BANCO DO BRASIL S.A.
Fitch Ratings has affirmed the existing series 2019-1, 2019-2 and 2019-3 loan and notes originated and issued by Dollar Diversified Payment Rights at 'BBB' and expects to rate the
RATING ACTIONS
Entity / Debt
Rating
Prior
2019-1
LT
BBB
Affirmed
BBB
2019-2
LT
BBB
Affirmed
BBB
2019-3 256911A*9
LT
BBB
Affirmed
BBB
2022-1
LT
BBB(EXP)
Expected Rating
2022-2
LT
BBB(EXP)
Expected Rating
2022-3
LT
BBB(EXP)
Expected Rating
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VIEW ADDITIONAL RATING DETAILS
Transaction Summary
The future flow program is backed by
KEY RATING DRIVERS
Future Flow (FF) Rating Driven by Originator's Credit Quality: The expected 'BBB' rating of this FF transaction is tied to the credit quality of the originator, BdB. The bank's 'BB-' Long-Term Issuer Default Rating (IDR) with a Stable Outlook is in line with the bank's majority shareholder, the Government of
Strong Going Concern Assessment (GCA) Score Supports Notching Differential: Fitch uses a GCA score to gauge the likelihood that the originator of a FF transaction will stay in operation through the transaction's life. BdB's GCA score of 'GC1' is based on the bank's strategic importance to the Brazilian banking system. The score allows for a maximum of six notches above the Local Currency IDR of the originator; however, additional factors limit the maximum uplift.
Factors Limit Notching Differential: The GCA score of 'GC1' allows for a maximum uplift of six notches from the originator's IDR. However, uplift is tempered to four notches given the originator's credit quality as maximum uplift is only reserved for originators on the lower end of the rating scale.
Low FF Debt Relative to Balance Sheet: Fitch estimates FF debt will represent approximately 0.33% of BdB's total funding and 0.55% of non-deposit funding when considering the bank's balance sheet as of
Coverage Levels Commensurate with Assigned Rating: Considering average rolling quarterly DDB flows over the past five years (March 2017-February 2022) and the maximum periodic debt service over the life of the program, including the new issuance amount of
Structure Reduces Sovereign/Diversion Risks: The structure mitigates certain sovereign risks by collecting cash flows offshore until collection of the periodic debt service amount, allowing the transaction to be rated over the sovereign country ceiling. Additionally, Fitch believes payment diversion risk is partially mitigated by the AAs signed by the six correspondent banks processing the vast majority of USD/DPR flows.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative rating action/downgrade:
The transaction ratings are sensitive to changes in the credit quality of BdB. A deterioration of the credit quality of the sovereign and/or BdB by more than one notch is likely to pose a constraint to the rating of the transaction from its current level.
The transaction ratings are sensitive to the ability of the DPR business line to continue operating, as reflected by the GCA score. Additionally, the transaction rating is sensitive to the performance of the securitized business line. The expected quarterly DSCR is approximately 139.7x and, therefore, should be able to withstand a significant decline in cash flows in the absence of other issues. However, significant declines in flows could lead to a negative rating action. Any changes in these variables will be analyzed in a rating committee to assess the possible impact on the transaction ratings.
Factors that could, individually or collectively, lead to positive rating action/upgrade:
The main constraint to the program rating is the originator's rating and BdB's operating environment. If upgraded, Fitch will consider whether the same uplift could be maintained or it should be further tempered in accordance with criteria.
In
Best/Worst Case Rating Scenario
International scale credit ratings of Structured Finance transactions have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of seven notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of seven notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAAsf' to 'Dsf'. Best- and worst-case scenario credit ratings are based on historical performance. For more information about the methodology used to determine sector-specific best- and worst-case scenario credit ratings, visit https://www.fitchratings.com/site/re/10111579.
USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10
Form ABS Due Diligence-15E was not provided to, or reviewed by, Fitch in relation to this rating action.
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
PUBLIC RATINGS WITH CREDIT LINKAGE TO OTHER RATINGS
The FF ratings are driven by the credit risk of BdB as measured by its Long-Term Local Currency IDR.
REPRESENTATIONS, WARRANTIES AND ENFORCEMENT MECHANISMS
A description of the transaction's representations, warranties and enforcement mechanisms (RW&Es) that are disclosed in the offering document and which relate to the underlying asset pool was not prepared for this transaction. Offering Documents for this market sector typically do not include RW&Es that are available to investors and that relate to the asset pool underlying the trust. Therefore, Fitch credit reports for this market sector will not typically include descriptions of RW&Es. For further information, please see Fitch's Special Report titled 'Representations, Warranties and Enforcement Mechanisms in Global Structured Finance Transactions'.
ESG Considerations
Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg
Additional information is available on www.fitchratings.com
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