of the guarantor entity. Exceptions to this approach exist for the following information, if applicable to the jurisdiction: Ancillary services, Information to be provided to the rated entity, Information to be provided by the rated entity.

The rating has been communicated to the rated entity or its designated agent(s) and issued without modification as a result of such communication.

This rating is requested. Please refer to Moody’s Policy for the Designation and Assignment of Unsolicited Credit Ratings available on its website. https://ratings.moodys.com.

The regulatory information contained in this press release applies to the credit rating and, if applicable, the outlook or rating revision relating thereto.

Moody’s general principles for assessing environmental, social and governance (ESG) risks in our credit analysis are available at https://ratings.moodys.com/documents/PBC_1288235.

The worldwide credit rating on this credit rating announcement has been issued by one of Moody’s affiliates outside the UK and is approved by Moody’s Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the United Kingdom. . Further information on the UK endorsement status and the Moody’s office that issued the credit rating can be found at https://ratings.moodys.com.

Please see https://ratings.moodys.com for any updates on changes to the lead rating analyst and Moody’s legal entity that issued the rating.

Please see the issuer/transaction page at https://ratings.moodys.com for additional regulatory information for each credit rating.

Francesca Pilou
Vice President – Senior Analyst
Structured Finance Group
Moody’s Italy Srl
Corso di Porta Romana 68
Milan, 20122
Italy
JOURNALISTS: 44 20 7772 5456
Customer service: 44 20 7772 5454

Armin Krapf
VP – Senior Credit Officer
Structured Finance Group
JOURNALISTS: 44 20 7772 5456
Customer service: 44 20 7772 5454

Release Office:
Moody’s Italy Srl
Corso di Porta Romana 68
Milan, 20122
Italy
JOURNALISTS: 44 20 7772 5456
Customer service: 44 20 7772 5454

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