Fitch Ratings has affirmed the ratings on the existing series 2019-1, 2019-2, 2019-3, 2022-1, and 2022-3 loan and notes originated and issued by Dollar Diversified Payment Rights Finance Company, Banco do Brasil's Future Flow Program, at 'BBB'.

The Rating Outlook is Stable.

The rating action considers the execution of the First Amendment to the Series 2022-1 indenture supplement permitting the issuer to issue $350 million in additional notes increasing the outstanding balance of the series 2022-1 notes to $750 million from $400 million. The program's continued strong performance and low future flow debt to balance sheet ratios continue to support the transaction's ratings.

RATING ACTIONS

Entity / Debt

Rating

Prior

Dollar Diversified Payment Rights Finance Company

2019-1

LT

BBB

Affirmed

BBB

2019-2

LT

BBB

Affirmed

BBB

2019-3 256911A*9

LT

BBB

Affirmed

BBB

2022-1

LT

BBB

Affirmed

BBB

2022-3 256911A@7

LT

BBB

Affirmed

BBB

Page

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VIEW ADDITIONAL RATING DETAILS

Transaction Summary

The future flow program is backed by U.S. dollar-denominated existing and future diversified payment rights (DPRs) originated by Banco do Brasil S.A. (BdB) in Brazil. The majority of DPRs (95.3% in 2022) are processed by designated depository banks (DDBs) that have executed account agreements (AAs), irrevocably obligating them to make payments to an account controlled by the transaction trustee. Issuance of the additional series 2022-1 notes brings the total program size to approximately $1,113.3 million. BdB will be expected to use the proceeds from the additional issuance to finance or refinance any of the bank's existing or future eligible sustainability projects in accordance with its sustainable finance framework.

Fitch's ratings address timely payment of interest and principal on a quarterly basis.

KEY RATING DRIVERS

Future Flow (FF) Rating Driven by Originator's Credit Quality: The '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 Brazil, and reflects the support BdB would receive from the government, if necessary. Additionally, the bank's IDR represents the bank's systemic importance to the Brazilian banking system. The bank's 'bb-' Viability Rating (VR) reflects the constraints imposed by the challenging operating environment.

Strong Going Concern Assessment (GCA) Score Supports Notching Differential: Fitch uses a GCA score to gauge the likelihood that the originator of a future flow 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 future flow debt will represent approximately 0.34% of BdB's total funding and 0.59% of non-deposit funding when considering the bank's balance sheet as of December 2022, the outstanding series 2019 and 2022 loans and notes, and the $350 million in additional notes being issued out of the series 2022-1 tranche via an amendment. Fitch considers the ratio of future flow debt to overall liabilities small enough to allow the financial future flow ratings up to the maximum uplift indicated by the GCA score.

Coverage Levels Commensurate with Assigned Rating: Considering average rolling quarterly DDB flows over the past four years (March 2019 and February 2023) and the maximum periodic debt service over the life of the program, including the new notes being issued out of the 2022-1 series via an amendment in the amount of $350 million and Fitch's interest rate stress for the variable rate notes, Fitch's projected quarterly debt service coverage ratio (DSCR) is 134.4x. Fitch projects that the program can withstand a drop in flows of approximately 99.3% and still cover the maximum quarterly debt service obligation, highlighting the strength of the flows.

Structure Reduces Sovereign/Diversion Risks: The structure mitigates certain sovereign risks by collecting cash flows offshore until collection of 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 will likely lead to a downgrade to the ratings of the transactions from their current levels.

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 134.4x, and should therefore be able to withstand a significant decline in cash flows in the absence of other issues. However, significant further 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.

No company is immune to the economic and political conditions of its home country. Political risks and the potential for sovereign interference may increase as a sovereign's rating is downgraded. However, the underlying structure and transaction enhancements mitigate these risks to a level consistent with the assigned rating.

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 the IDR of BdB is upgraded, Fitch will consider whether the same notching uplift from BdB's IDR will be maintained or if it should be further tempered in accordance with criteria.

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.

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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