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June 23 (Reuters) - (The following statement was released by the rating agency)
Fitch Ratings has affirmed Compagnie de Financement Foncier’s (CoFF) EUR68.5bn Obligations Foncieres (OF, French legislative covered bonds) at ‘AA+’ with Stable Outlook, following the agency’s implementation of its updated criteria and the subsequent revision of the programme’s breakeven overcollateralisation (OC) to 15% from 17.5% for the rating.
The implementation of Fitch’s updated criteria follows the European Parliament and the Council of the European Union’s approval of the Bank Recovery and Resolution Directive (BRRD) on 15 April 2014 and 6 May 2014, respectively, and the agency’s subsequent application of its Issuer Default Rating (IDR) uplift for the programme, as detailed in ‘Fitch: Modest Positive Momentum from Covered Bonds Criteria Amendments’, dated 12 May 2014 at www.fitchratings.com. The BRRD was published in the Official Journal of the European Union on 12 June 2014.
The OF rating is based on the Long-Term IDR of Credit Foncier de France (CFF; A/Stable), CoFF’s 100% parent, acting as reference IDR for the OF rating, and the IDR uplift of ‘2’ assigned to the programme. This results in a floor for the OF rating on a probability of default (PD) basis of ‘AA-', irrespective of the actual OC protection available to the OF. CoFF’s Discontinuity-Cap (D-Cap) of 4 (moderate) remains unchanged.
In its analysis, Fitch relies on a nominal OC of 17.7%, which is the lowest observed over the last 12 months (disregarding the December 2013 OC, where the OC was lower but the amount of cash held by the issuer was particularly high). The agency notes that should the reference IDR of the programme be downgraded, 15% OC is unlikely to be sufficient for maintaining the ‘AA+’ rating of the OF. The OF’s rating is constrained by the French sovereign’s IDR (AA+/Stable), given the large exposure of the cover pool to French public sector entities, the credit risk of which is not compensated by OC relied upon, under Fitch’s stressed analysis for scenarios above the sovereign rating.
The ‘AA+’ rating of the OF would be vulnerable to downgrade if any of the following occurs: (i) CFF’s IDR is downgraded by five notches to ‘BB+’ or lower; (ii) the number of notches represented by the IDR uplift and the D-Cap is reduced to 1 or lower (iii) the level of OC that Fitch gives credit to in its analysis falls below Fitch’s ‘AA+’ breakeven OC of 15%; (iv) France is downgraded below ‘AA+'.
The Fitch breakeven OC for the OF rating will be affected, amongst others, by the profile of the cover assets relative to outstanding OF, which can change over time, even in the absence of new issuance. Therefore the breakeven OC to maintain the covered bond rating cannot be assumed to remain stable over time.