Fitch Ratings has assigned final ratings of 'BB-' to the Series 2023-1 and 2023-2 delayed funding notes issued by Guayaquil DPR Limited.

The Rating Outlook is Stable. The Series 2023 notes have an aggregate issuance amount of $125 million.

RATING ACTIONS

Entity / Debt

Rating

Guayaquil DPR Limited

2023-1

LT

BB-

New Rating

2023-2

LT

BB-

New Rating

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VIEW ADDITIONAL RATING DETAILS

Transaction Summary

The future flow program is backed by existing and future U.S. dollar-denominated diversified payment rights (DPRs) originated by Banco Guayaquil S.A. (BG). The majority of DPRs 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 program agent. Fitch's ratings address the timely payment of interest and principal on a quarterly basis.

KEY RATING DRIVERS

Future Flow Rating Driven by Originator's Credit Quality: The rating of this future flow (FF) transaction is driven by the Long-Term Issuer Default Rating (IDR) of the originator, BG. On Aug. 24, 2023, Fitch downgraded BG's LT IDR to 'CCC+' from 'B-' and its Viability Rating (VR) to 'ccc+' from 'b-'. This followed the downgrade of Ecuador's LT IDR to 'CCC+' from 'B-'. In Fitch's view, BG's rating is driven by its intrinsic profile and constrained by the sovereign's rating of 'CCC+'.

Going Concern Assessment Supports Notching Differential: Fitch uses a going concern assessment (GCA) score to gauge the likelihood that the originator of an FF transaction will stay in operation throughout the transaction's life. Fitch assigned a GCA score of 'GC2' to BG based on the bank's systemic importance. The score allows for a maximum uplift of four notches above the IDR of the originator.

Notching Uplift from IDR: The 'GC2' allows for a maximum four-notch rating uplift from the bank's Long-Term IDR pursuant to Fitch's FF methodology. Considering the bank's current LT IDR, the assigned rating is at the maximum notching differential allowed by Fitch's FF methodology for an originator with a score of 'GC2'. The four-notch rating uplift is supported by the transaction's strong projected coverage levels; FF debt relative to the bank's funding ratios being within the thresholds outlined in Fitch's Future Flow Securitization Rating Criteria; and Fitch reserving the maximum notching uplift for transactions with originators rated at the lower end of the rating scale, such as BG.

Moderately High Future Flow Debt Relative to Balance Sheet: Fitch estimates BG's FF debt will represent 3.8% of its total funding and 27.8% of non-deposit funding when considering the $125 million DPR transaction and the $112 million outstanding balance on the bank's merchant voucher program (MV). Fitch views the ratio of FF debt to overall liabilities as small enough to allow the financial FF ratings the maximum uplift indicated by the GCA score.

Coverage Levels Commensurate with Rating: Fitch views the transaction's debt service coverage ratio (DSCR) as more than sufficient for the assigned rating. The minimum projected DSCR is approximately 100.3x when considering the maximum periodic debt service over the life of the program and DDB flows over the past five years (removing transactions greater than $25 million).

Sovereign/Diversion Risks Reduced: The structure mitigates certain sovereign risks by collecting cash flows offshore until the collection of periodic debt service amounts. Fitch believes diversion risk is partially mitigated by the AAs that have been executed by the DDBs.

RATING SENSITIVITIES

Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade

The transaction rating is sensitive to changes in BG's credit quality. Currently, the transaction is receiving the maximum notching uplift from BG's LT IDR. Therefore, a deterioration in BG's credit quality by one notch would trigger a downgrade of the transaction rating from its current level.

The transaction rating is sensitive to increases in the FF debt relative to the bank's funding ratios. If either ratio were to increase beyond the thresholds outlined in Fitch's Future Flow Securitization Rating Criteria, it could result in a downgrade of the transaction rating from its current level.

The transaction rating is sensitive to the DPR business line's performance and its ability to continue operating, as reflected by the GCA score. Changes in Fitch's view of the bank's GCA score can lead to a change in the transaction's rating. The minimum expected quarterly DSCR when considering DDB flows for the past five years is approximately 100.3x and should therefore be able to withstand a significant decline in cash flows absent other issues. However, significant declines in flows could lead to a negative rating action. A rating committee will analyze any change to these variables to assess the potential impact on the transaction rating.

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 transaction rating is the originator's rating and BG's operating environment. If the bank's LT IDR is upgraded by more than one notch from its current rating, Fitch would consider if the same uplift could be maintained or 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 Banco Guayaquil, S.A. as measured by its Long-Term 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'.

Additional information is available on www.fitchratings.com

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