DBRS Morningstar Assigns Provisional Rating to FCT Crédit Agricole Habitat 2022-1

DBRS Ratings GmbH (DBRS Morningstar) assigned a provisional rating of AAA (sf) to the Class A Notes to be issued by FCT Crédit Agricole Habitat 2022-1 (Habitat 2022-1 or the Issuer).

The provisional rating on the Class A Notes addresses the timely payment of interest and the ultimate repayment of principal on or before the legal final maturity date in July 2057. DBRS Morningstar did not assign provisional ratings to the Class B Notes or the Residual Units also expected to be issued in this transaction.

The Issuer, which is expected to be established as a Fond Commun de Titrisation (FCT) governed by French regulations, will at closing use the proceeds of the Class A Notes, Class B Notes, and Residual Units to purchase a portfolio of home loans from the 39 Caisses Régionales de Crédit Agricole Mutuel (the sellers, or regional banks). Proceeds of the Residual Units will be used to pay upfront fees to the swap counterparty. The FCT will have a five-year revolving period during which time the sellers may sell additional home loans to the Issuer subject to amortisation events. After the five-year revolving period ending in January 2027, the notes will be repaid if the regional banks agree to repurchase the loans at a price that allows for the full repayment of the notes.

The home loans in the portfolio will be secured 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 regional banks of Caisses Régionales de Crédit Agricole. Each seller will be the servicer of its respective portfolio and 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 the Class A and Class B Notes at the issue date, multiplied by the liquidity reserve required deposit amount.

The Class A Notes will benefit from 14% credit enhancement, which will consist of subordination of the Class B Notes. Additionally, the Class A Notes will benefit from a nonamortising liquidity reserve, which will be funded at the issue date to an amount equal to 0.8% of the initial balance of the Class A and Class B Notes. The nonamortising liquidity reserve will be available to cover senior expenses and fees, swap net cash flow amounts, and Class A interest.

Additionally, the transaction will benefit from a EUR 200,000 Costs Reserve to be funded at closing, which the Issuer will use to pay Issuer expenses due to the Account Bank.

Up to and including the January 2027 payment date, the Class A Notes will pay a floating coupon rate of three-month Euribor + 0.75% floored at 0.0%. Following the January 2027 payment date, the Class A Notes will step up to pay a coupon equal to three-month Euribor + 1.20%, floored at 0.0%. The Class B Notes will bear a fixed coupon during the life of the transaction of 0.45%. Both the Class A and Class B Notes will pay interest on a quarterly basis.

The Issuer will enter into a swap agreement in which the swap counterparty will pay the Issuer an amount, defined as the Class A Notes outstanding balance multiplied by the three-month Euribor + 0.75%, floored at 0.0%, until January 2027 and by the three-month Euribor +1.20%, floored at 0.0% thereafter. The Issuer will pay the swap counterparty an amount equal to the weighted-average portfolio coupon less 100 basis points.

As of 30 November 2021, the provisional portfolio consists of 19,871 loans granted to 19,741 borrowers. The total balance of the portfolio amounts EUR 1.99 billion. The average loan per borrower is EUR 100,795. The weighted-average (WA) seasoning of the portfolio is 47 months with a WA remaining term of 208 months. The WA indexed loan-to-value of the portfolio is 73.9% and the WA coupon was 1.5%. There are no buy-to-let loans in the portfolio. The entire portfolio comprises fixed-for-life loans, with no interest-only loans. Approximately 17.3% of the borrowers are self-employed. DBRS Morningstar was not provided with debt-to-income (DTI) information. The Eligibility Criteria, however, has restricted the maximum DTI of loans benefitting from a guarantee from CAMCA or Crédit Logement to 33% when the home loan has been granted.

Crédit Agricole Corporate and Investment Bank (CACIB) will act as the Account Bank, Specially Dedicated Account Bank, and Swap Counterparty for the transaction. CACIB’s current rating complies with the threshold for the Account Bank and Swap Counterparty given the provisional rating assigned to the Class A Notes. Additionally, the transaction documents include downgrade language triggers should CACIB be downgraded below a certain rating threshold. The transaction documents also include a commingling trigger event, which references Crédit Agricole S.A.’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 full principal amount on the Class A Notes by the legal final maturity date in July 2057. DBRS Morningstar does not expect to rate the Class B Notes.

DBRS Morningstar 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.
--The worst-case portfolio, which is based on the portfolio characteristic thresholds defined in the global portfolio triggers document, 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 Morningstar’s “Legal Criteria for European Structured Finance Transactions” methodology and the expectation of legal opinions addressing the assignment of the assets to the Issuer.

The Coronavirus Disease (COVID-19) and the resulting isolation measures have caused an immediate economic contraction, leading in some cases to increases in unemployment rates and income reductions for many borrowers. DBRS Morningstar anticipates that delinquencies may continue to increase in the coming months for many structured finance transactions. The ratings are based on additional analysis to expected performance as a result of the global efforts to contain the spread of the coronavirus. For this transaction, DBRS Morningstar incorporated an increase in default probability of self-employed borrowers in its analysis and conducted additional analysis to determine the transaction benefits from sufficient liquidity support in case of high level of payment moratoriums in the portfolio. In addition, DBRS Morningstar assumed a moderate decline in residential property prices.

The DBRS Morningstar Sovereign group releases baseline macroeconomic scenarios for rated sovereigns. These scenarios were last updated on 9 December 2021. DBRS Morningstar analysis considered impacts consistent with the baseline scenario in the below referenced report. For details, see the following commentaries: https://www.dbrsmorningstar.com/research/389454/baseline-macroeconomic-scenarios-for-rated-sovereigns-december-2021-update and https://www.dbrsmorningstar.com/research/384482/baseline-macroeconomic-scenarios-application-to-credit-ratings

On 14 June 2021, DBRS Morningstar updated its 5 May 2020 commentary outlining the impact of the coronavirus crisis on performance of DBRS Morningstar-rated RMBS transactions in Europe one year on. For more details, please see: https://www.dbrsmorningstar.com/research/380094/the-impact-of-covid-19-on-european-mortgage-performance-one-year-on and https://www.dbrsmorningstar.com/research/360599/european-rmbs-transactions-risk-exposure-to-coronavirus-covid-19-effect.

ESG CONSIDERATIONS
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at: https://www.dbrsmorningstar.com/research/373262

On 27 April 2022, DBRS Morningstar amended the above press release to include the disclosure related to the revolving period.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the rating in this transaction is the “Master European Residential Mortgage-Backed Securities Rating Methodology and Jurisdictional Addenda” (29 November 2021).

Other methodologies referenced in this transaction are listed at the end of this press release. These may be found at: https://www.dbrsmorningstar.com/about/methodologies.

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

An asset and a cash flow analysis were both conducted. Due to the inclusion of a revolving period in the transaction, the analysis considers potential portfolio migration based on replenishment criteria set forth in the transaction legal documents.

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: https://www.dbrsmorningstar.com/research/381451/global-methodology-for-rating-sovereign-governments.

The DBRS Morningstar Sovereign group releases baseline macroeconomic scenarios for rated sovereigns. DBRS Morningstar analysis considered impacts consistent with the baseline scenarios as set forth in the following report: https://www.dbrsmorningstar.com/research/384482/baseline-macroeconomic-scenarios-application-to-credit-ratings.

The sources of data and information used for this rating include those provided by CASA and its representatives. DBRS Morningstar was provided with loan-level data as of 30 November 2021 and historical performance data (delinquencies, defaults, recoveries, payment data, and loan level repossession data) covering the period from January 2013 to June 2021.

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

DBRS Morningstar was supplied with one or more third-party assessments. DBRS Morningstar applied additional cash flow stresses in its rating analysis.

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

This rating concerns an expected-to-be-issued new financial instrument. This is the first DBRS Morningstar rating on this financial instrument.

Information regarding DBRS Morningstar ratings, including definitions, policies, and methodologies, is available on www.dbrsmorningstar.com.

To assess the impact of changing the transaction parameters on the rating, DBRS Morningstar 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, a PD of 25.3% and LGD of 53.6%, corresponding to the AAA (sf) rating scenario, was stressed assuming a 25% and 50% increase in the PD and LGD.

Class A Notes Risk Sensitivity:
-- 25% increase in LGD, expected rating of AA (high) (sf)
-- 50% increase in LGD, expected rating of AA (high) (sf)
-- 25% increase in PD, expected rating of AA (high) (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, expected rating of AA (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 A (high) (sf)

For further information on DBRS Morningstar historical default rates published by the European Securities and Markets Authority (ESMA) in a central repository, see: https://cerep.esma.europa.eu/cerepweb/statistics/defaults.xhtml.
DBRS Morningstar understands further information on DBRS Morningstar historical default rates may be published by the Financial Conduct Authority (FCA) on its webpage: https://www.fca.org.uk/firms/credit-rating-agencies.

These ratings are endorsed by DBRS Ratings Limited for use in the United Kingdom.

Lead Analyst: Álvaro Astarloa, Assistant Vice President
Rating Committee Chair: Ketan Thaker, Managing Director
Initial Rating Date: 3 February 2022

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The rating methodologies used in the analysis of this transaction can be found at: https://www.dbrsmorningstar.com/about/methodologies.

-- Master European Residential Mortgage-Backed Securities Rating Methodology and Jurisdictional Addenda (29 November 2021) and EU RMBS Credit Model v.1.0.0.0,
https://www.dbrsmorningstar.com/research/388848/master-european-residential-mortgage-backed-securities-rating-methodology-and-jurisdictional-addenda
-- Legal Criteria for European Structured Finance Transactions (29 July 2021),
https://www.dbrsmorningstar.com/research/382171/legal-criteria-for-european-structured-finance-transactions.
-- Interest Rate Stresses for European Structured Finance Transactions (24 September 2021), https://www.dbrsmorningstar.com/research/384920/interest-rate-stresses-for-european-structured-finance-transactions.
-- Derivative Criteria for European Structured Finance Transactions (20 September 2021),
https://www.dbrsmorningstar.com/research/384624/derivative-criteria-for-european-structured-finance-transactions.
-- Operational Risk Assessment for European Structured Finance Servicers (16 September 2021),
https://www.dbrsmorningstar.com/research/384513/operational-risk-assessment-for-european-structured-finance-servicers.
-- Operational Risk Assessment for European Structured Finance Originators (16 September 2021),
https://www.dbrsmorningstar.com/research/384512/operational-risk-assessment-for-european-structured-finance-originators.
-- DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (3 February 2021),
https://www.dbrsmorningstar.com/research/373262/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings.

A description of how DBRS Morningstar analyses structured finance transactions and how the methodologies are collectively applied can be found at: https://www.dbrsmorningstar.com/research/278375.

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