Morningstar DBRS Assigns Provisional Credit Rating to FCT Crédit Agricole Habitat 2024

DBRS Ratings GmbH (Morningstar DBRS) assigned provisional credit ratings to the residential mortgage-backed notes to be issued by FCT Crédit Agricole Habitat 2024 (the Issuer) as follows:

-- Class A1 notes at AAA (sf)
-- Class A2 notes at AAA (sf)

The credit ratings on the Class A1 notes and the Class A2 notes (together Class A notes) addresses the timely payment of interest and the ultimate repayment of principal.

Morningstar DBRS does not rate the Class B notes or the Residual Units also issued in this transaction.

CREDIT RATING RATIONALE
The Issuer, a special-purpose vehicle expected to be established as a Fond Commun de Titrisation (FCT) governed by French regulations, will 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 and Le Crédit Lyonnais (the sellers, or regional banks & LCL) at closing. At the issue date, the initial portfolio of home loans will be sold to the Issuer with the proceeds of the Class A Notes, Class B Notes, and Residual Units. 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-years revolving period ended in March 2029, 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 & LCL. 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 10% 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 March 2029 payment date, the Class A Notes will pay a floating coupon rate of three-month Euribor plus a margin floored at 0.0%. Following the March 2029 payment date, the Class A Notes will step-up to pay a higher coupon, also floored at 0.0%. The Class B Notes will bear a fixed coupon during the life of the transaction. 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 plus Class A margin, floored at 0.0%, until March 2029 and by the three-month Euribor plus Class A step-up margin, floored at 0.0% thereafter. The Issuer will pay the swap counterparty an amount equal to the weighted-average (WA) portfolio coupon less 100 basis points.

As of 31 January 2024, the portfolio consisted of 19,810 loans with an aggregate principal balance of EUR 2,986.91 million. The average loan per borrower is EUR 178,322. The WA seasoning of the portfolio is 10 months with a WA remaining term of 250 months. The WA indexed loan-to-value of the portfolio is 70.0% and the WA coupon was 2.7%. There are no buy-to-let loans in the portfolio. The entire portfolio comprises fixed-for-life loans, with no interest-only loans. Approximately 18.1% of the borrowers are self-employed.

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 credit rating complies with the threshold for the Account Bank and Swap Counterparty given the provisional credit rating assigned to the Class A Notes. Additionally, the transaction documents include downgrade language triggers should CACIB be downgraded below a certain credit rating threshold. The transaction documents also include a commingling trigger event, which references Crédit Agricole S.A.’s credit rating if the servicers are part of the Crédit Agricole Group.

The provisional credit ratings address 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 December 2061. Morningstar DBRS does not expect to rate the Class B Notes.

Morningstar DBRS based its credit rating primarily on the following analytical considerations:
-- The transaction capital structure, including the form and sufficiency of available credit enhancement and liquidity provisions.
-- The simulated deteriorated 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 credit 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 Morningstar DBRS’ “Legal Criteria for European Structured Finance Transactions” methodology and the expectation of legal opinions addressing the assignment of the assets to the Issuer

Morningstar DBRS’ credit ratings on the Class A notes address the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents. The associated financial obligations are the related Interest Payment Amounts and the related Class Balances.

Morningstar DBRS’ credit rating does not address nonpayment risk associated with contractual payment obligations contemplated in the applicable transaction document(s) 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, AND 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 structure in Intex DealMaker, considering the default rates at which the rated notes did not return all specified cash flows.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the credit rating is: Master European Residential Mortgage-Backed Securities Rating Methodology and Jurisdictional Addenda (13 September 2023), https://dbrs.morningstar.com/research/420575.

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 transaction in accordance with the principal methodology.

An asset and a cash flow analysis were both conducted. Because of 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 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 this credit rating were provided by Crédit Agricole S.A. and its representatives and include the loan-level data as of 29 February 2024 and historical performance data (delinquencies, defaults, recoveries, payment data, and loan-level repossession data) covering the period from January 2014 to December 2023.

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

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

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

A provisional credit rating is not a final credit rating with respect to the above-mentioned security and may change or be different than the final credit rating assigned or may be discontinued. The assignment of a final credit rating on the above-mentioned security is subject to receipt by Morningstar DBRS of all data and/or information and final documentation that Morningstar DBRS deems necessary to finalize the credit rating.

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

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

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

In respect of the Class A notes, a PD of 24.4% and an LGD of 38.1% corresponding to the AAA (sf) credit rating scenario, was stressed assuming a 25% and 50% increase in the PD and LGD.

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

This credit rating is endorsed by DBRS Ratings Limited for use in the United Kingdom.

Lead Analyst: Alejandro Tendero Delicado, Assistant Vice President
Rating Committee Chair: Rehanna Sameja, Senior Vice President
Initial Rating Date: 18 March 2024

DBRS Ratings GmbH
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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://dbrs.morningstar.com/about/methodologies.

-- Master European Residential Mortgage-Backed Securities Rating Methodology and Jurisdictional Addenda and EU RMBS Credit Model v.1.0.0.0 (13 September 2023), https://dbrs.morningstar.com/research/420575
-- Legal Criteria for European Structured Finance Transactions (30 June 2023), https://dbrs.morningstar.com/research/416730
-- Derivative Criteria for European Structured Finance Transactions (18 September 2023), https://dbrs.morningstar.com/research/420754
-- 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 (7 March 2024), https://dbrs.morningstar.com/research/429054
-- Interest Rate Stresses for European Structured Finance Transactions (15 September 2023), https://dbrs.morningstar.com/research/420602
-- 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].