Fitch Ratings has affirmed Banco PAN S.A.'s (PAN) Long-Term (LT) Local and Foreign Currency Issuer Default Ratings (IDRs) at 'BB-', Long-Term National Rating at 'AA(bra)' and Viability Rating (VR) at 'bb-'.

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 Brazil remain as well as main downside risks of banks' performance and risk profiles in the medium term. The revision of the OE midpoint resulted in a change to the benchmark ranges used by Fitch to determine the implied rating scores.

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, Banco BTG Pactual S.A. (BTG; BB-/Stable/bb-), in case of need. The Stable Outlooks on PAN's Long-Term IDR and National Ratings mirrors that on its parent.

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 Brazil. Fitch's assessment of shareholder support also considers that the parent and PAN operate in the same jurisdiction, are subject to the same regulations and belong to the same prudential perimeter in Brazil. The high degree of integration of PAN's operations and management with those of BTG, Fitch's view that a default on PAN would constitute huge reputational risks to its parent as well as the cross default clauses on BTG's international issuances and potential acceleration of parent debt, also contribute to the overall support assessment.

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 Brazil, relative to its mid-sized peers, with its focus on consumer finance to low-income clients. Asset quality and profitability are therefore more variable over economic cycles, but have been held with a good degree of resilience, aided by the bank's adequate business mix, effective risk controls and a large share of secured lending. The VR also factors in the bank's improved capitalization and funding profiles, as well as prudent liquidity management.

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 (Guarantee Fund for Length of Service) backed lending (44% of loans at 2Q22) and collateralized auto lending (43% of loans). However, the recent offer of credit backed by the Auxilio Brasil benefit to economically vulnerable citizens is being monitored by Fitch, as this new credit line may have risks not yet tested by the banks that are participating in this program.

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 Brazil's Central Bank regulation perimeter and regulatory capitalization requirements are reported on a group basis. At 2Q22, the group's consolidated CET1 was 13.4%, and PAN's stand-alone CET1 ratio of around 17%, which continues to be provided on a managerial basis and held above-peer averages, underpinned the assessment.

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 BRL 5.2billion at end-June 2022, and was enough to cover more than 30% of one-year funding maturities. BTG's strategy is to maintain PAN as a self-funded unit but PAN's contingent access to BRL2.2 billion of interbank lines with its parent BTG reinforces Fitch's view that potential ordinary support from the group would be available, if needed.

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 Brazil's sovereign rating.

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 Brazil's sovereign rating. An upgrade of PAN's VR is currently unlikely in the medium term, reflecting the bank's less-diversified business model, compared with higher-rated Brazilian banks.

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 'AAA' to 'D'. 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

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.

[Editorial queries for this story should be sent to newswire@enpublishing.co.uk]

Fitch Affirms COMM 2015-LC19; Revises One Outlook to Stable

Thu 20 Oct, 2022 - 4:40 pm ET

Fitch Ratings - New York - 20 Oct 2022: Fitch Ratings has affirmed 13 classes of COMM Mortgage Trust commercial mortgage pass-through certificates, series 2015-LC19. The Rating Outlook on class E has been revised to Stable from Negative.

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 Central Plaza and Decorative Center of Houston to address concerns with the potential performance volatility of these office assets. The ratings and revision of the Outlook on class E reflect the potentially higher losses on these two assets.

The largest contributor to overall loss expectations and largest increase in loss since the prior rating action is the Central Plaza loan (6.9% of the pool), which is secured by an 876,112-sf office property and two adjacent parking structures, located in Los Angeles, CA. Annualized March 2022 NOI DSCR was 1.49x, compared with 1.45x at YE 2021 and 1.64x at YE 2019. Portfolio occupancy has decreased to 52% at March 2022 from 58% at YE 2021, and remains below issuance occupancy of 64%. Near-term rollover includes 14% of the collateral NRA in 2022, 7.4% in 2023 and 12.9% in 2024. Fitch's analysis includes a 10% cap rate and 20% total stress to the YE 2021 NOI to account for the low occupancy, upcoming rollover, and performance concerns from the pandemic resulting in an 11% base case modeled loss.

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 Oklahoma; three are located in Oklahoma City (Holiday Inn Oklahoma City Airport, Staybridge Suites Oklahoma City Airport, and Holiday Inn Oklahoma City North Quail Springs), and one in Woodward (Hampton Inn & Suites Woodward). Performance declined pre-pandemic with YE 2019 NOI DSCR at 0.62x, due to the softening of the oil and gas industry, which is a key demand driver in the Oklahoma market; as well as new supply. YE 2020 and YE 2021 NOI were negative. Two of the hotels have reportedly received poor franchise inspection results recently, with one hotel in default on its franchise agreement. Fitch's analysis includes a 11.75% cap rate and 10% total stress to the YE 2019 NOI resulting in an 32% modeled loss.

The third largest contributor to overall loss expectations is the Decorative Center of Houston loan (3.7%), which is secured by a 516,582-sf design center, located in Houston, TX. The property itself consists of approximately 222,945 sf of office space and approximately 293,636 sf of design space. The servicer reported DSCR as of the first quarter of 2022 was 1.36x compared with 1.47x at YE 2021 and 1.61x at YE 2020. Per the July 2022 rent roll, the property was 71% leased compared with 69% as of YE 2021, and 78% at issuance. Near-term rollover includes 7.7% of the collateral NRA in 2022, 14.5% in 2023 and 11.7% in 2024. Fitch's analysis includes a 10.75% cap rate and 15% total stress to the YE 2021 NOI to account for the low occupancy and performance concerns resulting in a 12% base case modeled loss.

Increased Credit Enhancement (CE): As of the October 2022 distribution date, the pool's aggregate balance has been paid down by 13.54% to $1.23 billion from $1.42 billion at issuance. Realized losses since issuance total $6.2 million, including approximately $1.7 million from March 2022 after the discounted payoff of the specially serviced loan Enclave West. Thirteen full-term interest-only loans comprise 47% of the pool. Eighteen loans representing 28.3% of the pool had a partial interest-only component, and twenty loans representing 24.7% are balloon loans. Eleven loans (23.2%) have been defeased. No performing loans mature or have an ARD prior to 2024 (46.5%), 2025 (49.4%), and 2027 (3.5%).

Alternative Loss Scenario: Fitch applied an additional sensitivity analysis on the Central Plaza and Decorative Center of Houston due to concerns with potential continued performance declines. Sensitivity losses of 23% and 25% were applied respectively by assuming 100% probability of default on each loan. This additional sensitivity scenario was used to test the viability of the revision of the Outlook on class E to stable from negative and to address potential upgrades given the increase in CE, large percentage of defeased loans, and improving pool performance. With improved performance on Central Plaza and Decorative Center of Houston upgrades are possible.

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 'AAA' through 'A-' classes are not currently considered likely due to the expectation of continued increase in credit enhancement from amortization and future dispositions, but may occur with continued performance declines should pandemic-impacts continue.

In addition, classes rated 'AAA' or 'AA' would be downgraded should interest shortfalls occur. Downgrades to classes 'BBB-' and 'B' are possible should performance of the FLOCs continue to decline, should loans susceptible to the coronavirus pandemic not stabilize, and/or should further loans transfer to special servicing. Downgrades to the 'CCC' class could happen if losses are realized or become more certain.

Fitch has identified both a baseline and a worse-than-expected, adverse stagflation scenario based on fallout from the Russia-Ukraine war whereby growth is sharply lower amid higher inflation and interest rates; even if the adverse scenario should play out, Fitch expects virtually no impact on ratings performance, indicating very few rating or Outlook changes. However, for some transactions with concentrations in underperforming retail exposure, the ratings impact may be mild to modest, indicating some changes on sub-investment-grade notes.

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 Central Plaza and Decorative Center of Houston loans.

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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