DBRS Finalises Provisional Rating Previously Assigned to FCT Opera 2014

DBRS Ratings Limited (DBRS) has today finalised its provisional rating of AAA (sf) previously assigned to the Class A Notes issued by FCT Opera 2014 (the Issuer). FCT Opera 2014 is a securitisation of French home loans and their respective Ancillary Rights originated and serviced by BNP Paribas (BNPP or the Seller). The initial portfolio purchased by and additional loans to be assigned to the Issuer are fixed-rate home loans and their respective Ancillary Rights.

At the Issue Date of the transaction (12 November 2014), the Issuer will use the proceeds of the Class A and unrated Class B Notes to fund the initial portfolio. The securitisation will take place in the form of a Fonds Commun de Titrisation, governed by French law.

The rating is based on a review by DBRS of the following analytical considerations:
• Transaction’s capital structure, form and sufficiency of available credit enhancement. The rated Class A Notes will benefit from 19.90% credit enhancement in the form of the EUR 197,400,000 Class B Notes and part of the Reserve Fund (5.00% of the initial balance of the Class A and Class B Notes). The Reserve Fund which will be funded by BNPP at the Issue Date in the amount of EUR 79,500,000 (6.00% of the initial balance of the Class A and Class B Notes). The Reserve Fund will be available to pay senior fees and expenses as well as interest due on the Class A and Class B Notes during the Normal Redemption Period. During the Accelerated Redemption Period, the Reserve Fund will be partially available to provide liquidity support to the Class A Notes (1.00%) and partially available to provide credit support to the Class A Notes (5.00%).

• The main characteristics of the initial portfolio include: (1) 86.65% weighted-average (WA) current loan-to-value ratio; (2) top three metropolitan regions of France are Île-de-France (27.56%), Rhône-Alpes (10.41%) and Provence-Alpes-Côte d'Azur (9.13%); (3) 45.05% buy-to-let borrowers; (4) 39.07% interest-only loans; and (5) 4.46 years of WA seasoning.
  • The structure includes an 18-month revolving period during which the Issuer may purchase additional home loans from the Seller. The structure includes conditions for further purchases of home loans which consists of delinquency and default triggers as well as eligibility criteria for additional home loans. The DBRS credit analysis assumes principal receipts received during the revolving period will be reinvested in additional home loans which have the highest risk characteristics to assess the potential credit migration of the portfolio during the revolving period. The updated portfolio was used with the EU RMBS Credit Model to estimate the expected portfolio probability of default (PD) for each rating scenario.
  • The recovery analysis on the underlying portfolio deviates from the loss given default (LGD) analysis in DBRS’s “Master European Residential Mortgage-Backed Securities Rating Methodology and Jurisdictional Addenda.” Cumulative recovery curves were estimated using historical recovery data provided by BNPP specific to the French home loans in the securitised portfolio.
  • 100% of the borrowers pay a fixed-rate home loan, eliminating the potential for increased payments in a rising interest rate scenario. Additionally, the liabilities are also fixed, eliminating the interest rate mismatch between the assets and the liabilities.
  • DBRS used a combination of default front- and back-ended timing curves with low, mid and high prepayment stresses in accordance with the DBRS methodology to stress the cash flows. Additionally, a 0% CPR scenario was tested given the low interest rate environment.
  • BNP Paribas Securities Services is the Account Bank for the transaction. The DBRS private rating of BNP Paribas Securities Services is above the Minimum Institution Rating given the rating assigned to the Class A Notes as described in the DBRS “Legal Criteria for European Structured Finance Transactions” methodology.
  • The legal structure and presence of legal opinions addressing the assignment of the assets to the Issuer at the Issue Date are consistent with the DBRS “Legal Criteria for European Structured Finance Transactions” methodology.

The estimated recovery curves for the FCT Opera 2014 transaction assume recoveries begin one quarter after default on the underlying loan and reach a terminal recovery value after ten years. For the base-case estimate, the initial recovery one quarter after default is 57.07% with a terminal cumulative recovery of 93.66% over ten years. For the AAA scenario, the initial recovery one quarter after default is 43.76% with a terminal cumulative recovery of 71.82% after ten years.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable is Master European Residential Mortgage-Backed Securities Rating Methodology and Jurisdictional Addenda (August 2014), which can be found on www.dbrs.com. Other methodologies and criteria referenced in this transaction are listed under Related Research.

For a more detailed discussion of sovereign risk impact on Structured Finance ratings, please refer to DBRS commentary, “The Effect of Sovereign Risk on Securitisations in the Euro Area” at http://www.dbrs.com/industries/bucket/id/10036/name/commentaries/.

The sources of information used for this rating include BNPP and their agents. DBRS considers the information available to it for the purposes of providing this rating was of satisfactory quality.

DBRS does not audit the information it receives in connection with the rating process, and it does not and cannot independently verify that information in every instance.

This rating concerns a newly issued financial instrument. This is the first DBRS rating on this financial instrument.

Information regarding DBRS ratings, including definitions, policies and methodologies are available on www.dbrs.com.

To assess the impact of changing the transaction parameters on the rating, DBRS considered the following stress scenarios, as compared to the parameters used to determine the rating (the base case):
• DBRS expected a lifetime base-case PD for the pool based on a review of the expected portfolio through the revolving period. Additionally, DBRS estimated a base-case recovery curve for the portfolio as described above. Adverse changes to asset performance may cause stresses to base-case assumptions and may, therefore, have a negative effect on credit ratings.
• The base case and AAA PD for the portfolio are 4.45% and 27.37%, respectively. The base case and AAA recovery curves are previously described.
• The Risk Sensitivity below illustrates the ratings expected if the PD and recovery assumptions are changed by a certain percentage over the base-case assumption. For example, if the recoveries decrease by 50%, the rating to the Class A Notes would be expected to remain at AAA (sf), assuming no change in PD. If the PD increases by 50%, the rating for the Class A Notes would be expected to remain at AAA (sf), assuming no changes in recoveries. Furthermore, if both PD and LGD increase by 50%, the rating would be expected to remain at AAA (sf).

Class A Risk Sensitivity:
• 25% decrease in recoveries, expected rating of AAA (sf)
• 50% decrease in recoveries, expected rating of AAA (sf)
• 25% increase in PD, expected rating of AAA (sf)
• 50% increase in PD, expected rating of AAA (sf)
• 25% increase in PD and 25% decrease in recoveries, expected rating of AAA (sf)
• 25% increase in PD and 50% decrease in recoveries, expected rating of AAA (sf)
• 50% increase in PD and 25% decrease in recoveries, expected rating of AAA (sf)
• 50% increase in PD and 50% decrease in recoveries, expected rating of AAA (sf)

For further information on DBRS historic default rates published by the European Securities and Markets Administration in a central repository, see:
http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml.

Ratings assigned by DBRS Ratings Limited are subject to EU regulations only.

Initial Lead Analyst: Keith Gorman, Senior Vice President
Initial Final Rating Date: 12 November 2014
Initial Final Rating Committee Chair: Quincy Tang, Managing Director
Lead Surveillance Analyst: Vito Natale, Senior Vice President

DBRS Ratings Limited
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The rating methodologies and criteria used in the analysis of this transaction can be found at: http://www.dbrs.com/about/methodologies

Legal Criteria for European Structured Finance Transactions
Derivative Criteria for European Structured Finance Transactions
Operational Risk Assessment for European Structured Finance Servicers
Master European Residential Mortgage-Backed Securities Rating Methodology and Jurisdictional Addenda