Press Release

DBRS Confirms Rating of Class A Notes Issued by Red & Black Home Loans France 1

RMBS
July 26, 2018

DBRS Ratings Limited (DBRS) confirmed its AA (sf) rating of the Class A Notes issued by Red & Black Home Loans France 1 (the Issuer).

The rating of the Class A Notes addresses the timely payment of interest and ultimate payment of principal on or before the legal final maturity date.

The confirmation follows an annual review of the transaction and is 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 Class A Notes to cover the expected losses at the AA (sf) rating level.

Red & Black Home Loans France 1 is a static securitisation of a portfolio of fixed-rate French housing loans originated by Société Générale, S.A. (SocGen; with a DBRS Long-Term Critical Obligations Rating (COR) of AA) through its retail branches across France. The portfolio is serviced by SocGen and consists of mortgage loans as well as home loans guaranteed by Crédit Logement, SA (Crédit Logement; with a DBRS Long-Term Issuer Rating of AA (low)). Loans guaranteed by Crédit Logement currently represent 84.7% of the outstanding portfolio balance.

PORTFOLIO PERFORMANCE
As of the end of May 2018, loans more than 90 days delinquent represented 0.05% of the outstanding portfolio balance and the cumulative default rate represented 0.04% of the original portfolio balance at closing. Both arrears and defaults remained low and within DBRS’s expectations.

PORTFOLIO ASSUMPTIONS
DBRS conducted a loan-by-loan analysis of the remaining pool of receivables and updated its base case PD and LGD assumptions to 2.3% and 6.7%, respectively.

CREDIT ENHANCEMENT
As of the June 2018 payment date, the CE available to the Class A Notes increased to 5.5%, up from 5.0% at closing. The source of CE is the subordination of the Class B Notes. As of the April 2018 payment date, the CE to the Class A Notes reached the target CE percentage of 5.5%; the Class A and Class B Notes amortise pro-rata such that the credit enhancement for the Class A Notes is maintained at the target level. After the occurrence of an amortisation switch event, the amortisation of the Notes will irreversibly switch back to a sequential basis.

The transaction benefits from an amortising Liquidity and Commingling Reserve, currently at its target amount of EUR 142.5 million, that is available to cover shortfalls in senior fees and interest on the Class A Notes. Furthermore, it can be applied as available collections if there is a servicer disruption event that results in collections not being available to the Issuer on the payment date.

SocGen is the account bank provider in this transaction. Based on the account bank reference rating of SocGen of AA (low), which is one notch below the DBRS Long-Term COR of AA, 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.

Notes:

All figures are in euros unless otherwise noted.

The principal methodology applicable to the rating 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 this rating include investor reports provided by the Management Company, GTI Asset Management, 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 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 is the first rating action since the Initial Rating Date.

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 6.7%, respectively. At the AA (sf) rating level, the corresponding PD is 17.3% and the LGD is 14.1%.

-- 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 of the Class A Notes would be expected to fall to AA (low) (sf), assuming no change in the PD. If the PD increases by 50%, the rating of the Class A Notes would be expected to fall to AA (low) (sf), assuming no change in the LGD. Furthermore, if both the PD and LGD increase by 50%, the rating of the Class A Notes would be expected to fall to A (low) (sf).

Class A Notes Risk Sensitivity:
-- 25% increase in LGD, expected rating of AA (low) (sf)
-- 50% increase in LGD, expected rating of AA (low) (sf)
-- 25% increase in PD, expected rating of AA (low) (sf)
-- 50% increase in PD, expected rating of AA (low) (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of AA (low) (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of A (high) (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of A (high) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of A (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: Christian Aufsatz, Managing Director
Initial Rating Date: 27 July 2017

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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
-- Master European Structured Finance Surveillance Methodology
-- Operational Risk Assessment for European Structured Finance Servicers
-- 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.

Ratings

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  • CA = Lead Analyst based in Canada
  • EU = Lead Analyst based in EU
  • UK = Lead Analyst based in UK
  • E = EU endorsed
  • U = UK endorsed
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  • Unsolicited Participating Without Access
  • Unsolicited Non-participating

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