DBRS Morningstar Confirms Rating on Master Credit Cards PASS Compartment France

DBRS Ratings Limited (DBRS Morningstar) confirmed its AAA (sf) rating on the 2019-1, Class A2019-1 notes (the Notes) issued by Master Credit Cards PASS Compartment France (the Issuer):

The rating on the Notes addresses the timely payment of interest and ultimate payment of principal on or before the legal final maturity date in May 2035.

The confirmation follows an annual review of the transaction and is based on the following analytical considerations:

-- Portfolio performance, in terms of charge-off rates, principal payment rates, yield rates, and delinquencies as of the September 2020 payment date.
-- The ability to withstand stressed cash flow assumptions.
-- No revolving termination events have occurred.
-- Current available credit enhancement to the Notes to cover the expected losses at the AAA (sf) rating level.
-- Current economic environment and an assessment of sustainable performance, as a result of the Coronavirus Disease (COVID-19) pandemic.

The transaction is a securitisation of revolving consumer credit agreements, originated and serviced by Carrefour Banque and granted to borrowers in France. Carrefour Banque is a captive entity owned by Carrefour Groupe at 60% and BNP Paribas Personal Finance at 40%. Master Credit Cards PASS (the Fund) acts with respect to the Issuer. The Issuer, as the first compartment of the Fund, was established in November 2013 and has a programme issuance limit of EUR 1 billion. The receivables can be associated with a credit card or not and under the credit agreement, the borrower may make standard drawings (Main Drawings) or benefit from Special Drawings which may differ from the conditions applicable to the Main Drawings.

The transaction is currently in its revolving period, scheduled to end on the payment date in June 2022, provided no early amortisation events occur.

PORTFOLIO PERFORMANCE
As of the September 2020 payment date, two- to three-month arrears and 90+ arrears were both low at 0.2% of the outstanding portfolio balance. Receivables are classified as defaulted if they are more than seven months in arrears, the agreement has been accelerated, the borrower has filed a restructuring petition with an overindebtedness committee which has been accepted, the borrower has become insolvent, or the balance has been written off by the servicer. As per this definition, the annualised charge-off rate was low as of the September 2020 payment date at 1.45%, averaging 1.61% since closing. The Monthly Principal Payment Rate (MPPR) fell on the May 2020 payment date to 3.7% but has recovered since to 5.22% and averaged 5.08% since closing. The MPPR is calculated as all principal payments as a percentage of the opening performing principal balance. The annualised yield rate was 14.04% and averaged 14.09% since closing. As of the September 2020, the Special Drawings represented 0.0% of the outstanding portfolio balance, below the concentration limit of 10.0%.

PORTFOLIO ASSUMPTIONS AND KEY DRIVERS
Based on the observed performance to date, DBRS Morningstar has maintained from closing its base case charge-off rate, and base case yield rate of 6.50%, and 13.00%, respectively. Based on the analysis of historical data, macroeconomic factors, and the portfolio-specific coronavirus adjustments, DBRS Morningstar decreased its base case principal payment rate to 4.0% from 4.5%.

CREDIT ENHANCEMENT
The credit enhancement consists of the junior notes. During the revolving period, the Notes benefit from a minimum of 6.0% of Class S Notes subordination, raising the minimum credit enhancement to 22.6%. During the programme revolving period, the Class S Notes rank pari passu with the Notes providing there is no debit balance on the portfolio deficiency ledger (PDL) and are fully subordinated during the programme amortisation period.

The transaction benefits from a general reserve, which covers senior expenses, swap payments and interest on the Notes. The general reserve is funded to its target level of EUR 4.4 million, equal to 1.2% of the outstanding Notes balance, and is subject to a floor of 0.5% of the initial Notes balance.

The transaction also benefits from a commingling reserve is currently funded to its target level of EUR 3.1 million.

BNP Paribas Securities Services SCA acts as the account bank for the transaction. Based on the DBRS Morningstar private rating of BNP Paribas Securities Services SCA, 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 consistent with the rating assigned to the Notes, as described in DBRS Morningstar's "Legal Criteria for European Structured Finance Transactions" methodology.

Credit Agricole Corporate & Investment Bank (CA-CIB), Natixis S.A. (Natixis) and Société Générale, S.A. (SocGen) act as the swap counterparty for the transaction. DBRS Morningstar's private rating of CACIB and Natixis and DBRS Morningstar public Long-Term Critical Obligations Ratings of AA (low) are all above the First Rating Threshold as described in DBRS Morningstar's "Derivative Criteria for European Structured Finance Transactions" methodology.

DBRS Morningstar analysed the transaction structure in DBRS Morningstar’s proprietary Excel-based cash flow engine.

The Coronavirus Disease (COVID-19) and the resulting isolation measures have caused an economic contraction, leading to increases in unemployment rates and adverse financial impact on many borrowers. DBRS Morningstar anticipates that delinquencies would continue to arise, and payment and yield rates would remain subdued in the coming months for many credit card portfolios. The above rating is based on additional analysis and adjustments to expected performance as a result of the global efforts to contain the spread of the coronavirus. For this transaction, DBRS Morningstar evaluated the impact on the expected charge-off rate and expected principal payment rate in line with historical sensitivity to unemployment rates, and applied adjustments on its base case principal payment rate.

The DBRS Morningstar Sovereign group released on 16 April 2020 a set of macroeconomic scenarios for the 2020-22 period in select economies. These scenarios were last updated on 10 September 2020. For details see the following commentaries: https://www.dbrsmorningstar.com/research/366542/global-macroeconomic-scenarios-september-update and https://www.dbrsmorningstar.com/research/359903/global-macroeconomic-scenarios-application-to-credit-ratings.
DBRS Morningstar analysis considered impacts consistent with the moderate scenario in the referenced reports.

On 8 May 2020, DBRS Morningstar published a commentary outlining how the coronavirus crisis is likely to affect DBRS Morningstar-rated ABS transactions in Europe. For more details please see https://www.dbrsmorningstar.com/research/360734/european-abs-transactions-risk-exposure-to-coronavirus-covid-19-effect and https://www.dbrsmorningstar.com/research/362712/european-structured-finance-covid-19-credit-risk-exposure-roadmap.

For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.

For more information regarding structured finance rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/358308.

ESG CONSIDERATIONS
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework and its methodologies can be found at: https://www.dbrsmorningstar.com/research/357792.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the rating is the “Master European Structured Finance Surveillance Methodology” (22 April 2020). 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. Due to the inclusion of a revolving period in the transaction, the analysis continues to be based on the worst-case replenishment criteria set forth in the transaction legal documents.

A review of the transaction legal documents was not conducted as the legal documents have remained unchanged since the most recent rating action.

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

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/364527/global-methodology-for-rating-sovereign-governments.

The sources of data and information used for this rating include investor reports provided by Eurotitrisation.

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 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 purpose 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 25 October 2019, when DBRS Morningstar finalised its provisional rating on the Notes.

The lead analyst responsibilities for this transaction have been transferred to Natalia Coman.

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

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):
-- Base Case Charge-Off Rate: 6.5%
-- Base Case MPPR: 4.0%
-- Base Case Yield Rate: 13.0%

Scenario 1: A 25% decrease in the expected Principal Payment Rate.
Scenario 2: A 25% increase in the expected Charge-Off Rate.
Scenario 3: A 25% decrease in the expected Yield Rate.
Scenario 4: A 15% increase in the expected Charge-Off Rate, 15% decrease in the expected Principal Payment Rate and 15% decrease in the expected Yield Rate.

DBRS Morningstar concludes that the expected ratings on the Notes under the four stress scenarios are: AA (high) (sf), AA (high) (sf), AAA (sf), AA (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:
http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml.

Ratings assigned by DBRS Ratings Limited are subject to EU and U.S. regulations only.

Lead Analyst: Natalia Coman, Senior Analyst
Rating Committee Chair: Alfonso Candelas, Senior Vice President
Initial Rating Date: 1 October 2019

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

-- Master European Structured Finance Surveillance Methodology (22 April 2020) https://www.dbrsmorningstar.com/research/359884/master-european-structured-finance-surveillance-methodology
-- Rating European Consumer and Commercial Asset-Backed Securitisations (3 September 2020) https://www.dbrsmorningstar.com/research/366294/rating-european-consumer-and-commercial-asset-backed-securitisations
-- Rating European Structured Finance Transactions Methodology (21 July 2020) https://www.dbrsmorningstar.com/research/364305/rating-european-structured-finance-transactions-methodology
-- Interest Rate Stresses for European Structured Finance Transactions (28 September 2020) https://www.dbrsmorningstar.com/research/367292/interest-rate-stresses-for-european-structured-finance-transactions
-- Derivative Criteria for European Structured Finance Transactions (24 September 2020) https://www.dbrsmorningstar.com/research/367092/derivative-criteria-for-european-structured-finance-transactions
-- Legal Criteria for European Structured Finance Transactions (11 September 2019) https://www.dbrsmorningstar.com/research/350234/legal-criteria-for-european-structured-finance-transactions
-- Operational Risk Assessment for European Structured Finance Servicers (28 February 2020) https://www.dbrsmorningstar.com/research/357429/operational-risk-assessment-for-european-structured-finance-servicers
-- Operational Risk Assessment for European Structured Finance Originators (30 September 2020)
https://www.dbrsmorningstar.com/research/367603/operational-risk-assessment-for-european-structured-finance-originators

A description of how DBRS Morningstar analyses structured finance transactions and how the methodologies are collectively applied can be found at http://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.