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

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

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

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

The credit rating confirmations 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 2024 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) credit 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 Morningstar DBRS).

PORTFOLIO PERFORMANCE
For FCT 2020, as of January 2024, 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 0.26%.

For FCT 2022, as of January 2024, loans one to two months in arrears and loans two to three months in arrears represented 0.03% and 0.01% of the portfolio balance, respectively. The amount of loans more than three months in arrears represented less than 0.01% of the outstanding portfolio balance. The cumulative default ratio was 0.03%.

PORTFOLIO ASSUMPTIONS AND KEY DRIVERS
Morningstar DBRS conducted an analysis of the current pool of receivables in each transaction.

For FCT 2020, Morningstar DBRS has updated its base-case PD and LGD assumptions at 2.3% and 17.5%, respectively.

For FCT 2022, Morningstar DBRS has updated its base-case PD and LGD assumptions at 3.0% and 20.6%, 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 2024 payment date, credit enhancement to the Class A Notes was 13.5%, stable since the Morningstar DBRS initial credit 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 2024 payment date, credit enhancement to the Class A Notes was 14.0%, stable since the Morningstar DBRS initial credit 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.

FCT 2020 and FCT 2022 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 Morningstar DBRS’ private account bank reference rating on CA-CIB, the downgrade provisions outlined in the transaction documents, and other mitigating factors inherent in the transaction structures, Morningstar DBRS considers the risk arising from the exposure to the account bank to be consistent with the credit ratings of the Class A Notes, as described in Morningstar DBRS' "Legal Criteria for European Structured Finance Transactions" methodology.

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

Morningstar DBRS’ credit ratings on the rated notes address the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents.

Morningstar DBRS’ credit ratings do not address nonpayment risk associated with contractual payment obligations contemplated in the applicable transaction documents that are not financial obligations.

Morningstar DBRS’ long-term credit ratings provide opinions on risk of default. Morningstar DBRS 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
There were no Environmental/Social/Governance factors that had a significant or relevant effect on the credit analysis.

A description of how Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at: https://dbrs.morningstar.com/research/427030.

Morningstar DBRS analysed the transaction structures in Intex DealMaker.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the credit ratings is the “Master European Structured Finance Surveillance Methodology” (7 February 2023).

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

Morningstar DBRS 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. Because of 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 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://dbrs.morningstar.com/research/421590.

The sources of data and information used for these credit ratings include investor reports provided by EuroTitrisation and loan-level data provided by the European DataWarehouse GmbH.

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

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

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

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

The last credit rating actions on these transactions took place on 9 March 2023, when Morningstar DBRS confirmed its credit ratings on the Class A Notes at AAA (sf) in both transactions.

Information regarding Morningstar DBRS credit ratings, including definitions, policies, and methodologies, is available at dbrs.morningstar.com.

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

-- Morningstar DBRS 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 17.5%, respectively, for FCT 2020 and 3.0% and 20.6%, respectively, for FCT 2022.
-- The risk sensitivity overview below illustrates the credit ratings expected if the PD and LGD increase by a certain percentage over the base-case assumption.

FCT 2020 Class A Notes Risk Sensitivity:
-- 25% increase in LGD, expected credit rating of AAA (sf)
-- 50% increase in LGD, expected credit rating of AA (high) (sf)
-- 25% increase in PD, expected credit rating of AAA (sf)
-- 50% increase in PD, expected credit rating of AA (high) (sf)
-- 25% increase in PD and 25% increase in LGD, expected credit rating of AA (high) (sf)
-- 25% increase in PD and 50% increase in LGD, expected credit rating of AA (high) (sf)
-- 50% increase in PD and 25% increase in LGD, expected credit rating of AA (high) (sf)
-- 50% increase in PD and 50% increase in LGD, expected credit rating of AA (sf)

FCT 2022 Class A Notes Risk Sensitivity:
-- 25% increase in LGD, expected credit rating of AAA (sf)
-- 50% increase in LGD, expected credit rating of AA (high) (sf)
-- 25% increase in PD, expected credit rating of AAA (sf)
-- 50% increase in PD, expected credit rating of AA (high) (sf)
-- 25% increase in PD and 25% increase in LGD, expected credit rating of AA (high) (sf)
-- 25% increase in PD and 50% increase in LGD, expected credit rating of AA (sf)
-- 50% increase in PD and 25% increase in LGD, expected credit rating of AA (sf)
-- 50% increase in PD and 50% increase in LGD, expected credit rating of AA (sf)

For further information on Morningstar DBRS 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 Morningstar DBRS 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: 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

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

-- Master European Structured Finance Surveillance Methodology (11 December 2023), https://dbrs.morningstar.com/research/425148
-- Legal Criteria for European Structured Finance Transactions (30 June 2023), https://dbrs.morningstar.com/research/416730
-- Operational Risk Assessment for European Structured Finance Servicers (15 September 2023), https://dbrs.morningstar.com/research/420572
-- Operational Risk Assessment for European Structured Finance Originators (15 September 2023), https://dbrs.morningstar.com/research/420573
-- Master European Residential Mortgage-Backed Securities Rating Methodology and Jurisdictional Addenda (13 September 2023) and EU RMBS Credit Model (version 1.0.0.0),
https://dbrs.morningstar.com/research/420575
-- Interest Rate Stresses for European Structured Finance Transactions (15 September 2023), https://dbrs.morningstar.com/research/420602
-- Derivative Criteria for European Structured Finance Transactions (18 September 2023), https://dbrs.morningstar.com/research/420754
-- Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (23 January 2024),
https://dbrs.morningstar.com/research/427030

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

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