DBRS Morningstar Downgrades Rating of Red & Black Consumer France 2013 Class A Notes Following the Restructuring

DBRS Ratings GmbH (DBRS Morningstar) downgraded the rating of the Class A notes issued by Red & Black Consumer France 2013 (the Issuer) to AA (sf) from AAA (sf).

The rating addresses the timely payment of scheduled interest and ultimate payment of principal by the legal final maturity date in November 2039.

DBRS Morningstar notes the downgrade of the Class A notes is the result of a transaction restructuring with reduction of subordination level to 22.5% from 30% at the end of the previous revolving period in October 2019 as well as the change of the principal repayment mechanism from sequential to pro rata/sequential during the normal amortisation period, and is not related to the portfolio performance, which remains stable.

DBRS Morningstar does not rate the Class B notes also issued in the transaction.

The Issuer is a securitisation fund with French unsecured consumer loan receivables originated by Sogéfinancement (the originator and servicer), a subsidiary of Société Générale S.A. and Franfinance.

The rating downgrade follows the restructuring of the transaction and is based on the following analytical considerations:

--The transaction’s capital structure, including the form and sufficiency of available credit enhancement to support the projected expected net losses under various stress scenarios.
--The ability of the transaction to withstand stressed cash flow assumptions and repay the notes.
--The originator and servicer’s financial strength and capabilities with respect to originations, underwriting and servicing.
--An operational risk review of the originator, which DBRS Morningstar deems to be an acceptable servicer.
--The transaction parties’ financial strength regarding their respective roles.
--The credit quality, diversification of the collateral, and historical and projected performance of the securitised portfolio.
--DBRS Morningstar’s sovereign rating of the Republic of France at AA (high) with a Stable trend.
--The consistency of the transaction’s legal structure with DBRS Morningstar’s “Legal Criteria for European Structured Finance Transactions” methodology.

TRANSACTION STRUCTURE
The restructuring increased the length of the scheduled revolving period to 48 months from 36 months. During this period, the Issuer may purchase additional receivables satisfying the eligibility criteria set out in the transaction documents. The revolving period may end earlier than scheduled if certain events occur, such as the breach of triggers or servicer termination. DBRS Morningstar considers the revised scheduled revolving period to be relatively long, which is incorporated in the analysis.

Following the scheduled revolving period, the transaction enters into the normal amortisation period with pro rata amortisation, unless a sequential amortisation event occurs. The pro rata/sequential amortisation mechanism during this period is changed from the existing sequential amortisation prior to the transaction restructuring.

The Class A notes continues to benefit from an amortising general reserve, which has a reduced required amount to 0.5% from 0.6% of the outstanding notes balance after the restructuring and is fully available to cover the shortfalls in senior fees and Class A interest as part of available funds.

COUNTERPARTIES
Société Générale, S.A. continues to be the account bank and specially dedicated account bank for the transaction. Based on DBRS Morningstar’s rating of Société Générale, S.A. and the downgrade provisions outlined in the transaction documents, DBRS Morningstar considers the risk arising from the exposure to the account bank and specially dedicated account bank to be commensurate with the Class A rating assigned.

PORTFOLIO PERFORMANCE AND ASSUMPTIONS
The originator has a long operating history of consumer loan lending . The performance to date has been stable based on a detailed vintage analysis. DBRS Morningstar also benchmarked the portfolio performance to comparable consumer loan portfolios in France and revised its asset assumptions of lifetime gross default and recovery assumptions to 6.2% and 37.75%, respectively, based on the worse possible concentration limits during the scheduled revolving period.

DBRS Morningstar analysed the transaction cash flow structure in Intex DealMaker.

The Coronavirus Disease (COVID-19) and the resulting isolation measures have caused an economic contraction, leading to sharp increases in unemployment rates and income reductions for many borrowers. DBRS Morningstar anticipates that delinquencies may increase in the coming months for many ABS transactions, some meaningfully. The ratings are 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 assumed a moderate decline in the expected recovery rate.
On 16 April 2020, the DBRS Morningstar Sovereign group released 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/366543/dbrs-morningstar-global-macroeconomic-scenarios-september-update and https://www.dbrsmorningstar.com/research/359903/global-macroeconomic-scenarios-application-to-credit-ratings. The DBRS Morningstar analysis considered impacts consistent with the moderate scenario in the referenced reports.

For more information on DBRS Morningstar considerations for European ABS transactions and Coronavirus Disease (COVID-19), please see the following commentary: https://www.dbrsmorningstar.com/research/360734/european-abs-transactions-risk-exposure-to-coronavirus-covid-19-effect.

For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: 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 “Rating European Consumer and Commercial Asset-Backed Securitisations (3 September 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 is based on the worst-case replenishment criteria set forth in the transaction legal documents.

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 the following provided by the arranger, Société Générale, S.A.:

--Quarterly default data from Q1 2010 to Q2 2020; split by product type (standard, debt consolidation, student loans);
--Quarterly recovery data from Q1 2010 to Q2 2020, split by product type, which is further split by personal failure and bankruptcy with or without moratorium (except for student loans);
--Dynamic monthly prepayment data from Q1 2010 to Q2 2020; and
--Dynamic delinquency data from Q1 2010 to Q2 2020.
DBRS Morningstar also received stratification tables in relation to the loan pool as of 31 October 2020 and its related contractual amortisation profile.

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. However, this did not impact the rating analysis. For this rating action, 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 10 September 2020, when DBRS Morningstar confirmed its rating of the Class A notes at AAA (sf).

The lead analyst responsibilities for this transaction have been transferred to Alfonso Candelas.

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:
-- Expected Default Rate of 6.2%, a 25% and 50% increase.
-- Expected Loss Given Default (LGD) of 62.25%, a 25% and 50% increase.

Scenario 1: A 25% increase in the expected default rate.
Scenario 2: A 50% increase in the expected default rate.
Scenario 3: A 25% increase in the LGD.
Scenario 4: A 25% increase in the expected default rate and 25% increase in the LGD.
Scenario 5: A 50% increase in the expected default rate and 25% increase in the LGD.
Scenario 6: A 50% increase in the LGD.
Scenario 7: A 25% increase in the expected default rate and 50% increase in the LGD.
Scenario 8: A 50% increase in the expected default rate and 50% increase in the LGD.

DBRS Morningstar concludes that the expected ratings under the eight stress scenarios are:
-- Class A Notes: A (high) (sf), A (sf), AA (low) (sf), A (low) (sf), BBB (high) (sf), A (sf), BBB (high) (sf), BBB (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 GmbH are subject to EU and U.S. regulations only.

Lead Analyst: Alfonso Candelas, Senior Vice President
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: 8 October 2013

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: http://www.dbrsmorningstar.com/about/methodologies.

-- 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.
-- Legal Criteria for European Structured Finance Transactions (11 September 2019),
https://www.dbrsmorningstar.com/research/350234/legal-criteria-for-european-structured-finance-transactions.
-- Master European Structured Finance Surveillance Methodology (22 April 2020),
https://www.dbrsmorningstar.com/research/359884/master-european-structured-finance-surveillance-methodology.
-- Operational Risk Assessment for European Structured Finance Servicers (19 November 2020), https://www.dbrsmorningstar.com/research/370270/operational-risk-assessment-for-european-structured-finance-servicers.
-- Operational Risk Assessment for European Structured Finance Originators (30 September 2020), https://www.dbrsmorningstar.com/research/357430/operational-risk-assessment-for-european-structured-finance-originators
-- Rating European Structured Finance Transactions Methodology (21 July 2020),
https://www.dbrsmorningstar.com/research/364305/rating-european-structured-finance-transactions-methodology.

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 info@dbrsmorningstar.com.