DBRS Assigns Provisional Ratings to CFHL-2 2015

DBRS Ratings Limited (DBRS) has today assigned provisional ratings to the following notes to be issued by CFHL-2 2015 (the Issuer):
-- EUR 787,000,000 Class A1 at AAA (sf)
-- EUR 415,000,000 Class A2-A at AAA (sf)
-- EUR 72,000,000 Class B at AA (sf)
-- EUR 32,500,000 Class C at A (sf)
-- EUR 27,000,000 Class D at BBB (sf)
-- EUR 27,500,000 Class E at BB (sf)

The Issuer is expected to be established as a Fonds Commun de Titrisation, governed by French regulations. At the Issue Date of the transaction, the Issuer will use the proceeds of the rated notes, the Subordinated Units and Residual Units to purchase a portfolio of French Home Loans from Crédit Foncier and Compagnie de Financement Foncier.

Crédit Foncier will be the servicer of the portfolio. In addition, Crédit Foncier will be the swap counterparty and General Account Bank for the transaction. Natixis will be the Reserve Account Bank. A backup servicer will not be assigned at the Issue Date.

Crédit Foncier is a mortgage bank specializing in property financing and services in France. Established in 1852, Crédit Foncier has been a key lender in real estate lending since creation. Crédit Foncier is the market leader in social homeownership with a 42% market share. As of 31 December 2014, Crédit Foncier had 880,000 loan contracts under management with a total outstanding volume of EUR 51 billion to private individuals.

As of 31 January 2015, the provisional portfolio consists of 14,753 loans and is on a weighted average 2.8 years seasoned, with 48.11% of the portfolio originated in 2013 and 2014. The weighted-average loan to value of the portfolio is calculated at 75.1%. The portfolio is concentrated in Île-de France (44.39%), Provence-Alpes-Côte-d’Azur (9.25%) and Rhône-Alpes (8.80%). The weighted-average coupon on the portfolio is 3.58% with the entire portfolio paying a fixed rate of interest.

Credit enhancement is provided in the form of subordination of the junior notes, overcollateralisation, and the General Reserve Fund equal to 0.50% of the initial balance of the rated notes. Liquidity support for the rating notes will be provided by the non-amortising General Reserve Fund, the Liquidity Reserve Fund and principal receipts. The General Reserve Fund will be funded by part of the issuance proceeds of the Subordinated Units on the Issue Date. The Liquidity Reserve Fund will have a target balance of 3.0% of the rated notes on the payment date prior to application of redemptions. The Liquidity Reserve Fund will not be funded on the Issue Date but will rather be funded through principal receipts on each payment date up to the target amount.

The DBRS rating of the Class A1, Class A2A, Class B, Class C, Class D and Class E Notes addresses the timely payment of interest and full payment of principal by the legal final maturity date. DBRS based the ratings primarily on:
-- The transaction’ capital structure, form and sufficiency of available credit enhancement and liquidity provisions. Relevant credit enhancement in the form of subordination and a General Reserve Fund to the Class A1, Class A2A, Class B, Class C, Class D and Class E Notes will be 13.01%, 13.01%, 7.71%, 5.41%, 3.44% and 1.44%, respectively.
-- The mortgage portfolio consists of fixed-rate loans while the liabilities are indexed to three-month EURIBOR. The transaction is hedged with an interest rate swap where the Issuer will pay to the counterparty an amount equal to the sum of (1) scheduled interest on the underlying portfolio, plus (2) any income received on the authorised investments held by the Cash Manager, (3) plus any prepayment penalties received on each payment date; less the sum of (a) 50 basis points of excess spread on the outstanding portfolio, plus (b) senior expenses, plus (c) a convexity adjustment. The counterparty will pay to the Issuer an amount equal to the total interest costs of the liabilities (net of any Principal Deficiency Ledger credits).
-- The structural mitigants in place to avoid potential payment disruptions due to operational risks such as downgrade and replacement language in the transaction documents, the General Reserve Fund and the Liquidity Reserve Fund.
-- The ability of the transaction to withstand stressed cash flow assumptions and repay investors in accordance to terms in which they invested.
-- The legal structure and presence of legal opinions addressing the assignment of the assets to the Issuer and the consistency with DBRS’s “Legal Criteria for European Structured Finance Transactions” methodology.

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” (January 2015).

DBRS has applied the principal methodology consistently and conducted a review of the transaction in accordance with the principal methodology.

Other methodologies referenced in this transaction are listed at the end of this press release.

This may be found on www.dbrs.com at:
http://www.dbrs.com/about/methodologies

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

The sources of information used for this rating include Credit Foncier and their representatives.
DBRS does not rely upon third-party due diligence in order to conduct its analysis; however, DBRS was supplied with third-party assessments for the assignment of the provisional ratings. This did not impact the rating analysis. Data checks were performed and DBRS did not apply additional cash flow stresses in its scenarios.

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.

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 of the Class A1, Class A2A, Class B, Class C, Class D and Class E Notes, DBRS considered the following stress scenarios, as compared to the parameters used to determine the rating (the Base Case):

-- In respect of the Class A1 and Class A2A Notes, the Probability of Default (PD) of 26.91% and Loss Given Default (LGD) of 43.02%, corresponding to a AAA (sf) stress scenario, were stressed assuming a 25% and 50% increase on the PD and LGD.
-- In respect of the Class B Notes, the PD of 19.79% and LGD of 33.09%, corresponding to a AA (sf) stress scenario, were stressed assuming a 25% and 50% increase on the PD and LGD.
-- In respect of the Class C Notes, the PD of 15.45% and LGD of 28.97%, corresponding to an A (sf) stress scenario, were stressed assuming a 25% and 50% increase on the PD and LGD.
-- In respect of the Class D Notes, the PD of 10.96% and LGD of 24.90%, corresponding to a BBB (sf) stress scenario, were stressed assuming a 25% and 50% increase on the PD and LGD.
-In respect of the Class E Notes, the PD of 6.04% and LGD of 20.17%, corresponding to a BB (sf) stress scenario, were stressed assuming a 25% and 50% increase on the PD and LGD.

DBRS concludes the following impact on the rated notes:
Class A1 Notes:
-- A hypothetical increase of the PD by 25%, ceteris paribus, would lead to a downgrade to AA (high) (sf)
-- A hypothetical increase of the PD by 50%, ceteris paribus, would lead to a downgrade to AA (sf)
-- A hypothetical increase of the LGD by 25%, ceteris paribus, would lead to a downgrade to AA (high) (sf)
-- A hypothetical increase of the LGD by 50%, ceteris paribus, would lead to a downgrade to AA (high) (sf)
-- A hypothetical increase of the PD by 25% and the LGD by 25%, ceteris paribus, would lead to a downgrade to AA (sf)
-- A hypothetical increase of the PD by 50% and the LGD by 25%, ceteris paribus, would lead to a downgrade to AA (sf)
-- A hypothetical increase of the PD by 25% and the LGD by 50%, ceteris paribus, would lead to a downgrade to AA (sf)
-- A hypothetical increase of the PD by 50% and the LGD by 50%, ceteris paribus, would lead to a downgrade to AA (low) (sf)

Class A2A Notes:
-- A hypothetical increase of the PD by 25%, ceteris paribus, would lead to a downgrade to AA (high) (sf)
-- A hypothetical increase of the PD by 50%, ceteris paribus, would lead to a downgrade to AA (sf)
-- A hypothetical increase of the LGD by 25%, ceteris paribus, would lead to a downgrade to AA (high) (sf)

• A hypothetical increase of the LGD by 50%, ceteris paribus, would lead to a downgrade to AA (sf)
  -- A hypothetical increase of the PD by 25% and the LGD by 25%, ceteris paribus, would lead to a downgrade to AA (sf)
  -- A hypothetical increase of the PD by 50% and the LGD by 25%, ceteris paribus, would lead to a downgrade to AA (low) (sf)
  -- A hypothetical increase of the PD by 25% and the LGD by 50%, ceteris paribus, would lead to a downgrade to AA (low) (sf)
  -- A hypothetical increase of the PD by 50% and the LGD by 50%, ceteris paribus, would lead to a downgrade to A (high) (low) (sf)

Class B Notes:
-- A hypothetical increase of the PD by 25%, ceteris paribus, would lead to a downgrade to A (high) (sf)
-- A hypothetical increase of the PD by 50%, ceteris paribus, would lead to a downgrade to A (low) (sf)
-- A hypothetical increase of the LGD by 25%, ceteris paribus, would lead to a downgrade to A (high) (sf)
-- A hypothetical increase of the LGD by 50%, ceteris paribus, would lead to a downgrade to A (sf)
-- A hypothetical increase of the PD by 25% and the LGD by 25%, ceteris paribus, would lead to a downgrade to BBB (high) (sf)
-- A hypothetical increase of the PD by 50% and the LGD by 25%, ceteris paribus, would lead to a downgrade to BBB (sf)
-- A hypothetical increase of the PD by 25% and the LGD by 50%, ceteris paribus, would lead to a downgrade to BBB (high) (sf)
-- A hypothetical increase of the PD by 50% and the LGD by 50%, ceteris paribus, would lead to a downgrade to BBB (sf)

Class C Notes:
-- A hypothetical increase of the PD by 25%, ceteris paribus, would lead to a downgrade to BBB (high) (sf)
-- A hypothetical increase of the PD by 50%, ceteris paribus, would lead to a downgrade to BBB (sf)
-- A hypothetical increase of the LGD by 25%, ceteris paribus, would lead to a downgrade to BBB (high) (sf)
-- A hypothetical increase of the LGD by 50%, ceteris paribus, would lead to a downgrade to (BBB) (sf)
-- A hypothetical increase of the PD by 25% and the LGD by 25%, ceteris paribus, would lead to a downgrade to BBB (sf)
-- A hypothetical increase of the PD by 50% and the LGD by 25%, ceteris paribus, would lead to a downgrade to BB (high) (sf)
-- A hypothetical increase of the PD by 25% and the LGD by 50%, ceteris paribus, would lead to a downgrade to BBB (low) (sf)
-- A hypothetical increase of the PD by 50% and the LGD by 50%, ceteris paribus, would lead to a downgrade to BB (high) (sf)

Class D Notes:
-- A hypothetical increase of the PD by 25%, ceteris paribus, would lead to a downgrade to BBB (low) (sf)
-- A hypothetical increase of the PD by 50%, ceteris paribus, would lead to a downgrade to BB (high) (sf)
-- A hypothetical increase of the LGD by 25%, ceteris paribus, would lead to a downgrade to BBB (low) (sf)
-- A hypothetical increase of the LGD by 50%, ceteris paribus, would lead to a downgrade to BB (high) (sf)
-- A hypothetical increase of the PD by 25% and the LGD by 25%, ceteris paribus, would lead to a downgrade to BB (high) (sf)
-- A hypothetical increase of the PD by 50% and the LGD by 25%, ceteris paribus, would lead to a downgrade to BB (high) (sf)
-- A hypothetical increase of the PD by 25% and the LGD by 50%, ceteris paribus, would lead to a downgrade to BB (high) (sf)
-- A hypothetical increase of the PD by 50% and the LGD by 50%, ceteris paribus, would lead to a downgrade to BB (sf)

Class E Notes:
-- A hypothetical increase of the PD by 25%, ceteris paribus, would maintain a rating of BB (sf)
-- A hypothetical increase of the PD by 50%, ceteris paribus, would lead to a downgrade to BB (low) (sf)
-- A hypothetical increase of the LGD by 25%, ceteris paribus, would maintain a rating of BB (sf)
-- A hypothetical increase of the LGD by 50%, ceteris paribus, would lead to a downgrade to BB (low) (sf)
-- A hypothetical increase of the PD by 25% and the LGD by 25%, ceteris paribus, would lead to a downgrade to BB (low) (sf)
-- A hypothetical increase of the PD by 50% and the LGD by 25%, ceteris paribus, would lead to a downgrade to B (high) (sf)
-- A hypothetical increase of the PD by 25% and the LGD by 50%, ceteris paribus, would lead to a downgrade to B (high) (sf)
-- A hypothetical increase of the PD by 50% and the LGD by 50%, ceteris paribus, would lead to a downgrade to B (high) (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
Initial Rating Date: 16 June 2015
Initial Rating Committee Chair: Diana Turner

Lead Surveillance Analyst: Vito Natale

DBRS Ratings Limited
1 Minster Court, 10th Floor Mincing Lane
London EC3R 7AA
United Kingdom

The rating methodologies 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
-- Unified Interest Rate Model for European Securitisations

A description of how DBRS analyses structured finance transactions and how the methodologies are collectively applied can be found at: http://www.dbrs.com/research/278375