DBRS Upgrades and Confirms Ratings on CFHL-2 2015

DBRS Ratings Limited (DBRS) upgraded and confirmed the following ratings on the notes issued by CFHL-2 2015:

-- Class A2-A confirmed at AAA (sf)
-- Class B upgraded to AAA (sf) from AA (high) (sf)
-- Class C upgraded to AA (high) (sf) from AA (low) (sf)
-- Class D upgraded to AA (low) (sf) from A (sf)
-- Class E confirmed at BBB (low) (sf)

The ratings address the timely payment of interest and ultimate payment of principal on or before the legal final maturity date.

The rating actions follow an annual review of the transaction and are based on the following analytical considerations:

-- Portfolio performance, in terms of delinquencies and defaults.
-- Probability of default (PD), loss given default (LGD) and expected loss assumptions for the remaining collateral pool.
-- Current credit enhancement (CE) available to the rated notes to cover the expected losses at the respective rating levels.

CFHL-2 2015 closed in August 2015 and is a securitisation of French home loans originated and serviced by Crédit Foncier de France SA (Crédit Foncier). The home loans are fully drawn fixed-rate loans for home purchase or construction financing. The construction projects were completed before their loans were sold to the transaction. In addition, as of 31 May 2018, 27.8% of the outstanding loans were guaranteed by Crédit Logement, SA (with a DBRS Long-Term Issuer Rating of AA (low)).

PORTFOLIO PERFORMANCE
As of the end of May 2018, loans more than 90 days delinquent represented 1.5% of the outstanding portfolio balance and the outstanding default ratio represented 0.8% of the current portfolio balance. Both arrears and defaults remained low and within DBRS’s expectations. The cumulative realised loss ratio remained at 0.0%.

PORTFOLIO ASSUMPTIONS
DBRS conducted a loan-by-loan analysis of the remaining pool of receivables and has updated its base case PD and LGD assumptions to 2.3% and 16.0%, respectively.

CREDIT ENHANCEMENT
The sources of CE for the rated notes consists of their respective subordination and the General Reserve Fund. As of the June 2018 payment date, the CE available to Class A2-A, Class B, Class C, Class D and Class E notes were at 34.1%, 19.1%, 12.3%, 6.7% and 2.0%, respectively, up from 13.0%, 7.8%, 5.4%, 3.4% and 1.4% at closing, respectively. The Class E notes also benefit from a Turbo Amortisation mechanism, whereby part of the revenue receipts is used to pay down principal on the most junior class of notes outstanding, increasing the CE for that class of notes.

RESERVE FUNDS
The transaction benefits from a non-amortising General Reserve Fund, currently at its target amount of EUR 6.8 million, that is available to cover shortfalls in senior fees, interest on the rated notes and principal losses. Furthermore, a Liquidity Reserve Fund is in place to cover any shortfall in senior fees as well as interest on the rated notes. The Liquidity Reserve Fund is currently at its target amount of EUR 15.2 million.

Crédit Foncier is the main account bank provider in this transaction. Based on DBRS’s private rating of Crédit Foncier and the mitigants outlined in the transaction documents, DBRS considers the risk arising from the exposure to the account bank to be consistent with the rating assigned to the Class A notes, as described in DBRS’s “Legal Criteria for European Structured Finance Transactions” methodology.

Crédit Foncier is also the swap counterparty in this transaction. The DBRS private rating of Crédit Foncier is above the First Rating Threshold as described in DBRS’s “Derivative Criteria for European Structured Finance Transactions” methodology, given the rating assigned to the Class A notes.

Notes:

All figures are in euros unless otherwise noted.

The principal methodology applicable to the ratings is the “Master European Structured Finance Surveillance Methodology”. DBRS has applied the principal methodology consistently and conducted a review of the transaction in accordance with the principal methodology.

A review of the transaction’s legal documents was not conducted as the legal documents have remained unchanged since the most recent rating action.

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 data and information used for these ratings include investor reports provided by the Management Company Eurotitrisation and loan-by-loan data from the European DataWarehouse GmbH.

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

At the time of the initial rating, 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 these ratings to be of satisfactory quality.

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

The last rating action on this transaction took place on 22 January 2018, when DBRS discontinued its rating on the Class A1 notes. The last rating action on the rated notes took place on 25 July 2017, when DBRS confirmed its rating on the Class A2-A notes and upgraded the Class B, Class C, Class D and Class E notes to AA (high) (sf), AA (low) (sf), A (sf) and BBB (low) (sf), respectively.

The lead analyst responsibilities for this transaction have been transferred to Andrew Lynch.
Information regarding DBRS ratings, including definitions, policies and methodologies is available at 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 PD and LGD for the remaining collateral pool based on a review of the current assets. Adverse changes to asset performance may cause stresses to base case assumptions and therefore have a negative effect on credit ratings.

-- The base case PD and LGD assumptions for the remaining collateral pool are 2.3% and 16.0%, respectively. At the AAA (sf) rating level, the corresponding PD is 25.6% and the LGD is 40.8%. At the AA (high) (sf) rating level, the corresponding PD is 21.6% and the LGD is 33.6%. At the AA (low) (sf) rating level, the corresponding PD is 15.7% and the LGD is 28.8%. At the BBB (low) (sf) rating level, the corresponding PD is 7.1% and the LGD is 21.5%.

-- The Risk Sensitivity overview below illustrates the ratings expected if the PD and LGD increase by a certain percentage over the base case assumption. For example, if the LGD increases by 50%, the rating on Class A2-A would be expected to remain at AAA (sf), assuming no change in the PD. If the PD increases by 50%, the rating on Class A2-A would be expected to remain at AAA (sf), assuming no change in the LGD. Furthermore, if both the PD and LGD increase by 50%, the rating on Class A2-A would be expected to remain at AAA (sf).

Class A2-A notes Sensitivity:
-- 25% increase in LGD, expected rating of AAA (sf)
-- 50% increase in LGD, 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% increase in LGD, expected rating of AAA (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of AAA (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of AAA (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of AAA (sf)

Class B notes Sensitivity:
-- 25% increase in LGD, expected rating of AAA (sf)
-- 50% increase in LGD, 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% increase in LGD, expected rating of AAA (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of AA (high) (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of AA (high) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of AA (high) (sf)

Class C notes Sensitivity:
-- 25% increase in LGD, expected rating of AA (high) (sf)
-- 50% increase in LGD, expected rating of AA (sf)
-- 25% increase in PD, expected rating of AA (high) (sf)
-- 50% increase in PD, expected rating of AA (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of AA (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of AA (low) (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of AA (low) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of AA (low) (sf)

Class D notes Sensitivity:
-- 25% increase in LGD, expected rating of A (high) (sf)
-- 50% increase in LGD, expected rating of A (low) (sf)
-- 25% increase in PD, expected rating of A (high) (sf)
-- 50% increase in PD, expected rating of A (low) (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of A (low) (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of BBB (high) (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of BBB (high) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of BBB (sf)

Class E notes Sensitivity:
-- 25% increase in LGD, expected rating of BB (high) (sf)
-- 50% increase in LGD, expected rating of BB (high) (sf)
-- 25% increase in PD, expected rating of BB (high) (sf)
-- 50% increase in PD, expected rating of BB (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of BB (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of BB (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of BB (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of BB (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: Andrew Lynch, Assistant Vice President
Rating Committee Chair: Gareth Levington, Managing Director
Initial Rating Date: 16 June 2015

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

-- Legal Criteria for European Structured Finance Transactions
-- Master European Structured Finance Surveillance Methodology
-- Operational Risk Assessment for European Structured Finance Servicers
-- Interest Rate Stresses for European Structured Finance Transactions
-- Derivative Criteria 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.