Fitch Affirms FCT R&B BDDF PPI at 'AAAsf'; Outlook Stable
The transaction is a static securitisation of a loan (the SG loan) made by Societe Anonyme de Credit a l'Industrie Francaise (CALIF) - a member of the SG group - to Societe Generale (SG; A/Stable/F1). The loan benefits in turn from a financial guarantee (remise en pleine propriete a titre de garantie) provided by SG. This financial guarantee is backed by a reference portfolio of prime residential housing loans to French individuals or civil real estate companies (SCI) originated by SG in France. The payment of the notes matches the repayment of the SG loan, which in turn matches the repayments received from the reference portfolio.
KEY RATING DRIVERS
Solid Credit Enhancement (CE)
CE for the class A notes is provided by overcollateralisation (the transaction does not have a reserve fund but benefits from a liquidity reserve). Thanks to the portfolio amortisation and the 2012 restructuring, which led to partial repayment of the class A notes, CE has built up to 37.5% from 13.0% at close. This provides a good level of protection to the senior tranche.
Of the portfolio, 10.2% of does not take the form of a mortgage or a caution (such as mortgage promises or pledge over securities), Fitch has taken conservative assumptions for these properties in terms of recovery rate to account for this unusual feature.
Mortgages granted to SCI make up 14.6% of the portfolio. An SCI is a French real estate company governed by the provisions of the Trade and Companies Registry and the French Civil Code. From a default perspective, Fitch applied an additional stress of 15% to the probability of default of these borrowers to account for both the fact that SCIs have several underlying borrowers, meaning that their overall willingness to pay is deemed to be lower than for loans to individual borrowers and that limited information regarding the employment status of the underlying borrower is available.
No Interest Rate Hedging
Following the 2012 restructuring, the transaction is no longer hedged against interest risk. In order to mitigate this risk, the transaction set up a 4% cap on the three-month Euribor paid on the notes, effectively capping the overall interest paid to note holders at 4.55%. Of the portfolio, 88% currently pays a fixed interest rate with a weighted average interest rate of 3.5%. Fitch has stressed the excess spread to account for the potential risk of excess spread compression in a rising interest rate scenario.
SG acts as counterparty in many roles, including cap provider, servicer and account bank provider. As a result, a downgrade of SG's rating could trigger negative rating action on the transaction if no remedial action is taken as per the transaction documentations.
Deterioration in asset performance may result from economic factors, in particular the effect of unemployment. This could lead to a corresponding increase in defaults. As the transaction provisions for default, this could mean that further use of excess spread might be necessary. However, considering the current cushion provided by CE, the notes seem adequately protected.
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 no adverse findings material to the rating analysis.
Overall, 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 SG as at July 2015.
- Transaction reporting provided by SG as at May 2015.
- Structure information provided by SG as at September 2015.
The model below was used in the analysis. Click on the link for a description of the model.