(Repeat for additional subscribers)
Oct 30 (Reuters) - (The following statement was released by the rating agency)
Fitch Ratings has assigned Master Credit Cards PASS Compartment France’s notes, backed by French credit card receivables originated by Carrefour Banque (CB, not rated), expected ratings as follows:
EUR400.00m Class A, due October 2025: ‘AAA(EXP)sf’; Outlook Stable
EUR123.60m Class B, due October 2025: ‘NR(EXP)’
EUR36.57m Class S, due October 2025: ‘NR(EXP)’
The securitised portfolio consists of drawings made under revolving credit agreements mainly associated with credit cards using the MasterCard networks and originated via CB. Series 2013-1 is the first series issued under Master Credit Cards PASS Compartment France, a newly established programme. This is the first credit card securitisation transaction in France and the third consumer securitisation conducted by CB, which is 60% owned by Carrefour SA (BBB/Stable), the largest retailer in Europe and 40% owned by BNP Paribas Personal Finance (not rated) - a 100% subsidiary of BNP Paribas (A+/Stable/F1).
Credit enhancement is provided mainly via overcollateralisation provided by the class B notes and by the class S notes during the accelerated amortisation period. In addition, the general reserve may provide credit enhancement to the extent that while amortising, the excess of the reserve over its required amount flows through the relevant priority of payments and provides additional excess spread, available to cure any principal deficiency ledger.
Fitch views the transaction’s key rating drivers as: (i) the performance parameters such as charge-off rates, yield rates, monthly payment rates (MPRs), and purchase rates; (ii) the provisioning mechanism in place, which provides that excess spread may be trapped to cover defaulted receivables or receivables for which borrowers are over-indebted; (iii) the monthly transfer of encrypted borrowers’ details, the commingling reserve and the general reserve which, together with other provisions, adequately mitigate servicing continuity risks; and (iv) the stable to declining asset performance outlook for French consumer assets.
Fitch set a base case charge-off assumption of 8% a year (stressed up to 36% a year at ‘AAAsf’), reflecting the increasing charge-off levels seen since the beginning of the economic turmoil and the general rise in unemployment since 2008.
French Credit Cards Specifics
Unlike UK credit cards, only drawings using the credit line are securitised (eg deferred payments at the end of the month are not securitised as long as they are paid on time). Furthermore, Fitch gave limited credit to recoveries (37.2% under a base case scenario), considering the high level of such recoveries observed historically. Lastly, to avoid any potential risk of mutual ownership between the issuer and CB, additional drawings (ie when the issuer is already the owner of part of the amounts due under the relevant revolving credit agreement) will continue to be purchased, including during the accelerated amortisation phase through a differed purchase mechanism. However, Fitch did not give credit to this feature and assumed a purchase rate of 0%.
Amortisation Impacted by Legal Constraints
The French consumer law imposes strict rules as regard revolving credits; in particular, they shall be repaid according to a minimum scheduled amortisation subject to their date of origination. This minimum legal requirement constitutes a key driver of the speed of the pool amortisation.
Issuance of Additional Series
The transaction is structured as a programme whereby during the programme revolving period, additional series of class A and B notes and class S notes (representing the seller’s interest), can be issued - subject to certain conditions - either to repay existing notes or to purchase additional receivables up to the maximum programme size (EUR1.0bn).
Servicing Continuity Risk
CB is the servicer. No back-up servicer will be appointed at closing. However, servicing continuity risks are mitigated by different operational elements. Furthermore, several factors mitigate the commingling risk (including the use of a dedicated collection account and the availability of a commingling reserve), while an adequately sized reserve fund (the general reserve) is available for liquidity.
Fitch has a stable to declining asset outlook for French consumer ABS assets. Although the agency forecasts French economic activity to remain weak over the next two years, characterised by high unemployment, Fitch believes defaults are likely to remain within base-case expectations, as they already incorporate Fitch’s short-term macroeconomic expectations.
The ratings are sensitive to changes in charge-offs and MPRs. Therefore, Fitch applied high charge-off and MPR stresses in its analysis. A long-term substantial change in payment behaviour and/or increasing charge-off rates would put the notes under rating pressure. The agency also tested the impact of both stressed monthly payment rates and increasing charge-offs.
Expected impact upon the note rating of increased charge-offs:
Original rating: ‘AAAsf’
Increase base case charge-offs by 25%: ‘AAAsf’
Increase base case charge-offs by 50%: ‘AA+sf’
Increase base case charge-offs by 75%: ‘AAsf’
Expected impact upon the note rating of reduced MPRs:
Original rating: ‘AAAsf’
Reduce base case purchase rate by 15%: ‘AAAsf’
Reduce base case purchase rate by 25%: ‘AA+sf’
Reduce base case purchase rate by 35%: ‘AA-sf’
Expected impact upon the note rating of increased charge offs and reduced payment rate:
Original rating: ‘AAAsf’
Increase base case charge-offs by 25% and reduce MPR by 15%: ‘AA+sf’
Increase base case charge-offs by 50% and reduce MPR by 25%: ‘Asf’
Increase base case charge-offs by 75% and reduce MPR by 35%: ‘BBBsf’
A presale report, including further information on transaction related stress and sensitivity analysis, and material sources of information that were used to prepare the credit rating is available at www.fitchratings.com.