Fitch Rates Master Credit Cards PASS Compartment France Note Series 2016-1 'AAAsf'
OREANDA-NEWS. Fitch Ratings has assigned Master Credit Cards PASS Compartment France Note Series 2016-1 a final rating as follows:
EUR110m Class A notes: 'AAAsf'; Outlook Stable
EUR34.2m Class B notes: not rated
Fitch has also affirmed the outstanding EUR400m Series 2015-1 class A notes at 'AAAsf' with Stable Outlook.
The notes will be collateralised by a pool of French credit card receivables originated by Carrefour Banque (CB). The receivables portfolio consists of drawings made by individuals under revolving credit agreements originated in France and mainly associated with credit cards using the MasterCard networks.
KEY RATING DRIVERS
Firm Asset Performance
Fitch has set the base case charge-off expectations at 8%, which is the median of the range (4.5% to 10%) assigned in similar transactions, unchanged since the first issue of notes under the programme in 2013. The agency's base case assumptions for the yield (15%) as well as the monthly payment rate (5.75%) have remained unchanged since issuance of the 2015-1 series.
French Revolving Credit Specifics
Unlike UK credit cards, only drawings using the credit line are securitised (in particular, deferred payments at the end of the month are not securitised as long as they are paid on time). In addition, French consumer law imposes strict amortisation rules on revolving credits (eg a minimum scheduled amortisation). The overall lower payment rates of this product will result in a slower amortisation profile compared with credit card trusts in the UK.
Seller Share Subordination
The seller share (class S notes) becomes subordinated to the class A and B notes in the accelerated amortisation period. The seller share does not cover set-off, commingling, dilution and fraud risks during the programme's revolving period.
Ability to Issue Additional Notes
The transaction is structured as a programme in which additional series of class A and class B notes, and class S notes (representing the seller's interest), can be issued to purchase additional receivables up to the maximum programme size (EUR1bn). All notes of the same class rank pari passu among themselves irrespective of their series (same terms and conditions). However, each note series is subject to final terms with specific interest rates, expected maturity or final maturity. Credit enhancement for the existing series might be impacted by new issuances.
Servicing Continuity Risk Mitigated
CB is servicer of the transaction. No back-up servicer was appointed at closing. However, servicing continuity risks are mitigated by operational features such as, among other things, monthly transfer of borrowers' details, a commingling reserve and a reserve fund to provide liquidity support. Furthermore, commingling risk is mitigated by other transaction features, including the use of a specially-dedicated collection account and the availability of a commingling reserve, while an adequately sized reserve fund (the general reserve) is available for liquidity.
Fitch has a stable asset outlook for French consumer ABS assets. The agency forecasts French economic activity to remain weak over the next two years, with high unemployment, but believes defaults are likely to remain within base-case expectations, as they already incorporate our macroeconomic forecasts.
Fitch tested the rating sensitivity of the notes to various scenarios, including an increase in the base case charge-off rate or a decrease in the base case recovery rate for the portfolio. The model-implied sensitivities indicate that an increase in the charge-off rate by 50%, together with a decrease in the base case recovery rate by 50%, may result in a four-notch downgrade of the class A notes to 'A+sf'.
DUE DILIGENCE USAGE
No third party due diligence was provided or reviewed in relation to this rating action.
Fitch reviewed the results of a third party assessment conducted on the asset portfolio information, which indicated that some tests could not be performed on a number of loans as their recovery process is handled by a third party and the contracts were therefore transferred to this third party. These findings were immaterial to this analysis, as set out more fully in the new issue report. Fitch has not conducted a review of origination files for this new issuance.
Overall, Fitch's assessment of the asset pool information relied upon for the agency's rating analysis according to its applicable rating methodologies indicates that it is adequately reliable.
In this transaction Fitch has applied its Global Credit Card ABS Rating Criteria, due to the nature of the underlying receivables. In addition, the agency was provided with historical data showing substantial and stable level of recoveries. To derive the haircuts applied to recoveries Fitch used the factors outlined in its Global Consumer ABS criteria. This constitutes a variation from the Global Credit Card ABS Rating Criteria.
A proprietary cash flow model is associated with Fitch's Global Credit Card ABS Rating Criteria. However, the liability structure of the Master Credit Cards PASS transaction differs substantially from the typical structures encountered in credit card trusts, as it resembles that of a standard consumer ABS transaction; Fitch therefore modelled the asset cash flows in its model as per its Global Credit Card ABS Rating Criteria and applied the results in its proprietary consumer ABS cash flow model to better reflect the liability structure of the transaction. This constitutes a variation from the Global Credit Card ABS Rating Criteria.
SOURCES OF INFORMATION
The information below was used in the analysis.
-Transaction reporting provided by Euro Titrisation as at 31 March 2016
-Historical performance data (delinquencies, defaulted amount, finance charge collections, new advances, frauds, dilution) from January 2005 to January 2016 and recoveries (following default or following enactment of the restructuring plan by the French OI commission) from at least 2007 to 2015 provided by CB.