Fitch Ratings has affirmed
The Rating Outlooks are Stable. At the same time, Fitch has also affirmed PAN's Shareholder Support rating at 'bb-'.
Key Rating Drivers
IDRs, NATIONAL RATINGS AND SUPPORT RATING
Operating Environment Revision: Despite the challenges the pandemic posed to the domestic environment, given the financial system's historical resilience and stable performance in times of stress, Fitch has revised the Operating Environment (OE) score mid-point to 'bb-' from 'b+', in line with the implied score as per Fitch's criteria. However, the score has a Negative Outlook, as risks tied to high inflation, increased household indebtedness and electoral uncertainty in
Ratings Driven by Support: The IDRs, National Ratings, and SSR of PAN reflect Fitch's view of a high probability of support from their parent bank,
PAN's Long-Term IDRs are equalized with BTG's Long-Term IDRs to reflect Fitch's view that the parent company has strong incentives to provide support to PAN as we consider it a strategic division of the group's consumer finance activities in
Improved Intrinsic Creditworthiness: PAN's ratings are further underpinned by its intrinsic strength, which is reflected in the VR of 'bb-'. PAN's VR reflects its well-established niche franchise in
Asset-Quality Risks Well Managed: PAN's impaired loans ratio of 9.7% (four-year average of 8.9%) is higher than its peer average of 4.9% and is highly influenced by the bank's business model, where yields are also usually high for the risks taken. Fitch expects inflows of impaired loans to remain high compared with 2021 and 2020, due to the pressured operating environment, but without having a material impact on LIC and still maintaining PAN's impaired loan ratio under 10.5%. PAN's risk management is also underpinned by a dominant share of less risky secured payroll and FGTS (
Improved Profitability: PAN's profitability has been solid and in line with Fitch's expectations. The bank's improved capitalization buffers from end-2019 levels has been paving the way for greater business volumes retention which, alongside with a decreasing share of legacy costly funding supports the bank's healthy operating income/risk-weighted assets ratio of 3.2% at 2Q22 (four-year average 3.1%), compared with an average of 1.3% for its peers in the same period. Fitch expects the bank to maintain an operating profit of above 3% of RWA in the medium term, driven by contained asset-quality deterioration and LICs and the contribution of growth and product diversification initiatives. Based on these expectations, Fitch has revised the earnings and profitability assessment to 'bb-' from 'b'.
Comfortable Capitalization: Fitch has revised PAN's capitalization & leverage midpoint to 'bb-' from 'b+', now at the same level of BTG's capitalization score. After the full acquisition of PAN's voting shares by BTG in 2021, both are part of the same prudential group under
Adequate Liquidity Metrics: PAN's funding and liquidity profile is a relative rating weakness (b+) due to a less-developed customer deposit franchise (compared with higher-rated Brazilian banks) and a still moderate (albeit recently improved) reliance on institutional funding. Fitch's assessment also reflects PAN's appropriate liquidity position which according to Fitch's calculation reached around
Rating Sensitivities
Factors that could, individually or collectively, lead to negative rating action/downgrade:
IDRs, NATIONAL RATINGS, SHAREHOLDER SUPORT RATING and VR
PAN's IDRs would be downgraded if both BTG's IDRs and PAN's VR were downgraded. PAN's IDRs also remain sensitive to a downgrade of
The most likely trigger for a downgrade of PAN's VR would be the bank's inability to maintain its good earnings generation capacity, resulting in an operating profit structurally below 2.5% of RWA and stand-alone CET1 ratio below 12% and without credible prospects to restore it over the medium to long term. This could stem from prolonged lower business activity or higher-than-expected credit risks. PAN's VR is also sensitive to a lower operating environment assessment (currently scored bb-/Negative).
PAN's SSR would be downgraded if BTG's IDRs were downgraded, or if PAN becomes less strategic for the group or significantly less integrated, which Fitch does not expect.
Factors that could, individually or collectively, lead to positive rating action/upgrade:
IDRs, NATIONAL RATINGS, SHAREHOLDER SUPORT RATING and VR
Positive rating action would require an upgrade of BTG's IDRs, which in turn is contingent upon an upgrade of
Best/Worst Case Rating Scenario
International scale credit ratings of Financial Institutions and Covered Bond issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three 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 four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from '
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
PAN's ratings are driven by BTG's ratings.
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.
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Fitch Affirms COMM 2015-LC19; Revises One Outlook to Stable
Thu
Fitch Ratings -
RATING ACTIONS
Entity / Debt
Rating
Prior
COMM 2015-LC19
A-3 200474BB9
LT
AAAsf
Affirmed
AAAsf
A-4 200474BC7
LT
AAAsf
Affirmed
AAAsf
A-M 200474BE3
LT
AAAsf
Affirmed
AAAsf
A-SB 200474AZ7
LT
AAAsf
Affirmed
AAAsf
B 200474BF0
LT
AA-sf
Affirmed
AA-sf
C 200474BH6
LT
A-sf
Affirmed
A-sf
D 200474AE4
LT
BBB-sf
Affirmed
BBB-sf
E 200474AG9
LT
Bsf
Affirmed
Bsf
F 200474AJ3
LT
CCCsf
Affirmed
CCCsf
Page
of 2
VIEW ADDITIONAL RATING DETAILS
KEY RATING DRIVERS
Improved Loss Expectations: Overall performance and base case loss expectations for the pool have improved since the last rating action. The Outlook revision to Stable from Negative reflects the performance stabilization for the majority of properties affected by the pandemic and better than expected recoveries from two specially serviced loans since the prior review.
Fitch has identified seven Fitch Loans of Concern (FLOCs; 17.7% of the pool balance), including one (0.6%) specially serviced loan. Ten loans (18.7%) are on the master servicer's watchlist for declines in occupancy, performance declines as a result of the pandemic, upcoming rollover and/or deferred maintenance. Fitch's current ratings incorporate a base case loss of 4.2%. Losses could reach 5.4% when applying additional sensitivities on
The largest contributor to overall loss expectations and largest increase in loss since the prior rating action is the
The second largest contributor to overall loss expectations is the AHIP Oklahoma City Portfolio loan (2.1%), which is secured by a portfolio of four hotels (440 keys) located in
The third largest contributor to overall loss expectations is the
Increased Credit Enhancement (CE): As of the
Alternative Loss Scenario: Fitch applied an additional sensitivity analysis on the
Property Type Concentration: The highest concentration is office (29.7%), followed by retail (26.5%), lodging (14.9%), mixed-use (14.4%) and multi-family (8.3%).
Pari Passu Loans: Three loans (23.2% of pool) are pari passu.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative rating action/downgrade:
Sensitivity factors that lead to downgrades include an increase in pool-level losses from underperforming or specially serviced loans/assets. Downgrades to the '
In addition, classes rated '
Fitch has identified both a baseline and a worse-than-expected, adverse stagflation scenario based on fallout from the
Factors that could, individually or collectively, lead to positive rating action/upgrade:
Sensitivity factors that could lead to upgrades would include stable to improved asset performance, coupled with additional paydown and/or defeasance. Upgrades to the 'A-sf' and 'AA-sf' rated classes are not expected but would likely occur with significant improvement in CE and/or defeasance along with continued stabilization to the properties impacted by the pandemic.
Upgrades of the 'BBB-sf' class would be limited based on the sensitivity to concentrations or the potential for future concentrations. Classes would not be upgraded above 'Asf' if there were likelihood of interest shortfalls. An upgrade to the 'Bsf' and 'CCCsf' rated classes is possible with the performance of the remaining pool continuing to stabilize, the continued paydown of the senior classes, and improved occupancy on the
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.
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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