Rating Action: Moody’s affirms rating of Class A Notes in BPCE CONSUMER LOANS FCT 2016_5Global Credit Research – 04 Mar 2022Frankfurt am Main, March 04, 2022 — Moody’s Investors Service (“Moody’s”) has today affirmed the rating of the Class A Notes in BPCE CONSUMER LOANS FCT 2016_5. The rating action is prompted by the correction of an error in the cashflow modeling of the transaction. The correction of the error is credit negative for the Class A Notes but is offset by the intent of BPCE (A1/P-1/Aa3(cr)), acting as transaction agent, to implement fully sequential amortization of the Class A and Class B Notes in BPCE CONSUMER LOANS FCT 2016_5 during the transaction amortization period. In addition, the rating action also reflects better than expected collateral performance…..EUR 3,325M Class A Notes, Affirmed Aaa (sf); previously on May 27, 2016 Definitive Rating Assigned Aaa (sf)BPCE CONSUMER LOANS FCT 2016_5 is a cash securitisation of consumer loan receivables extended by Groupe BPCE to obligors located in France. The transaction features a revolving period which is due to end in May 2022.RATINGS RATIONALEThe rating action is prompted by the discovery of a prior error in Moody’s cashflow modeling related to the amortization of the Class A and Class B Notes, the correction of which would have a negative impact on the rating of the Class A Notes.As per the deal documentation, after the end of the revolving period Class B amortizes pro rata with Class A until the Class B balance reaches 15% of its initial size, unless an accelerated amortization event occurs. At the time of the initial rating assignment, Moody’s cashflow modeling did not correctly reflect the trigger responsible for switching the amortization of Classes A and B from pro rata to sequential during the amortization period. As a result, the analysis accounted only for sequential amortization and did not reflect the scenarios in which the notes would amortize pro rata. The correction of the error, taking into account the performance triggers which would switch the waterfall to accelerated amortization, is credit negative for the Class A Notes, and by itself could lead to a rating downgrade.The negative impact of the error correction on the Class A Notes is however offset by an action that Moody’s expects will be taken by BPCE, the sponsor of the transaction. BPCE has provided Moody’s with a letter advising that BPCE will undertake to amend the transaction documentation by April 15, 2022 to implement fully sequential amortization of the Class A and Class B Notes during the amortization period. This modification will become effective before the end of the revolving period and it will significantly improve the credit risk profile of the Class A Notes during the amortization period, thereby offsetting the negative impact of the error correction. Moody’s expects BPCE’s letter to be made public. In affirming the rating on the Class A Notes, Moody’s took into consideration the time required to execute the amendments; the strong intention of BPCE to implement the amendments, as reflected in the letter; and the fact that the transaction is currently in revolving mode and therefore the credit enhancement of the Class A Notes is not expected to deteriorate during the implementation period of the amendments.Revision of Key Collateral AssumptionsAs part of the rating action, Moody’s reassessed its performance assumptions for the portfolio reflecting the collateral performance to date.The performance of the transaction has continued to be stable since closing. Delinquencies have been stable in the past year, with 90 days plus arrears currently standing at 0.12% of current pool balance. Cumulative defaults currently stand at 1.70% of original pool balance plus replenishments, with the pool factor at approximately 26%, taking into account also cumulative replenishments.The default probability assumption is 3.5% of the current portfolio balance, which corresponds to a default probability assumption of 2.6% of the original pool balance, down from 5.0% at closing.In light of the better than expected transaction performance, Moody’s has revised the recovery rate and PCE assumptions to 30% and 14.0% from 20% and 17.5% at closing respectively.The principal methodology used in this rating was ‘Moody’s Approach to Rating Consumer Loan-Backed ABS’ published in September 2021 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBS_1264327. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.Factors that would lead to an upgrade or downgrade of the rating:Factors or circumstances that could lead to an upgrade of the rating include (1) performance of the underlying collateral that is better than Moody’s expectations and (2) an increase in available credit enhancement.Factors or circumstances that could lead to a downgrade of the rating include (1) an increase in sovereign risk, (2) performance of the underlying collateral that is worse than Moody’s expectations, (3) deterioration in the notes’ available credit enhancement, (4) deterioration in the credit quality of the transaction counterparties and (5) failure to implement fully sequential amortization of the Class A and Class B Notes as described in the aforementioned BPCE letter.REGULATORY DISCLOSURESFor further specification of Moody’s key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody’s Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.The analysis relies on an assessment of collateral characteristics to determine the collateral loss distribution, that is, the function that correlates to an assumption about the likelihood of occurrence to each level of possible losses in the collateral. As a second step, Moody’s evaluates each possible collateral loss scenario using a model that replicates the relevant structural features to derive payments and therefore the ultimate potential losses for each rated instrument. 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