TEXT-S&P afrms rtg in FCT RED & BLACK FRENCH SMALL BUSINESS 2010-1
(The following statement was released by the rating agency)
Nov 09 -
-- We reviewed FCT RED & BLACK FRENCH SMALL BUSINESS 2010-1's performance using the latest available investor report and portfolio data from the servicer.
-- Following our review, we have affirmed our 'AAA (sf)' rating on the class A notes.
-- FCT RED & BLACK FRENCH SMALL BUSINESS 2010-1 is a cash securitization of loans to small businesses and professionals that the retail network of Societe Generale originated in France.
-- These ratings are based on our criteria for rating European SME securitizations. However, these criteria are under review. As a result of this review, our future European SME securitizations criteria may differ from the current criteria. The criteria change may affect the ratings on all outstanding notes in this transaction.
Standard & Poor's Ratings Services today affirmed its 'AAA (sf)' credit rating on FCT RED & BLACK FRENCH SMALL BUSINESS 2010-1's class A notes.
Today's rating action follows our performance review of FCT RED & BLACK FRENCH SMALL BUSINESS 2010-1 using the latest available investor report and portfolio data from the servicer. The affirmation reflects our view that the credit enhancement available to the class A notes is commensurate with the current rating.
Rating Rating Amount OC
Class to from (EUR) (%) Interest
A AAA(sf) AAA(sf) 1,854,900,000 31.30 3mEURIBOR+69bps
R NR NR 300 31.30 N/A
OC--Overcollateralization = (performing portfolio size - tranche balance
[including balance of all senior tranches]) / performing portfolio size.
3mEURIBOR--Three-month EURIBOR (Euro Interbank Offered Rate).
According to the information the management company provided to us, we have observed that approximately EUR62.16 million of loans that had been included in the portfolio (2.30% of the initial portfolio amount) have experienced a default since closing in November 2010. This amount is lower than our expected base case default rate at closing of 7.52%.
We note that the portfolio has not experienced any loss as all the defaulted loans were substituted with nondefaulted loans by Societe Generale, the servicer.
In our opinion, arrears of 30+ days remain limited and currently represent 2.09% of the portfolio. The servicer will typically treat loans as being defaulted after the borrower has been delinquent for 90+ days.
In light of these observations, and after our review of up-to-date cumulated default data from the servicer, we have decided to maintain our base case default rate at 7.52% for the remaining life of the transaction.
We have also reviewed up-to-date recovery information from the servicer. We have observed that realized recovery levels were lower than the historical levels that we observed at closing. Therefore, we have lowered our base case recovery rate to 35% from 45%.
We subjected the notes to various cash flow scenarios incorporating different default patterns, prepayments, and interest rate curves.
KEY MODEL ASSUMPTIONS
Current At closing
Performing portfolio size (mil. EUR) 2,700.00 2,700.00
Weighted-average interest rate (%) 4.08 4.16
Remaining residual maturity (months) 79 79
AAA default rate (%) 37.60 37.60
AA default rate (%) 30.08 30.08
AAA recovery rate (%) 17.50 22.50
AA recovery rate (%) 21.00 27.00
Societe Generale (A/Negative/A-1) as swap counterparty covers the interest rate risk derived from the fixed-rate paying loan and the floating-rate liabilities. In our opinion, the swap counterparty can support liability ratings up to 'AAA'.
As a result of the above credit and cash flow analysis, we have affirmed our 'AAA (sf)' rating on the class A notes.
FCT RED & BLACK FRENCH SMALL BUSINESS 2010-1 is a collateralized loan obligation (CLO) transaction securitizing a portfolio of loans to small businesses and professionals that the retail network of Societe Generale originated in France. At closing, FCT RED & BLACK FRENCH SMALL BUSINESS 2010-1 used the notes issuance proceeds to fund a loan from the Societe Anonyme de Credit a l' Industrie Francaise to Societe Generale. The loan is secured by the portfolio of loans made to small businesses and professionals. The transaction closed in November 2010.
POTENTIAL EFFECTS OF PROPOSED CRITERIA CHANGES
We have taken today's rating actions based on our criteria for rating European SME securitizations. However, these criteria are under review (see "Request For Comment: European SME CLO Methodology And Assumptions," published on Jan. 17, 2012).
As highlighted in the Jan. 17 Request For Comment, we are evaluating the market feedback, which may result in further changes to the criteria. As a result of this review, our future criteria for rating European SME CLOs may differ from our current criteria. The criteria change may affect the ratings on all outstanding notes in this transaction.
Until such time that we adopt new criteria for rating European SME securitizations, we will continue to rate and surveil these transactions using our existing criteria (see "Related Criteria And Research").
RELATED CRITERIA AND RESEARCH
-- Counterparty Risk Framework Methodology And Assumptions, May 31, 2012
-- European Structured Finance Scenario And Sensitivity Analysis: The Effects Of The Top Five Macroeconomic Factors, March 14, 2012
-- Request For Comment: European SME CLO Methodology And Assumptions, Jan. 17, 2012
-- Global Structured Finance Scenario And Sensitivity Analysis: The Effects Of The Top Five Macroeconomic Factors, Nov. 4, 2011
-- New Issue: FCT RED & BLACK FRENCH SMALL BUSINESS 2010-1, Nov. 26, 2010
-- Understanding Standard & Poor's Rating Definitions, June 3, 2009
-- Methodology And Assumptions: Update To The Criteria For Rating European SME Securitizations, Jan. 6, 2009
-- CDO Spotlight: General Cash Flow Analytics for CDO Securitizations, Aug. 25, 2004
-- Standard & Poor's Rating Methodology for CLOs Backed by European Small- and Midsize-Enterprise Loans, Jan. 30, 2003
-- Global Cash Flow and Synthetic CDO Criteria: CDO Surveillance, March 21, 2002
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