Fitch Affirms BNP Paribas Home Loan SFH's OFH at 'AAA'; Outlook Stable
OREANDA-NEWS.Fitch Ratings has affirmed BNP Paribas Home Loan SFH's (BNPP HL SFH) EUR26bn Obligations de Financement de l'Habitat (OFH; French legislative covered bonds) at 'AAA' with a Stable Outlook.
KEY RATING DRIVERS
The 'AAA' rating is based on BNP Paribas's (BNPP) Long-Term Issuer Default Rating (IDR) of 'A+' with a Stable Outlook, which acts as the reference IDR for this programme, an unchanged IDR uplift of two notches, an unchanged Discontinuity Cap (D-Cap) of two notches (high discontinuity risk), and the programme's maximum contractual asset percentage (AP) of 92.5%, which provides more protection than the revised 94.0% 'AAA' breakeven AP. The Stable Outlook on the OFH reflects that on BNPP's IDR and for French residential asset performance.
Fitch's 'AAA' breakeven AP for the OFH increased to 94.0% from 92.5%, which is explained by lower credit losses and a reduced cost of liabilities. Lower credit losses are driven by the decline in the share of assets originated by BNP Paribas Personal Finance in the cover pool (9.2% as of March 2016). The reduced cost of liabilities lowers the level of interest to be paid on liabilities when assets have fully amortised in the high prepayment scenario driving the results.
The 'AAA' breakeven AP of 94.0% is equivalent to a 6.4% breakeven overcollateralisation (OC). It considers a two-notch recovery uplift above a 'AA' tested rating on a probability of default basis, defined as BNPP's IDR adjusted by the IDR uplift. Timely payment is assumed at a 'AA' rating level irrespective of the actual level of AP protection available.
The 6.4% 'AAA' breakeven OC is driven by the credit loss component of 6.0% resulting from the asset analysis. The cash flow valuation (5.2%) and asset disposal loss (0.5%) components reflect the negative carry on liabilities and cash balances, when assets are modelled to have amortised, while liabilities do not accelerate.
The unchanged D-Cap of two notches remains driven by the weak link assessment of the liquidity gap and systemic risk component. This is due to the presence of a six-month pre-maturity principal coverage compared with Fitch's stressed liquidation timing of up to 12 months for residential loan collateral in France.
The unchanged IDR uplift of two notches reflects Fitch's view that resolution by other means than liquidation is likely for BNPP, that France is a covered bond intensive jurisdiction and that protection provided by the senior unsecured debt of BNPP is in excess of 5% of total adjusted assets.
The rating of the OFH would be vulnerable to a downgrade if any of the following occurs: (i) BNPP's Long-Term IDR is downgraded to 'BBB+' or below; or (ii) the sum of the IDR uplift and the D-Cap falls to one notch or below.