Fitch Upgrades CFHL-1 2014
OREANDA-NEWS. Fitch Ratings has upgraded three tranches of CFHL-1 2014 and affirmed the remaining two. The transaction is a securitisation of French residential mortgages originated by Credit Foncier de France (CFF, A/Stable/F1), which also acts as servicer for the portfolio.
Fitch has taken the following rating actions:
Class A2 (ISIN FR0011782390) affirmed at 'AAAsf'; Outlook Stable
Class B (ISIN FR0011782408) upgraded to 'AAAsf' from 'AAsf'; Outlook Stable
Class C (ISIN FR0011782416) upgraded to 'AAsf' from 'Asf'; Outlook Stable
Class D (ISIN FR0011782424) upgraded to 'Asf' from 'BBBsf'; Outlook Stable
Class E (ISIN FR0011782432) affirmed at 'BBsf'; Outlook revised to Positive from Stable
KEY RATING DRIVERS
Prepayments have been at an elevated level (trailing 12 months' average of 30%) over the last 18 months, reflecting the trend across the French mortgage market and are a result of the refinancing opportunities available due to a low base rate.
No repossessions or losses have been incurred on the pool since closing in May 2014 although loans in late-stage arrears (greater than 3 months) have increased sharply since closing to 0.6% of the outstanding portfolio balance. While the absolute value of arrears is still low the rate of increase is more pronounced than observed in other Fitch-rated French RMBS transactions.
The structure has generated 1% excess spread (annualised) each quarter. The high prepayments to date have resulted in a rapid build-up in credit enhancement across all tranches, leading to the upgrades to the class B, C and D notes.
Recovery and Valuation Adjustment
Based on findings from an agreed-upon-procedures (AUP) report produced at transaction closing, Fitch cut the recovery rate by 5% in all rating scenarios. The findings indicated incomplete or missing documents which, in Fitch's view, may affect legal recourse against the borrower in case of default. Fitch also conducted a file review of 10 loans selected randomly at closing. The agency discovered that the property value registered in CFF's IT systems at origination were gross of agency fees. As such, a haircut was applied to property values (excluding construction loans) of 6% to counter the over-estimation.
The securitised portfolio is characterised by a low weighted average original-to-value (OLTV) ratio of 72.9%, below the levels seen for other French specialised lenders. This low OLTV ratio is the result of a positive selection of the securitised loans from CFF's residential loan book. At closing, Fitch did not have enough visibility to calibrate the impact of this positive selection and therefore applied stresses on its default assumptions. The agency now considers that the observed performance of the transaction, together with further historical performance data now available, sufficiently demonstrate the effects of this positive selection on the credit quality of the portfolio. As a result, Fitch revised its default expectation and applied lower default assumptions in its analysis.
Issuance of Further A2 Notes
The issuer may issue, from April 2019, up to two further series of A2 notes. These additional notes will be issued on substantially the same terms (excluding margin) and the proceeds must be applied towards redeeming (in full) the current A2 notes at the time. The margin of the new A2 notes is subject to a cap and their issuance is contingent on no adverse rating movements as well as amendment of any swap margins as required.
Adverse macroeconomic trends may impact employment or the housing market, both of which have a direct bearing on the performance of the transaction by eroding credit enhancement, in turn leading to negative rating actions. Alternatively, if asset performance remains robust and credit enhancement continues to build up at the rapid rate observed to date, this may lead to positive rating actions.
DUE DILIGENCE USAGE
No third party due diligence was provided or reviewed in relation to this rating action.
Fitch has checked the consistency and plausibility of the information it has received about the performance of the asset pool and the transaction. There were no findings that were material to this analysis. Fitch has not reviewed the results of any third party assessment of the asset portfolio information or conducted a review of origination files as part of its ongoing monitoring.
Prior to the transaction closing, Fitch reviewed the results of a third party assessment conducted on the asset portfolio information, which indicated errors or missing data related to the execution documentation. These findings were accounted for in this analysis by assuming a 5% haircut to recovery rates across all rating scenarios.
Prior to the transaction closing, Fitch conducted a review of a small targeted sample of the originator's
origination files and found inconsistencies or missing data related to property valuations. These findings were accounted for in this analysis by assuming 6% haircut to property values.
Overall and together with the assumptions referred to above, Fitch's assessment of the information relied upon for the agency's rating analysis according to its applicable rating methodologies indicates that it is adequately reliable.
SOURCES OF INFORMATION
The information below was used in the analysis.
- Loan-by-loan data provided by the European Data Warehouse as at 31 December 2015
- Transaction reporting provided by Eurotitrisation as at 31 March 2016 and 28 April 2016
- Discussions/updates from CFF as at 18 May 2016