DBRS Confirms Rating of FCT Opera 2014 Class A Notes

DBRS Ratings Limited (DBRS) confirmed its rating of the Class A Notes issued by FCT Opera 2014 at AAA (sf).

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, defaults and losses.
-- Probability of default (PD), loss given default (LGD) and expected losses on the collateral pool.
-- The current credit enhancement (CE) available to the Class A Notes to cover the expected losses at the AAA (sf) rating level.

FCT Opera 2014, which closed in November 2014, is a securitisation of French home loans and their ancillary rights originated and serviced by BNP Paribas S.A. (BNPP). The most recent restructuring took place in November 2016 whereby the balances of Class A Notes and Class B Notes were increased and a second revolving period was added (http://dbrs.com/research/302328/dbrs-confirms-ratings-on-fct-opera-2014-class-a-notes-following-amendment.html). Since the last restructuring, the outstanding balances of the Class A and Class B Notes have remained at EUR 5,397,300,000 and EUR 2,658,500,000, respectively.

The transaction is currently in its second revolving period, which is expected to end in November 2018 (inclusive).

PORTFOLIO PERFORMANCE AND ASSUMPTIONS
As of 31 July 2018, loan receivables more than 90 days delinquent represented 0.1% of the outstanding portfolio balance and cumulative defaults represented 0.4% of the initial portfolio balance including all additional purchases made since the transaction’s closing date. The recovery rate was at 62.1%. DBRS maintained its base case PD and LGD at 2.7% and 23.4%, respectively.

CREDIT ENHANCEMENT AND RESERVE
As of the August 2018 payment date, the CE available to the Class A Notes remained at 37.0%, as the transaction is still in the revolving period. The sources of CE for the Class A Notes consist of the subordination of the Class B Notes and the reserve fund.

The transaction benefits from a non-amortising reserve fund, currently at its target amount of EUR 402.8 million, that is available to cover shortfalls in senior fees and interest on the Class A Notes. Additionally, the portion of the reserve fund equal to the difference between the required balance and the minimum balance cover shortfalls in interest on the Class B Notes and provides credit support by forming part of the principal available funds upon the occurrence of an accelerated redemption event. The minimum balance of the reserve is defined as 1.0% of the total outstanding balance of the Class A and Class B Notes, currently equal to EUR 80.6 million.

BNP Paribas Securities Services S.C.A. (BNP SS) is the main account bank provider in this transaction. Based on DBRS’s private rating of BNP SS 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.

BNPP is the swap counterparty in this transaction. BNPP’s DBRS Long Term Critical Obligations Rating of AA (high), 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 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.

An asset and a cash flow analysis were both conducted. Due to the inclusion of a revolving period in the transaction, the analysis continues to be based on the worst-case replenishment criteria set forth in the transaction legal documents.

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 are loan-by-loan data from European DataWarehouse GmbH as well as investor reports provided by the Management Company, France Titrisation.

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

At the restructuring that occurred in November 2016, 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 2 November 2017, when DBRS confirmed its rating of the Class A Notes at AAA (sf).

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 base case PD and LGD for the revolving collateral pool based on a review of the current assets as well as the transaction’s eligibility and replenishment criteria. 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 revolving collateral pool are 2.7% and 23.4%, respectively.

-- 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 remain at AAA (sf), assuming no change in the PD. If the PD increases by 50%, the rating of the Class A Notes 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 of the Class A Notes would be expected to remain at AAA (sf).

Class A Notes Risk 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)

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: Alfonso Candelas, Senior Vice President
Initial Rating Date: 4 November 2014

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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
-- Operational Risk Assessment for European Structured Finance Originators
-- 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.