Fitch Affirms Societe Generale SFH's OFH At 'AAA'; Outlook Stable
OREANDA-NEWS. Fitch Ratings has affirmed Societe Generale SFH's (SG SFH) EUR21bn Obligations de Financement de l'Habitat (OFH; French legislative covered bonds) at 'AAA'. The Outlook is Stable.
KEY RATING DRIVERS
The 'AAA' OFH rating is based on Societe Generale's (SG) Long-term Issuer Default Rating (IDR) of 'A'/Stable, which acts as reference IDR for the programme, an unchanged IDR uplift of 2, an unchanged Discontinuity Cap (D-Cap) of 3 notches (moderate high risk) and the programme's contractual minimum over-collateralisation (OC) of 8.5%. The Stable Outlook on the OFH reflects that on SG's IDR and for the underlying French residential assets' performance.
The 'AAA' breakeven OC for the OFH remains unchanged at 5.0%. It is driven by the credit loss component of 5.7%, reflecting the overall 'AAA' expected loss on the cover pool. The cash flow valuation component of negative 0.6% reflects the natural hedge between assets and the liabilities (both mostly fixed-rate) and the excess interest for the programme resulting from higher weighted average (WA) interest on the assets (2.9%) compared with the liabilities (1.3%). The asset disposal loss component of 3.9% is driven by the cost of reinvestment of excess cash below Euribor in Fitch's central scenario.
The D-Cap of 3 continues to be driven by Fitch's assessment of the liquidity gap and systemic risk component (moderate high risk). The unchanged IDR uplift of 2 reflects the exemption of covered bonds from bail-in, Fitch's view that France is a covered bond-intensive jurisdiction and that resolution by other means than liquidation would be more likely for SG.
The 'AAA' rating of the OFH would be vulnerable to a downgrade if either of the following occurs: (i) Societe Generale's Issuer Default Rating (IDR) is downgraded by three notches to 'BBB' or below; or (ii) the total number of notches represented by the IDR uplift and the Discontinuity-Cap is reduced to two or lower.