(Repeat for additional subscribers)
April 12 (The following statement was released by the rating agency)
Fitch Ratings has assigned FCT Evergreen HL1 (FCT or
the issuer) totalling EUR10bn the following ratings:
Class A1, EUR1bn floating rate notes due 2016, legal final maturity date 2046;
'AAA'; Outlook Stable
Class A2, EUR9bn floating rate notes due 2017, legal final maturity date 2046;
'AAA'; Outlook Stable
KEY RATING DRIVERS
The 'AAA' rating is based on the Long-term Issuer Default Rating (IDR) of Credit
Agricole S.A. (CASA, 'A+'/Negative/'F1+'), a Discontinuity Cap (D-Cap) of 8
(minimal discontinuity) and the contractual asset percentage (AP) of 87.7%. This
level allows the notes to be rated 'AAA' on a probability of default basis. The
FCT is not intending to issue further notes; therefore Fitch takes into account
the contractual AP which compares with the agency's breakeven AP of 90%.
CASA acts as the main debtor of recourse and Fitch uses its IDR as the reference
IDR in its analysis. The agency applied its covered bonds rating criteria to
assess the notes, due to the dual recourse nature of the transaction, first
against a financial institution (CASA) and second to a pool of housing loans.
The D-Cap of 8 for this programme reflects the minimal risk of discontinuity of
payments under the notes assuming an insolvency of CASA due to the programme
reverting to pass-through, should CASA default on the refinanced secured
advances. The D-Cap also reflects the EUR50m pre-funded liquidity reserve, which
will adjust over time if CASA's IDR falls below 'A'/'F1' to overcome liquidity
shortfalls on interest payments due on the notes. These result in a minimal
discontinuity risk assessment of the liquidity gaps and systemic risk component
of the D-Cap.
Fitch has assessed asset segregation as representing a moderate discontinuity
risk and takes into account the satisfactory segregation of the collateral pool
from the bankruptcy estate of the collateral providers, despite residual asset
claw back and set-off risks stemming from the underlying borrowers. The same
moderate risk assessment is applied to privileged derivatives which are
undertaken by CASA, the main debtor of recourse.
A moderate high risk assessment applies to the cover pool-specific alternative
management section of the D-Cap, based on the capable in-house developed IT
system but taking into account the specifics of the management of residential
loans originated by 39 caisses regionales and Le Credit Lyonnais. However the
agency's risk assessment of the systemic alternative management component is
very low and incorporates the expected ease of transition to an alternative
manager since there is no need to liquidate the cover assets under a
The FCT's assets comprise advances made by Credit Agricole Corporate and
Investment Bank (CACIB, A+/Negative/F1+) to CASA. The advances are secured by
French housing loans originated by entities of the Credit Agricole group.
As of 31 March 2013, the pool consisted of approximately 362,000 residential
loans with an aggregate outstanding balance of EUR12.7bn. About 80% are housing
loans guaranteed by Caisse d'Assurances Mutuelles du Credit Agricole, while the
remaining 20% is guaranteed by Credit Logement. In a 'AAA' stress scenario,
Fitch has calculated a cumulative weighted average (WA) frequency of foreclosure
of 16.8% and a WA recovery rate of 41.8%, resulting in a 9.8% AAA expected loss
for the cover pool.
Approximately 81% of the pool comprises fixed-rate loans, while the notes pay a
floating rate of interest, indexed to three-month Euribor. Interest rate swaps
are in place with CASA to hedge interest rate mismatches between assets and
notes upon inception of the programme.
The Stable Outlook on the notes rating is driven by the agency's stable
expectations for both the cover assets and over-collateralisation maintenance.
Although the Outlook on France's sovereign ('AAA'/'F1+') and CASA rating is
Negative, a one-notch downgrade would not lead to a downgrade of the notes.
The notes' 'AAA' rating would be vulnerable to downgrade if any of the following
occurred: (i) CASA's IDR fell to 'BB' or below; or (ii) the D-Cap fell to 1
(very high discontinuity risk) or 0 (full discontinuity); or (iii) the
transaction AP exceeded 90%, which is the breakeven level calculated by Fitch in
line with the 'AAA' rating.
The Fitch breakeven AP will be affected, among others, by the profile of the
cover assets relative to outstanding notes, which can change, even in the
absence of new issuances. Therefore it cannot be assumed to remain stable over