Press Release

DBRS Morningstar Assigns AAA Credit Rating to CAFFIL Public Sector Obligations Foncières New Issuance

Covered Bonds

September 08, 2023

DBRS Ratings GmbH (DBRS Morningstar) assigned a AAA credit rating to the EMTN Series 2023-11 (Series 2023-11) notes issued under the CAFFIL SCF (the Issuer) Public Sector Covered Bonds Programme (the programme). Series 2023-11 is a EUR 20 million floating-rate bond that pays a coupon of 21.5 basis points over three-month Euribor. The bond matures on 8 September 2033.

All covered bonds (CBs) issued under the programme rank pari passu with each other and DBRS Morningstar currently rates them AAA.

The credit 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. Sfil is the Reference Entity 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 credit 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 possible two-notch uplift for high recovery prospects, although the level of recoveries does not currently affect the credit ratings in a material way.
-- The level of overcollateralisation (OC) of 10.9% to which DBRS Morningstar gives credit, which is the minimum level observed in the past 12 months, adjusted by a scaling factor of 0.85.
-- The sovereign rating on the Republic of France, rated AA (high) with a Stable trend by DBRS Morningstar, as of the date of this press release.

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

Everything else equal, provided that 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 on the CB credit ratings. Based on a CPCA of BB (i.e., the level tested to assign credit ratings to new issuances), a two-notch downgrade of the CBAP to AA (low) would lead to a two-notch downgrade of the LSF-L to AA (low), resulting in a one-notch downgrade on the CB credit ratings.

In addition, all else unchanged, the CB credit ratings would be downgraded if any of the following occurred:
(1) the sovereign rating on the Republic of France were downgraded below AA; (2) the relative amortisation profile of the CBs and CP were to move adversely; (3) volatility in the financial markets were to cause 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 were to change adversely to a degree that a one-notch uplift for good recovery prospects could no longer be granted.

For further information on the programme, please refer to the rating report at www.dbrsmorningstar.com.

DBRS Morningstar’s credit rating on Series 2023-11 addresses the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents. The associated financial obligations for Series 2023-11 are the related Interest Payment Amounts and the related Principal Balance.

DBRS Morningstar’s credit rating does not address non-payment risk associated with contractual payment obligations contemplated in the applicable transaction documents that are not financial obligations.

DBRS Morningstar’s long-term credit ratings provide opinions on risk of default. DBRS Morningstar considers risk of default to be the risk that an issuer will fail to satisfy the financial obligations in accordance with the terms under which a long-term obligation has been issued.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
Credit rating actions on Sfil are likely to have an impact on this credit rating.

There were no Environmental/Social/Governance factors that had a significant or relevant effect 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/416784.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the credit ratings is: “Global Methodology for Rating and Monitoring Covered Bonds” (8 May 2023), https://www.dbrsmorningstar.com/research/413651.

Other methodologies referenced in this transaction are listed at the end of this press release.

In DBRS Morningstar’s opinion, the changes under consideration do not require the application of the entire principal methodology. Therefore, DBRS Morningstar focused on the cash flow analysis.

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

For a more detailed discussion of the sovereign risk impact on Structured Finance credit 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.

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.

The sources of data and information used for these credit ratings include investor reports 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 credit ratings, DBRS Morningstar was not supplied with third-party assessments. However, this did not impact the credit rating analysis.

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

DBRS Morningstar does not audit or independently verify the data or information it receives in connection with the credit rating process.

This credit rating concerns a newly issued financial instrument. This is the first DBRS Morningstar credit rating on this financial instrument.

The last credit rating action on this transaction took place on 8 September 2023, when DBRS Morningstar confirmed its AAA credit ratings on the outstanding series under the programme.

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

For further information on DBRS Morningstar historical default rates published by the European Securities and Markets Authority (ESMA) in a central repository, see: https://registers.esma.europa.eu/cerep-publication. For further information on DBRS Morningstar historical default rates published by the Financial Conduct Authority (FCA) in a central repository, see https://data.fca.org.uk/#/ceres/craStats.

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

Lead Analyst: Tomas Rodriguez-Vigil Junco, Vice President
Rating Committee Chair: Ketan Thaker, Managing Director
Initial Rating Date: 10 September 2018

DBRS Ratings GmbH, Sucursal en España
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28046 Madrid, Spain
Tel. +34 (91) 903 6500

DBRS Ratings GmbH
Neue Mainzer Straße 75
60311 Frankfurt am Main Deutschland
Tel. +49 (69) 8088 3500
Geschäftsführer: Detlef Scholz
Amtsgericht Frankfurt am Main, HRB 110259

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

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].

ALL MORNINGSTAR DBRS RATINGS ARE SUBJECT TO DISCLAIMERS AND CERTAIN LIMITATIONS. PLEASE READ THESE DISCLAIMERS AND LIMITATIONS AND ADDITIONAL INFORMATION REGARDING MORNINGSTAR DBRS RATINGS, INCLUDING DEFINITIONS, POLICIES, RATING SCALES AND METHODOLOGIES.

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