February 15, 2017 / 5:38 PM / 9 months ago

Fitch Affirms CIF Euromortgage at 'AA' Stable Outlook

(The following statement was released by the rating agency) PARIS/LONDON, February 15 (Fitch) Fitch Ratings has affirmed CIF Euromortgage's Obligations Foncieres (OF, French legislative covered bonds) at 'AA' with a Stable Outlook. The affirmation follows the replacement of the entire cover pool by a credit advance made by CIF Euromortgage to Caisse Centrale du Credit Immobilier de France (3CIF), and secured by a portfolio of French residential loans originated by the group, as made possible by amendments to the French covered bonds law enacted in December 2016. The underlying loans were either formerly securitised through the RMBS CIF-Assets 2001-1, which has been liquidated, or else previously used as collateral for promissory notes held by CIF Euromortgage. KEY RATING DRIVERS The OF are rated three notches above the 'A' Long-Term Issuer Default Rating (IDR) of Credit Immobilier de France Developpement (CIFD) which acts as reference IDR for CIF Euromortgage's OF. The OF rating is based on an unchanged IDR uplift of one notch, a payment continuity uplift (PCU) revised to one notch from two notches, and an unchanged recovery uplift of two notches. The rating further relies on publicly committed overcollateralisation (OC) of 17%, which is sufficient to support a two-notch recovery uplift above the 'A+' floor rating for the OF. Finally, the rating is capped at the French sovereign's IDR (AA/Stable) due to the potential concentration of the cover pool on a single exposure against the French state. The Stable Outlook on the OF reflects the Stable Outlook on CIFD's IDR, and the French sovereign IDR. IDR Uplift French Societe de Credit Foncier (SCF) programmes are eligible for an IDR uplift given the OF's exemption from bail-in in a resolution scenario, the fact that the resolution of CIFD, CIF Euromortgage's parent, has not resulted in the direct enforcement of recourse against the cover pool and Fitch's assessment of the low risk of undercollateralisation at the point of resolution (see Fitch's Jurisdictional Analysis of the Risk of Undercollateralisation of Covered Bonds - Excel file). Fitch has assigned CIF Euromortgage's OF a one-notch IDR uplift, as its reference IDR is support driven with no Viability Rating. Payment Continuity Uplift Fitch has reduced CIF Euromortgage's PCU to one notch, based on the liquidity protection of two months of senior expenses, interest and principal payments for the hard bullet covered bonds. The liquidity protection also includes three months senior expenses and interest coverage for soft bullet covered bonds, in case any exist in the future. Previously, Fitch gave credit to available liquid assets in the cover pool and the ability to repo RMBS senior notes with the central bank to raise short-term liquidity, which was deemed equivalent to three months liquidity protection for interest and principal due on the OF. Recovery Uplift CIF Euromortgage's OF benefit from a two-notch recovery uplift, as the OC that Fitch relies upon offsets credit losses modelled in a stress scenario corresponding to the OF rating. The 'AA' credit loss of 17.0% is mainly due to the significant proportion of loans (46.6%) with an original loan-to-value (OLTV) above 100% resulting in a portfolio with a high weighted average OLTV (96.0%). Potential Exposure to French Sovereign The cover pool can consists of residential loans or exposures to the French state. The secured advance can be redeemed early at any time, in which case the cover pool could take the form of a single exposure to the French state. Fitch considered this risk in its analysis and decided to cap the OF rating at the level of the French sovereign. Breakeven OC for the Rating The 'AA' breakeven OC for the OF rating has increased to 17.0% from 5.0% due to the different portfolio composition. The main driver of the increase is the replacement of the 'AAA' rated RMBS senior notes by an advance secured by a portfolio of residential loans, which has a higher credit loss in the relevant rating scenario. RATING SENSITIVITIES The 'AA' rating of CIF Euromortgage's Obligations Foncieres (OF) would be vulnerable to a downgrade if any of the following occurs: (i) Credit Immobilier de France Developpement's Long-Term Issuer Default Rating (IDR) was downgraded by two notches to 'BBB+' or below; (ii) the relied upon overcollateralisation (OC), decreased below the 'AA' breakeven OC of 17.0%; (iii) a downgrade of the French sovereign IDR, which constitutes a cap for the OF rating, due to potential concentration of the cover pool against a single exposure to the French state. Fitch's breakeven OC for a given covered bond rating will be affected by, among other factors, the profile of the cover assets relative to outstanding covered bonds, which can change over time even in the absence of new issuance. Therefore, breakeven OC for the covered bond ratings cannot be assumed to remain stable over time. Contact: Primary Analyst Raul Domingo Director +33 1 44 29 91 70 Fitch France S.A.S. 60 rue de Monceau 75008 Paris Secondary Analyst Will Rossiter Director +33 1 44 29 91 47 Committee Chairperson Helene Heberlein Managing Director +33 1 44 29 91 40 Media Relations: Athos Larkou, London, Tel: +44 203 530 1549, Email: athos.larkou@fitchratings.com. Additional information is available at www.fitchratings.com. Applicable Criteria Counterparty Criteria for Structured Finance and Covered Bonds (pub. 01 Sep 2016) here Counterparty Criteria for Structured Finance and Covered Bonds: Derivative Addendum (pub. 18 Jul 2016) here Covered Bonds Rating Criteria (pub. 26 Oct 2016) here Criteria Addendum: France - Residential Mortgage Assumptions (pub. 08 Dec 2016) here Criteria for Interest Rate Stresses in Structured Finance Transactions and Covered Bonds (pub. 26 Oct 2016) here Criteria for Rating Caps and Limitations in Global Structured Finance Transactions (pub. 16 Jun 2016) here EMEA RMBS Rating Criteria (pub. 29 Nov 2016) here Fitch's Cover Assets Refinancing Spread Level (RSL) Assumptions - Excel file (pub. 20 Jan 2017) here Global Bank Rating Criteria (pub. 25 Nov 2016) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here _id=1019039 Solicitation Status here Endorsement Policy here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. 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