DBRS Confirms Ratings on FCT Opera 2014 Following Restructure

DBRS Ratings Limited (DBRS) has today confirmed the AAA (sf) ratings assigned to the Class A Notes issued by FCT Opera 2014 (the Issuer) following a restructure of the transaction. 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 purchased portfolio and any additional loans to be assigned to the Issuer during the revolving period (ending 25 May 2016) are fixed-rate home loans and their respective Ancillary Rights.

The restructuring involves a reduction of the Reserve Fund from the initial size of €79,500,00 (6% of the initial Class A and Class B Note balance) to €66,250,000 (5% of the updated Class A and Class B Note balance). In order to maintain credit enhancement levels, additional Class B Notes will be issued alongside a reduction of the Class A Notes. The updated Class A Note balance is equal to €1,113,900,000, which represents a reduction of €13,700,000. The updated Class B Note balance is equal to €211,100,000, which represents an increase of €13,700,000.

The Reserve Fund is 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 (4.00%). The credit enhancement of the Class A post-restructure is 19.93% and consists of subordination of the Class B Notes (15.93%) plus part of the Reserve Fund available to provide credit support to the notes (4.00%). The credit enhancement at the time of initial rating (November 2014) equated to 19.90%.

The transaction includes an 18-month revolving period (from the initial closing date) during which the Issuer may purchase additional home loans from the Seller. The structure incorporates conditions for further purchases of home loans, which includes delinquency and default triggers as well as eligibility criteria for additional home loans. The DBRS credit analysis assumes that principal receipts received during the revolving period will be reinvested in additional home loans that have the highest risk characteristics to assess the potential credit migration of the portfolio during the revolving period.

Confirmation of the ratings 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 19.93% credit enhancement in the form subordination of the Class B Notes (15.93%) and part of the Reserve Fund available to provide credit support to the notes (4.00%).

--The credit quality of the total mortgage portfolio, which secures the Class A Notes, and the ability of the servicer to perform collection activities.

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. 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.

-- The ability of the transaction to withstand stressed cash flow assumptions and repay investors according to the terms of the transaction documents. The transaction cash flows were modelled using updated portfolio default rates and loss given default outputs for the total mortgage portfolio provided by the DBRS default model.

One hundred per cent 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.

-- The legal structure and the consistency with the DBRS Legal Criteria for European Structured Finance Transactions. The further issuance of the Class B Notes and the reduction of the Class A Notes have been approved by the Issuer, note holders and all other relevant counterparties to the transaction.

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,” 16 July 2015.

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

Due to the inclusion of a revolving period in the transaction, the collateral was initially modelled based on the worst-case replenishment criteria set forth in the transaction legal documents. These assumptions have not changed, and consequently, updated portfolio default analysis was not conducted.

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 source of information used for this rating is BNP Paribas S.A.

DBRS does not rely upon third-party due diligence in order to conduct its analysis.

DBRS was not supplied with third-party assessments. However, this did not impact the rating analysis.

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 is the first rating action since the Initial Rating Date.

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 with the parameters used to determine the rating (the Base Case):

-- DBRS expected a lifetime base-case probability of default (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
Initial Rating Date: 12th November 2014
Initial Rating Committee Chair: Quincy Tang

Lead Analyst: Asim Zaman
Lead Surveillance Analyst: Vito Natale
Rating Committee Chair: Diana Turner

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

Derivative Criteria for European Structured Finance Transactions
Operational Risk Assessment for European Structured Finance Servicers
Legal Criteria for European Structured Finance Transactions
Master European Structured Finance Surveillance Methodology

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.