Press Release

DBRS Morningstar Confirms CAFFIL SCF Public Sector Covered Bonds (SCF - Public Sector - Bullet) at AAA

Covered Bonds
September 09, 2020

DBRS Ratings Limited (DBRS Morningstar) confirmed its AAA ratings on the Obligations Foncières (OF) outstanding under the CAFFIL SCF (CAFFIL, Caisse Française de Financement Local, or the Issuer) Public Sector Covered Bonds Programme (the Programme). The confirmations follow the completion of a full review of the Programme.

At the same time, DBRS Morningstar discontinued its ratings on three series that have matured in September 2020.

There are 494 series of covered bonds (CB) outstanding under the Programme, in different currencies, totalling an equivalent amount of EUR 50.0 billion.

The ratings are based on the following analytical considerations:
-- A Covered Bonds Attachment Point (CBAP) of AA (high), which is the Long-Term Issuer Rating of SFIL SA (SFIL). SFIL is the Reference Entity (RE) for the Programme.
-- A Legal and Structuring Framework (LSF) Assessment of “Very Strong” associated with the Programme, although the LSF Assessment does not currently affect the ratings in a material way.
-- A Cover Pool Credit Assessment (CPCA) of A (low) that can currently be achieved.
-- An LSF-Implied Likelihood (LSF-L) of AAA that can currently be achieved.
-- A two-notch uplift for high recovery prospects is possible, although the level of recoveries does not currently affect the ratings in a material way.
-- The level of overcollateralisation (OC) of 9.4% to which DBRS Morningstar gives credit.

DBRS Morningstar analysed the transaction using its European Covered Bond Cash Flow tool. The main assumptions focused on the timing of defaults and recoveries of the assets, interest rate stresses, and market value spreads to calculate liquidation values on the cover pool (CP).

To assign ratings to new issuances, the following stressed assumptions are used: a CPCA of BB, because BB is the lowest-tested stress level currently compatible with the AAA CB rating, and an LSF-L of AA (high) compatible with this level of CPCA.

Everything else being equal, provided a CPCA of A (low) is currently achievable, a five-notch downgrade of the CBAP would lead to a three-notch downgrade of the LSF-L to AA (low) and a one-notch downgrade of the CB ratings. Based on the BB CPCA (level tested to assign ratings to new issuances), a downgrade of the CBAP by two notches to AA (low) would lead to a downgrade of the LSF-L by two notches to AA (low), resulting in a downgrade of the CB ratings by one notch.

In addition, all else unchanged, the CB ratings would be downgraded if any of the following occurred: (1) the sovereign rating of the Republic of France was downgraded below AA; (2) the relative amortisation profile of the CB and CP moved adversely; (3) volatility in the financial markets caused the currently estimated market value spreads to increase; or (4) the composition of the CP, the level of OC to which DBRS Morningstar gives credit, interest rate stresses, or foreign currency exposure changed adversely to a degree that a one-notch uplift for good recovery prospects could no longer be granted.

As of 30 June 2020, the CP was composed of public sector assets equivalent to EUR 56.0 billion and substitute assets equivalent to EUR 1.7 billion. Roughly 89% of the CP by loan balance is concentrated in France, the Domicile Sovereign. The RE and the Issuer are also located in France, the Host Sovereign. In DBRS Morningstar’s view, this exposes CB investors to an increased risk that the creditworthiness of the RE and the CP may deteriorate at the same time. According to DBRS Morningstar’s “Rating and Monitoring Covered Bonds” methodology, in this circumstance, the rating of the CB is typically capped at three notches above the rating of the sovereign.

In addition to the EUR 50.0 billion OF currently outstanding, as at 30 June 2020, CAFFIL had other privileged liabilities that totalled EUR 552 million, which are due under the swaps in case of termination. The amounts are due pari passu with the covered bonds. The aggregated outstanding balance of the CP as at 30 June 2020 was EUR 57.7 billion, yielding a current nominal OC ratio of 14.0%.

CAFFIL has several hedging agreements in place with multiple commercial banks and is not required to post collateral under any of these agreements. All the hedging agreements entered into with counterparties other than SFIL either contain no downgrade language or downgrade language that is not in line with DBRS Morningstar’s criteria. DBRS Morningstar gave limited credit of 20% to these swaps in its analysis. The hedging agreements entered into with SFIL contain downgrade and collateral-posting language in line with DBRS Morningstar’s criteria and have been given full credit in DBRS Morningstar’s analysis. The residual foreign currency assumed open position has been stressed.

CAFFIL enjoys a substantial liquidity position. In DBRS Morningstar’s view, this mitigates the liquidity constraint imposed by the termination payments that might be due under the swaps. Moreover, DBRS Morningstar has assumed a 12-month asset-liability matching rule in its analysis in lieu of the minimum six-month period required by the OF legislative framework.

The reported weighted-average life of the assets is 7.2 years while that of the CB is 6.8 years. This generates an asset-liability mismatch that is mitigated by the available OC.

DBRS Morningstar has assessed the LSF related to the Programme as “Very Strong” according to its rating methodology. For more information, please refer to DBRS Morningstar’s commentary, “French Covered Bonds: Legal and Structuring Framework Review” and press release, “DBRS Assigns AAA Rating to CAFFIL Public Sector Obligations Foncières”, both available at

For further information on the Programme, please refer to the rating report at

The Coronavirus Disease (COVID-19) and the resulting isolation measures have caused an economic contraction, leading to sharp increases in unemployment rates and income reductions for many borrowers.

On 16 April 2020, the DBRS Morningstar Sovereign group released a set of macroeconomic scenarios for the 2020 22 period in select economies. These scenarios were last updated on 22 July 2020. For details, see the following commentaries: and The DBRS Morningstar analysis considered impacts consistent with the moderate scenario in the referenced reports.

On 24 April 2020, DBRS Morningstar published a commentary outlining how the coronavirus crisis is likely to affect the DBRS Morningstar-rated CBs in Europe. For more details, please see: and

For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release:

For more information regarding structured finance rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release:

A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework and its methodologies can be found at:

All figures are in euros unless otherwise noted.

The principal methodology applicable to the ratings is: “Rating and Monitoring Covered Bonds” (27 April 2020).

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

A review of the transaction 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 at:

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 Morningstar Credit Ratings” of the “Global Methodology for Rating Sovereign Governments” at:

The sources of data and information used for these ratings include investor reports and loan-by-loan data on the CP as at 30 June 2020, containing, among others, information on currency of the loan, initial amount, residual amount, maturity date, amortisation type, underlying debtor, country of the debtor, guarantor, country of the guarantor, and interest rate type, provided by the Issuer.

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

At the time of the initial rating, DBRS Morningstar was not supplied with third-party assessments. However, this did not impact the rating analysis.

DBRS Morningstar considers the data and information available to it for the purposes of providing these ratings to be of satisfactory quality.

DBRS Morningstar 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 19 August 2020, when DBRS Morningstar assigned a AAA rating to the EMTN 2018-1C notes and discontinued its rating on Series 112-0.

Information regarding DBRS Morningstar ratings, including definitions, policies, and methodologies, is available on

For further information on DBRS Morningstar historical default rates published by the European Securities and Markets Authority (ESMA) in a central repository, see:

Ratings assigned by DBRS Ratings Limited are subject to EU and U.S. regulations only.

Lead Analyst: Roger Bickert, Vice President
Rating Committee Chair: Ketan Thaker, Managing Director
Initial Rating Date: 10 September 2018

DBRS Ratings Limited
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London EC3M 3BY United Kingdom
Tel. +44 (0) 20 7855 6600
Registered and incorporated under the laws of England and Wales: Company No. 7139960

The rating methodologies used in the analysis of this transaction can be found at:

-- Rating and Monitoring Covered Bonds (27 April 2020),
-- Modelling Assumptions for Portfolios of Public Sector Exposures (12 August 2020) and Public Sector Model v 0.2.1,
-- Global Methodology for Rating Banks and Banking Organisations (8 June 2020),
-- Legal Criteria for European Structured Finance Transactions (11 September 2019),
-- Derivative Criteria for European Structured Finance Transactions (26 September 2019),
-- Interest Rate Stresses for European Structured Finance Transactions (10 October 2019),
-- Operational Risk Assessment for European Structured Finance Originators (28 February 2020),
-- Operational Risk Assessment for European Structured Finance Servicers (28 February 2020),
-- Global Methodology for Rating Sovereign Governments (27 July 2020),

A description of how DBRS Morningstar analyses structured finance transactions and how the methodologies are collectively applied can be found at:

For more information on this credit or on this industry, visit or contact us at [email protected].