Fitch Expects to Rate Davivienda Costa Rica's DPR Issuance 'BBB(EXP)'; Outlook Stable

CHICAGO--()--Link to Fitch Ratings' Report: DPR-CR Limited

https://www.fitchratings.com/site/re/890707

Fitch Ratings expects to rate the $250 million (max.) series 2016 notes to be issued by DPR-CR Limited 'BBB(EXP)' with a Stable Outlook. A full list of rating actions follows at the end of this release.

The future flow program will be backed by U.S. dollar-denominated existing and future diversified payment rights (DPRs) originated by Banco Davivienda (Costa Rica), S.A. (Dav-CR). The majority of DPRs are processed by designated depository banks (DDBs) that will execute acknowledgement agreements (AAs), irrevocably obligating them to make payments to an account controlled by the transaction trustee. Fitch's ratings address timely payment of interest and principal on a quarterly basis.

KEY RATING DRIVERS

Originator Credit Quality: Fitch rates Dav-CR's Local Currency (LC) Issuer Default Rating (IDR) 'BBB' with a Negative Outlook. The ratings assigned to Dav-CR are driven by the support the bank would receive from its Colombian parent, Banco Davivienda ('BBB'/Outlook Negative), if necessary. Dav-CR has a Viability Rating (VR) of 'bb-'. Fitch assigns a going concern assessment (GCA) score of 'GC2' to Dav-CR.

Parental Support Limits Uplift: The GCA score serves as a rating cap on the future flow transaction, but Fitch tempers notching uplift for future flow transactions originated by sponsors with support-driven ratings and for highly-rated originators. The transaction is rated four notches above the bank's VR, which measures Dav-CR's stand-alone credit risk.

Moderately Large Program Size: The proposed future flow issuance would represent approximately 9.8% of the bank's total liabilities and 26% of non-deposit funding. While Fitch considers these ratios small enough to differentiate the credit quality of the financial future flow transaction from the originator's LC IDR, the future flow debt size is a constraint on the transaction ratings.

Adequate Debt Service Coverage: Fitch expects base case quarterly debt service coverage ratios (DSCRs) to be approximately 20.7x. This calculation considers average quarterly rolling DPR flows during the last 12 months and the maximum quarterly debt service stressed according to Fitch's 'B'-level interest rate stress. The expected DSCR is low relative to coverage levels observed in other DPR programs and is a constraint on the future flow ratings.

Sovereign/Diversion Risks Reduced: The contemplated structure mitigates certain sovereign risks by keeping cash flows offshore until scheduled debt service is paid to investors, allowing the transaction to be rated above Costa Rica's country ceiling (CC). Fitch believes diversion risk is partially mitigated by the AAs to be signed by DDBs.

Sovereign Environment: Costa Rica's 'BB+' rating is underpinned by its strong structural features in terms of high per capita income, social development indicators and governance standards, as well as the continued success of its economic model. The Negative Outlook reflects the deteriorating public debt dynamics driven by large fiscal deficits and continued legislative gridlock. The CC is one notch above the Long-Term Foreign Currency IDR, underpinned by Costa Rica's commitment to the free flow of capital and international trade.

RATING SENSITIVITIES

The credit strength of the transaction is linked to the performance of Dav-CR. The future flow ratings are sensitive to changes in the credit quality of Dav-CR, the ability of the DPR business line to continue operating (as reflected by the GCA score), changes in the ratings assigned to Costa Rica, and the performance of the DPR program. While the DPR ratings are sensitive to a downgrade of the bank's stand-alone credit quality, a one-notch downgrade of the bank's IDRs may not trigger a downgrade to the future flow ratings. Severe reductions in coverage levels or an increase in the level of future flow debt as a percentage of the bank's liabilities could result in rating downgrades.

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.

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 future flow transactions do not typically include RW&Es that are available to investors and that relate to the asset pool underlying the security. Therefore, Fitch credit reports for future flow transactions 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,' dated May 31, 2016.

Fitch has assigned the following ratings:

--$100,000,000 series 2016-1 notes 'BBB(EXP)'; Outlook Stable;

--$150,000,000 series 2016-2 notes 'BBB(EXP)'; Outlook Stable.

Additional information is available at www.fitchratings.com.

Applicable Criteria

Counterparty Criteria for Structured Finance and Covered Bonds (pub. 01 Sep 2016)

https://www.fitchratings.com/site/re/886006

Criteria for Interest Rate Stresses in Structured Finance Transactions and Covered Bonds (pub. 26 Oct 2016)

https://www.fitchratings.com/site/re/888492

Future Flow Securitization Rating Criteria (pub. 14 Sep 2016)

https://www.fitchratings.com/site/re/887175

Global Structured Finance Rating Criteria (pub. 27 Jun 2016)

https://www.fitchratings.com/site/re/883130

Additional Disclosures

Dodd-Frank Rating Information Disclosure Form

https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=1015710

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1015710

Endorsement Policy

https://www.fitchratings.com/regulatory

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Contacts

Fitch Ratings
Primary Analyst
Jose Pablo Zuniga
Director
+1-312-608-2053
Fitch Ratings, Inc.
70 W Madison Street
Chicago, IL 60602
or
Secondary Analyst
Gregory Lane
Director
+1-312-606-2304
or
Committee Chairperson
Greg Kabance
Managing Director
+1-312-368-2052
or
Media Relations
Elizabeth Fogerty, +1-212-908-0526
elizabeth.fogerty@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst
Jose Pablo Zuniga
Director
+1-312-608-2053
Fitch Ratings, Inc.
70 W Madison Street
Chicago, IL 60602
or
Secondary Analyst
Gregory Lane
Director
+1-312-606-2304
or
Committee Chairperson
Greg Kabance
Managing Director
+1-312-368-2052
or
Media Relations
Elizabeth Fogerty, +1-212-908-0526
elizabeth.fogerty@fitchratings.com