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Rating Action:

Moody's upgrades the ratings on EUR 12.1m of debt issued by FCT GIAC Obligations Long Terme II

05 Jul 2022

NOTE: On July 12, 2022, the press release was corrected as follows: In the first sentence of the sixth paragraph of the Ratings Rationale section, the guarantor's name was changed to "Bpifrance." Revised release follows.

Moody's also affirms the ratings on EUR 10.3m of debt

Frankfurt am Main, July 05, 2022 -- Moody's Investors Service ("Moody's") has upgraded the ratings on the following debt issued by FCT GIAC Obligations Long Terme II ("FCT GIAC OLT II"):

....EUR75M (current outstanding amount EUR6.7M) Senior Bonds P1, Upgraded to Aa3 (sf); previously on Sep 28, 2020 Downgraded to A2 (sf)

....EUR15M (current outstanding amount EUR5.4M) Senior Bonds P2, Upgraded to Baa2 (sf); previously on Sep 28, 2020 Downgraded to Ba1 (sf)

Moody's has also affirmed the rating on the following debt:

....EUR28.5M (current outstanding amount EUR10.3M) Mezzanine A Bonds, Affirmed Caa2 (sf); previously on Sep 28, 2020 Downgraded to Caa2 (sf)

FCT GIAC OLT II is a collateralised loan obligation ("CLO") transaction backed by a portfolio of bonds issued by small and medium-sized enterprises ("SMEs") and mid-cap corporates domiciled in France. FCT GIAC OLT II was issued in May 2015 and the portfolio is now in its amortization phase.

RATINGS RATIONALE

The rating upgrades on the Senior Bonds P1 and P2 are primarily a result of the significant deleveraging of the most senior class of debt following amortisation of the underlying portfolio since the last rating action in September 2020.

The performing portfolio has amortised to EUR 29.05m from EUR 49.8m since the last rating action, while the defaulted amount is unchanged at EUR 5.6m. Given the breach of the pro-rata payment trigger in July 2020, the classes of debt have been amortising sequentially since the last rating action. Hence, the Senior Bonds P1 have been paid down by approximately EUR 20.3 million (75%) since the last rating action in September 2020 and EUR 28.8 million (81.1%) since July 2017, when the bonds reached their highest outstanding principal amount after the end of the ramp-up period. As a result of the deleveraging, over-collateralisation (OC) has increased across the capital structure, but most prominently for the Senior Bonds P1 as the most senior class of debt.

The rating upgrades and affirmation also incorporate Moody's correction of an error in the modelling of the fees for the transaction at the time of the last rating action in September 2020. At that time, the fees potentially not paid by defaulted borrowers in the portfolio were modelled at a too low level. The correction of the fee modelling had a negative impact on all of the rated debt, resulting in the current uplift on the ratings of the Senior classes from the deleveraging to be smaller than it would otherwise have been to balance out the negative impact from the correction of the fee modelling. The rating of the Mezzanine A Bonds is unchanged.

In FCT GIAC OLT II, the obligors of the underlying bonds are not rated by Moody's. Their credit quality is assessed using the Ellipro score produced by Ellisphere. A mapping was used to convert the Ellipro Scores into Moody's rating factors. In line with Moody's approach for outdated mappings, this mapping has been subjected to an additional default probability stress. In addition, when the remaining number of mapped assets has reduced over the transaction life, Moody's may subject the mapped assets to a default probability stress given that the mapping becomes less statistically robust the smaller the number of assets in the transaction portfolio.

Accordingly, in its base case, Moody's has stressed (i) the large concentrations of single obligors and (ii) the obligors deemed more vulnerable to sudden adverse difficulties according to the size of their revenues.

Interest and principal payments on the Mezzanine A Bonds are guaranteed by Bpifrance (rated Aa2/P-1). Moody's has not factored into its analysis any potential benefit of this guarantee for the Mezzanine A Bond holders.

The default probability derives from the credit quality of the collateral pool and Moody's expectation of the remaining life of the collateral pool. The estimated average recovery rate on future defaults is based primarily on the seniority of the assets in the collateral pool. In each case, historical and market performance are also relevant factors. Moody's incorporates these default and recovery characteristics of the collateral pool into its cash flow model analysis, subjecting them to stresses as a function of the target rating of each CLO liability it analyses.

Methodology Underlying the Rating Action:

The principal methodology used in these ratings was "Moody's Global Approach to Rating Collateralized Loan Obligations" published in December 2021 and available at https://ratings.moodys.com/api/rmc-documents/74832. Alternatively, please see the Rating Methodologies page on https://ratings.moodys.com for a copy of this methodology.

Counterparty Exposure:

Today's rating action took into consideration the debts' exposure to relevant counterparties, such as the account bank, using the methodology "Moody's Approach to Assessing Counterparty Risks in Structured Finance" published in June 2022. Moody's concluded the ratings of the debt is not constrained by these risks.

Factors that would lead to an upgrade or downgrade of the ratings:

The rated debts' performance is subject to uncertainty. The debts' performance is sensitive to the performance of the underlying portfolio, which in turn depends on economic and credit conditions that may change.

Additional uncertainty about performance is due to the following:

• Portfolio amortisation: The main source of uncertainty in this transaction is the pace of amortisation of the underlying portfolio. Particularly, amortisation could accelerate as a consequence of high loan prepayment levels or be delayed by an increase in loan restructurings. Fast amortisation would usually benefit the ratings of the debt beginning with the debt having the highest prepayment priority.

• Recovery of defaulted assets: Market value fluctuations in trustee-reported defaulted assets and those Moody's assumes have defaulted can result in volatility in the deal's over-collateralisation levels.  Further, the timing of recoveries can also result in additional uncertainty. Recoveries higher than Moody's expectations would have a positive impact on the debt' ratings.

• Lack of portfolio granularity: The performance of the portfolio depends to a large extent on the credit conditions of a few large obligors with low non-investment-grade ratings, especially when they default.

In addition to the quantitative factors that Moody's explicitly modelled, qualitative factors are part of the rating committee's considerations. These qualitative factors include the structural protections in the transaction, its recent performance given the market environment, the legal environment, specific documentation features, the collateral manager's track record and the potential for selection bias in the portfolio. All information available to rating committees, including macroeconomic forecasts, input from other Moody's analytical groups, market factors, and judgments regarding the nature and severity of credit stress on the transactions, can influence the final rating decision.

REGULATORY DISCLOSURES

For 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 on https://ratings.moodys.com/rating-definitions.

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. The loss a rated instrument incurs in each collateral loss scenario, weighted by assumptions about the likelihood of events in that scenario occurring, results in the expected loss of the rated instrument.

Moody's quantitative analysis entails an evaluation of scenarios that stress factors contributing to sensitivity of ratings and take into account the likelihood of severe collateral losses or impaired cash flows. Moody's weights the impact on the rated instruments based on its assumptions of the likelihood of the events in such scenarios occurring.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the issuer/deal page for the respective issuer on https://ratings.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website https://ratings.moodys.com.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://ratings.moodys.com/documents/PBC_1288235.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on https://ratings.moodys.com.

Please see https://ratings.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the issuer/deal page on https://ratings.moodys.com for additional regulatory disclosures for each credit rating.

Silvia Baumann
Vice President - Senior Analyst
Structured Finance Group
Moody's Deutschland GmbH
An der Welle 5
Frankfurt am Main, 60322
Germany
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Ian Perrin
Associate Managing Director
Structured Finance Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Releasing Office:
Moody's Deutschland GmbH
An der Welle 5
Frankfurt am Main, 60322
Germany
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

No Related Data.
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