TEXT-Fitch affirms FCT Blue Star Guaranteed Home Loans notes
Dec 19 - Fitch Ratings has affirmed FCT Blue Star Guaranteed Home Loans' (Blue Star) EUR3bn of outstanding notes at 'AAA'; Outlook Stable. The rating is based on Credit du Nord's (CN, 'A+'/Negative/'F1+') Long-term Issuer Default Rating (IDR) of 'A+', which acts as the main debtor of recourse under the secured advances, a Discontinuity-Cap (D-Cap) of 4 (moderate) and a level of asset percentage (AP) that Fitch gives credit to of 87.0%. In terms of sensitivity of the notes' rating, the 'AAA' rating would be vulnerable to downgrade, all else being equal, if one of the following occurred: CN's IDR was downgraded to 'BBB+' or below, the AP increased above 87% which is the updated breakeven percentage for a 'AAA' rating, or the D-Cap decreased to 1 or 0. Given that, all else being equal, a downgrade of CN's IDR by one notch would not result in a corresponding downgrade on the notes, the Outlook on Blue Star's notes remains at Stable, despite the fact that the Outlook on CN's IDR is itself Negative. Fitch gives credit to the 87.0% AP which the issuer commits to maintaining as part of the programme's monthly Asset Coverage Test (ACT). This 87.0% AP limits the rating on a probability-of-default basis to 'AA+' and supports a 'AAA' rating factoring recoveries given default. Overall, the Fitch breakeven AP has decreased to 87% compared to the previous 88% as a consequence of the agency applying updated refinancing cost assumptions for cover pools of French home loans (see "Covered Bonds Rating Criteria - Mortgage Liquidity & Refinance Stress Addendum", dated 14 November 2012 on www.fitchratings.com). The breakeven AP will be affected, among other factors, by the profile of the collateral assets relative to outstanding notes, which can change over time, even in the absence of new issuances. Therefore it cannot be assumed that the current breakeven AP will remain stable. The D-Cap of moderate is based on Fitch's assessment of the segregation of the collateral pool from the bankruptcy estate of CN as satisfactory, despite a risk that debtors might set-off their deposits in the event of CN's insolvency; it is also based on Blue Star's ability to overcome liquidity gaps via a 12-month extendible maturity on the notes; finally, the agency deems the transition to an alternative manager post an assumed default of CN as feasible, based on an analysis of CN's systems and processes. As of mid-November 2012, the cover pool consisted of 46,377 French residential loans granted by CN or its subsidiaries, with a weighted-average (WA) original loan-to-value ratio of 87.9%. According to the eligibility criteria, all loans must be guaranteed by Credit Logement (CL). Fitch took into account the creditworthiness of CL and calculated an expected loss of approximately 8.2% on the collateral pool under a 'AAA' stress scenario. 78.5% of the loans are fixed rate, whereas all notes pay a floating rate of interest. The issuer has entered into an asset swap with an intra-group counterparty (Societe Generale, (SG; 'A+'/Negative/'F1+')) to hedge the interest rate risk between the fixed rate loans in the cover pool and the floating rate notes. There are no currency mismatches. The cover pool's weighted-average residual life is 7.7 years, compared to 1.7 years for the notes, as of mid-November 2012. The agency modelled the maturity mismatch between the cover assets and outstanding notes and assumed under its stress scenario that assets will have to be liquidated at a discount to par when needed to repay maturing notes. Blue Star is a French securitisation fund (Fond Commun de Titrisation; FCT), established for the purpose of refinancing French residential loans granted by CN or its subsidiaries, and guaranteed by CL. It is co-owned by a management company (Paris Titrisation) and a custodian (SG). It is governed by the provisions of the French Monetary and Financial Code (art. L.214-43 et seq.) and the regulations entered into between the management company and the custodian. Additional information is available at www.fitchratings.com. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings. Applicable criteria, 'Covered Bonds Rating Criteria', dated 10 September 2012, 'Covered Bonds Rating Criteria - Mortgage Liquidity & Refinance Stress Addendum', dated 14 November 2012, 'Covered Bonds Counterparty Criteria', dated 25 July 2012, 'EMEA Residential Mortgage Loss Criteria', dated 07 June 2012, 'EMEA Criteria Addendum - France', dated 27 July 2012', are available on www.fitchratings.com. Applicable Criteria and Related Research: Covered Bonds Rating Criteria - Amended Covered Bonds Rating Criteria - Mortgage Liquidity & Refinance Stress Addendum Covered Bonds Counterparty Criteria EMEA Residential Mortgage Loss Criteria EMEA Criteria Addendum - France - Mortgage and Cashflow Assumptions
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