DBRS Morningstar Confirms Ratings on the Notes Issued by Two FCT Crédit Agricole Habitat Transactions

DBRS Ratings GmbH (DBRS Morningstar) confirmed its AAA (sf) rating on the Class A Notes issued by FCT Crédit Agricole Habitat 2020 (FCT 2020) and its AAA (sf) rating on the Class A Notes issued by FCT Crédit Agricole Habitat 2022-1 (FCT 2022).

The rating action on Class A Notes issued by FCT 2020 address the timely payment of interest and the ultimate payment of principal on or before the legal final maturity date in July 2055.

The rating action on the Class A Notes issued by FCT 2022 address the timely payment of interest and the ultimate payment of principal on or before the legal final maturity date in July 2057.

The rating actions follow an annual review of the transactions and are based on the following analytical considerations:
-- Portfolio performance, in terms of delinquencies, defaults and losses, as of the January 2023 payment date;
-- Probability of default (PD), loss given default (LGD), and expected loss assumptions on the remaining receivables;
-- Current available credit enhancement to the Class A Notes to cover the expected losses at the AAA (sf) rating level; and
-- No revolving termination events.

The transactions are securitisations of French home loans originated and serviced by Crédit Agricole’s 39 Regional Banks. The issued notes were used to fund the purchase of mortgage-backed and guarantee-backed loans to finance the acquisition, renovation, construction, or refinancing of a residential property located in France. The transactions are currently in their five-year revolving period scheduled to end in January 2025 (FCT 2020) and in January 2027 (FCT 2022), respectively.

The home loans in the portfolios are either secured by the relevant properties or guaranteed by CAMCA Assurance S.A. or Crédit Logement, SA (rated AA (low) with a Stable trend by DBRS Morningstar).

PORTFOLIO PERFORMANCE
For FCT 2020, as of January 2023, loans one to two months in arrears and loans two to three months in arrears represented 0.14% and 0.02% of the portfolio balance, respectively. The loans more than three months in arrears represented 0.03% of the outstanding portfolio balance. The cumulative default ratio was 0.16%.

For FCT 2022, as of January 2023, loans one to two months in arrears and loans two to three months in arrears represented 0.06% and 0.04% of the portfolio balance, respectively. The loans more than three months in arrears represented 0.00% of the outstanding portfolio balance. The cumulative default ratio was 0.00%.

PORTFOLIO ASSUMPTIONS AND KEY DRIVERS
DBRS Morningstar conducted an analysis of the current pool of receivables in each transaction and maintained its base case PD and LGD assumptions as follows:

For FCT 2020, DBRS Morningstar has maintained its base case PD and LGD assumptions at 2.3% and 26.7%, respectively.

For FCT 2022, DBRS Morningstar has maintained its base case PD and LGD assumptions at 3.0% and 27.4%, respectively.

CREDIT ENHANCEMENT
For each transaction, credit enhancement to the rated notes is provided by the subordination of junior classes.

For FCT 2020, as of the January 2023 payment date, credit enhancement to the Class A Notes was 13.5%, stable since the DBRS Morningstar initial rating because of the transaction revolving period, which is scheduled to end in January 2025. Credit enhancement consists of subordination of the Class B Notes.

For FCT 2022, as of the January 2023 payment date, credit enhancement to the Class A Notes was 14.0%, stable since the DBRS Morningstar initial rating because of the transaction revolving period, which is scheduled to end in January 2027. Credit enhancement consists of subordination of the Class B Notes.

For FCT 2020 and FCT 2022, the transactions benefit from respective nonamortising liquidity reserves funded to 0.8% of the initial balance of the respective Class A and Class B Notes. Both liquidity reserves are available to cover senior expenses and fees, swap net cash flow, and interest on the Class A Notes and are currently at their target balances of EUR 9.2 million and EUR 9.3 million, respectively.

Additionally, both transactions benefit from EUR 200,000 cost reserves, funded at closing, which the Issuers will use to pay their expenses due to the account bank.

Crédit Agricole Corporate and Investment Bank (CA-CIB) acts as the account bank for the two transactions. Based on DBRS Morningstar’s account bank reference rating on CA-CIB, the downgrade provisions outlined in the transaction documents, and other mitigating factors inherent in the transaction structures, DBRS Morningstar considers the risk arising from the exposure to the account bank to be consistent with the ratings of the Class A Notes, as described in DBRS Morningstar's "Legal Criteria for European Structured Finance Transactions" methodology.

CA-CIB acts as the swap counterparty for the transactions. DBRS Morningstar's private rating on CA-CIB is above the First Rating Threshold as described in DBRS Morningstar's "Derivative Criteria for European Structured Finance Transactions" methodology.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS

There were no Environmental/Social/Governance factors that had a significant or relevant impact on the credit analysis.

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/396929/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings.

DBRS Morningstar analysed the transaction structures in Intex DealMaker.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the ratings is the “Master European Structured Finance Surveillance Methodology” (7 February 2023): https://www.dbrsmorningstar.com/research/409485/master-european-structured-finance-surveillance-methodology.

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 methodology consistently and conducted a review of the transactions in accordance with the principal methodology.

For both transactions, an asset and a cash flow analysis were both conducted. Due to the inclusion of a revolving period in the transactions, the analyses continue to consider potential portfolio migration based on replenishment criteria set forth in the transactions legal documents.

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

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/401817/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 these ratings include investor reports provided by EuroTitrisation and loan-level data provided by the European DataWarehouse GmbH.

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

At the time of the initial ratings, DBRS Morningstar was supplied with third-party assessments for both transactions. However, this did not impact the rating analyses.

DBRS Morningstar considers the data and information available to it for the purpose of providing these 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.

The last rating action on FCT 2020 took place on 11 March 2022, when DBRS Morningstar confirmed the AAA (sf) rating on the Class A Notes. This is the first rating action since the Initial Rating Date for FCT 2022.

The lead analyst responsibilities for both transactions have been transferred to Baran Cetin.

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

Sensitivity Analysis: To assess the impact of changing the transaction parameters on the ratings, DBRS Morningstar considered the following stress scenarios as compared with the parameters used to determine the ratings (the Base Case):

-- DBRS Morningstar expected a lifetime base case PD and LGD for the 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 of the current pool of loans for the Issuer are 2.3% and 26.7%, respectively, for FCT 2020 and 3.0% and 27.4%, respectively, for FCT 2022.
-- 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, for FCT 2020 if the LGD increases by 50%, the rating of the Class A Notes would be expected to fall to AA (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 (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 (high) (sf).

FCT 2020
Class A Notes Risk 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 A (high) (sf)

FCT 2022 Class A Notes Risk 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 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/cerep-web/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: Baran Cetin, Senior Analyst
Rating Committee Chair: Alfonso Candelas, Senior Vice President
Initial Rating Dates:
FCT 2020: 25 February 2020
FCT 2022: 3 February 2022

DBRS Ratings GmbH
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Tel. +49 (69) 8088 3500
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The rating methodologies used in the analysis of this transaction can be found at: https://www.dbrsmorningstar.com/about/methodologies.

-- Legal Criteria for European Structured Finance Transactions (22 July 2022), https://www.dbrsmorningstar.com/research/400166/legal-criteria-for-european-structured-finance-transactions.
-- Master European Structured Finance Surveillance Methodology (7 February 2023), https://www.dbrsmorningstar.com/research/409485/master-european-structured-finance-surveillance-methodology.
-- Operational Risk Assessment for European Structured Finance Servicers (15 September 2022), https://www.dbrsmorningstar.com/research/402774/operational-risk-assessment-for-european-structured-finance-servicers.
-- Operational Risk Assessment for European Structured Finance Originators (15 September 2022), https://www.dbrsmorningstar.com/research/402773/operational-risk-assessment-for-european-structured-finance-originators.
-- Master European Residential Mortgage-Backed Securities Rating Methodology and Jurisdictional Addenda (28 November 2022) and EU RMBS Credit Model (version 1.0.0.0), https://www.dbrsmorningstar.com/research/405779/master-european-residential-mortgage-backed-securities-rating-methodology-and-jurisdictional-addenda.
-- Interest Rate Stresses for European Structured Finance Transactions (22 September 2022), https://www.dbrsmorningstar.com/research/402943/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.
-- DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (17 May 2022), https://www.dbrsmorningstar.com/research/396929/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].