Scope Ratings GmbH (Scope) monitors and reviews its credit ratings on an ongoing basis and at least annually, or every six months in the case of sovereigns, sub-sovereigns and supranational organisations.

Scope performs monitoring reviews to determine whether material changes and/or changes in macroeconomic or financial market conditions could have an impact on the credit ratings. Scope considers all available and relevant information when undertaking the monitoring review.

Monitoring reviews are conducted by performing a peer comparison, benchmarking against the rating-change drivers, and/or reviewing the credit ratings’ performance over time, as deemed appropriate by the Lead Analyst or Analytical Team Head, in addition to an assessment of all aspects of the relevant methodology/ies, including key rating assumptions and model(s). Scope publicly announces the completion of each monitoring review on its website.

Scope completed the monitoring review for FCT Bpifrance SME 2020-1 on 14 September 2023.

Class A (ISIN FR0014000GV7), EUR 2,383.40m: AAA_SF

Class B (ISIN FR0014000HW3), EUR 691.87m: not rated

Residual units (ISIN QS000212MI63), EUR 0.09m: not rated

FCT Bpifrance SME 2020-1 is a revolving cash securitisation consisting of loans granted to SMEs in France by Bpifrance.

The Class A notes continue to benefit from robust credit enhancement (22.7%), provided by subordination and the liquidity reserve. Amortisation of the notes is not expected to begin until the conclusion of the revolving period (June 2024).

Outstanding delinquencies are 0.73% and cumulative defaults are 2.21% - each below their respective trigger levels of 4.0% and 8.5% (since August 2023). Bpifrance has fully repurchased all defaulted positions.

The review was conducted based on available investor reports reflecting performance up to the 25 July 2023 management report.

This monitoring note does not constitute a credit rating action, nor does it indicate the likelihood that Scope will conduct a credit rating action in the short term. Information about the latest credit rating action connected with this monitoring note along with the associated rating history can be found on www.scoperatings.com.

Key rating factors

Credit enhancement (positive). Class A benefits from 22.7% credit enhancement resulting from subordination as well as a EUR 5.3m cash reserve. The reserve was increased in October 2022 following the upsize of the transaction.

Guarantee fund and cash collateral (positive). The loans benefit from two sources of credit risk mitigation: i) a partial guarantee mechanism funded by state resources; and ii) fixed cash collateral representing 5% of the initial loan amount. These elements drive the AAA recovery rate assumption (55%).

No interest rate risk (positive). Floating-rate loans are ineligible for the portfolio while the issued notes pay fixed-interest coupons. This eliminates interest rate risk.

Fast amortisation (positive). The class A benefits from a short weighted average life (1.8 years) after the end of the revolving period, driven by the linear and fast amortisation of the loans.

Loan repurchases (positive). Since closing, Bpifrance has systematically repurchased defaulted or rescinded loans.

Macro-economic uncertainty (negative). Besides Covid-19, the energy crisis and increased inflation will impact the French economy. Scope Ratings expects growth to slow to 0.7% in 2023 and 1.4% in 2024, down from 2.5% in 2022 and 6.4% in 2021. Consequently, the senior note remains exposed to back-loaded defaults, a notable downside risk because of the revolving portfolio. The risk is mitigated by the collateral performance triggers, the limited time to the end of the revolving period and Bpifrance systematic repurchase of the defaulted loans to date.

Revolving portfolio (negative). The portfolio’s characteristics and credit quality may migrate during the replenishment period. This risk is mitigated by the originator’s expertise and the adequate single-asset, portfolio and performance covenants in the structure.

No back-up servicer (negative). No back-up servicer was appointed at the closing of the transaction. Operational risk arising from servicer default is mitigated by Bpifrance’s partial ownership by the French state.

Indirect link to guarantor creditworthiness (negative). The rating is closely tied to the credit quality of the French state as Bpifrance’s ultimate guarantor and partial shareholder. The risk to the rating is mitigated by Scope’s sensitivity analysis, which shows that the class A is resilient to a hypothetical scenario in which the state cannot honor its full guarantee on the loans.

The methodologies applicable for the reviewed ratings (General Structured Finance Rating Methodology, 25 January 2023; SME ABS Rating Methodology, 16 May 2023; Counterparty Risk Methodology, 13 July 2023) are available on https://scoperatings.com/governance-and-policies/rating-governance/methodologies.
This monitoring note is issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0.
Lead analyst Benjamin Bouchet, Director

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