DBRS Assigns Provisional Rating to FCT Crédit Agricole Habitat 2018

DBRS Ratings Limited (DBRS) assigned a provisional rating of AAA (sf) to the Class A Notes to be issued by FCT Crédit Agricole Habitat 2018 (the Issuer). The Issuer is expected to be established as a Fonds Commun de Titrisation (FCT), governed by French regulations. At the FCT Issue Date, the Issuer will use the proceeds of the Class A notes, Class B notes and Residual Units to purchase a portfolio of home loans from the Sellers. The FCT will have a five-year revolving period during which time each of the Sellers may sell additional home loans to the Issuer subject to Amortisation Events. After the five-year Period ending in April 2023, the notes will be repaid if the Caisses Régionales agree to repurchase the loans at a price allowing for the full repayment of the notes.

Home loans in the portfolio will be guaranteed by either a mortgage over the relevant property, a CAMCA Assurance S.A. guarantee or a Crédit Logement guarantee.

The Sellers of the home loans will be the 39 regional banks of Caisses Régionales de Crédit Agricole. Each Sellers will be the Servicer of its respective portfolio. Each Seller will also contribute an amount to fund the Liquidity Reserve Account at closing equal to the Contribution Ratio, calculated as a percentage of the total initial amount of Class A and Class B notes at the Issue Date, multiplied by the Liquidity Reserve Required Deposit.

The Class A notes will benefit from 13% credit enhancement, which will consist of subordination of the Class B notes. Additionally, the Class A notes will benefit from a non-amortising Liquidity Reserve, which will be funded at the Issue Date in amount equal to 1% of the initial amount of the Class A and Class B notes and will be available to cover senior expenses and fees, Swap Net Cash Flow and Class A interest.

Additionally, the transaction will benefit from a Cost Reserve to be funded to EUR 250,000 at closing, which the Issuer will use to pay Issuer Expenses due to the Account Bank.

Up to and including the April 2023 payment date, the Class A notes will pay a floating coupon rate of three-month Euribor + 0.50% floored at 0%. Following April 2023 payment date, the Class A notes will step up to pay a coupon equal to three-month Euribor + 0.75%, floored at 0%. The Class B notes will bear a fixed coupon during the life of the transaction of 0.50%. Both the Class A and Class B notes will pay interest on a quarterly basis.

As of 31 January 2018, the provisional portfolio consisted of 14,985 loans, granted to 14,651 borrowers. The total balance of the portfolio amounted to EUR 1.9 billion. The average loan per borrower was EUR 131,115. The weighted-average (WA) seasoning of the portfolio was 3.75 years with a WA remaining term of 17.5 years. The WA loan-to-value of the portfolio was 78.62%. There were no buy-to-let loans in the portfolio. The vast majority of the loans (97.79% of the loan balance) of the loans were fixed-for-life loans. There were no interest-only loans. Approximately 19.72% of the borrowers are self-employed. DBRS was not provided with debt-to-income (DTI) information. The Eligibility Criteria, however, has restricted the maximum DTI of loans benefiting from a guarantee from CAMCA or Crédit Logement to 33% when the home loan has been granted.

Crédit Agricole S.A. (CASA) will act as the Account Bank and the Specially Dedicated Account Bank for the transaction. CASA’s Critical Obligation Rating is currently AA (low), which complies with the threshold for the Account Bank, given the provisional rating assigned to the Class A notes. Additionally, the transaction documents include downgrade trigger language should CASA be downgraded below the threshold. The transaction documents also include a Commingling Trigger Event, which references CASA’s rating if the Servicers are part of the Crédit Agricole Group.

The provisional rating addresses the timely payment of interest and the Issuer’s obligation to repay principal on the Class A Notes by the Legal Final Maturity Date in April 2053. DBRS does not expect to rate the Class B notes.

DBRS based its rating primarily on the following analytical considerations:
-- The transaction capital structure, including the form and sufficiency of available credit enhancement and liquidity provisions.
-- Worst-case portfolio based on the portfolio characteristic thresholds defined in the Global Portfolio Triggers. The worst-case portfolio was used with the European RMBS Credit Model to estimate the probability of default (PD), loss given default (LGD) and expected loss for each rating scenario.
-- The structural mitigants in place to avoid potential payment disruptions caused by operational risk, such as downgrade and replacement language in the transaction documents and the Liquidity Reserve Account.
-- The transaction’s ability to withstand stressed cash flow assumptions and repay investors in accordance with the Terms and Conditions of the notes.
-- The consistency of the transaction’s legal structure with DBRS’s “Legal Criteria for European Structured Finance Transactions” methodology and the expectation of legal opinions addressing the assignment of the assets to the Issuer.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the rating is “Master European Residential Mortgage-Backed Securities Rating Methodology and Jurisdictional Addenda.”

DBRS has applied the principal methodology consistently and conducted a review of the transaction in accordance with the principal methodology. An asset and a cash flow analysis were both conducted. Due to the inclusion of a revolving period in the transaction, the analysis is based on the worst-case replenishment criteria set forth in the transaction legal documents.

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

These 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 “Appendix C: The Impact of Sovereign Ratings on Other DBRS Credit Ratings” of the “Rating Sovereign Governments” methodology at: http://dbrs.com/research/319564/rating-sovereign-governments.pdf.

The sources of information used for this rating include historical performance, default, recovery and prepayment data and loan-level data provided by CASA.

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

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

DBRS considers the data and information available to it for the purposes of providing this rating to be of satisfactory quality.

DBRS does not audit or independently verify the data or information it receives in connection with the rating process.

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

Information regarding DBRS ratings, including definitions, policies and methodologies, is 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):

In respect of the Class A Notes, the PD and LGD at the AAA (sf) stress scenario of 24.25% and 49.69%, respectively, were stressed assuming a 25% and 50% increase on both the PD and LGD.

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

For further information on DBRS historical default rates published by the European Securities and Markets Authority (ESMA) 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 and US regulations only.

Lead Analyst: Rehanna Sameja, Vice President
Rating Committee Chair: Vito Natale, Senior Vice President
Initial Rating Date: 4 April 2018

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

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.

For more information on this credit or on this industry, visit www.dbrs.com or contact us at info@dbrs.com.