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

DBRS Ratings GmbH (Morningstar DBRS) assigned a AAA credit rating to the EMTN Series 2024-4 SOCIAL (Series 2024-4 SOCIAL) notes issued under the CAFFIL SCF (the Issuer) Public Sector Covered Bonds Programme (the programme). Series 2024-4 SOCIAL is a EUR 500 million fixed-rate bond that pays a coupon of 3.000%. The bond matures on 19 March 2036.

All covered bonds (CBs) issued under the programme rank pari passu with each other and Morningstar DBRS 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 Morningstar DBRS gives credit, which is the minimum level observed in the past 12 months, adjusted by a scaling factor of 0.85.
-- The sovereign credit rating on the Republic of France, rated AA (high) with a Stable trend by Morningstar DBRS, as of the date of this press release.

Morningstar DBRS 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, Morningstar DBRS 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 of 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 of 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 credit 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 Morningstar DBRS 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 https://dbrs.morningstar.com.

Morningstar DBRS’ credit rating on Series 2024-4 SOCIAL addresses 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 Principal Balance.

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, GOVERNANCE CONSIDERATIONS
CAFFIL and Sfil, the Issuer’s parent, committed to use the net proceeds of the EMTN Series 2024-4 SOCIAL notes to finance and/or refinance, in whole or in part, loans as defined in the Sfil Group Social Note Framework, which consist of all existing and future public hospital loans originated by Sfil Group since 2013. Sfil’s commitment did not affect Morningstar DBRS’ credit rating analysis, considering that the newly originated “social” loans are not yet part of the CP and that loans to public hospitals had already been part of the CP.

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 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.

Notes:
All figures are in euros unless otherwise noted.

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

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

In Morningstar DBRS’ opinion, the changes under consideration do not require the application of the entire principal methodology. Therefore, Morningstar DBRS 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://dbrs.morningstar.com/research/421590.

The sources of data and information used for this credit rating include investor reports provided by the Issuer.

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 not supplied with third-party assessments. However, this did not affect the 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.

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

The last credit rating action on this transaction took place on 12 March 2024, when Morningstar DBRS assigned a AAA credit rating to the RCB Series 2024-5 notes.

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

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: 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
Paseo de la Castellana 81, Plantas 26 & 27
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://dbrs.morningstar.com/about/methodologies.

-- Global Methodology for Rating and Monitoring Covered Bonds (8 May 2023),
https://dbrs.morningstar.com/research/413651
-- Global Methodology for Rating and Monitoring Covered Bonds Addendum: Market Value Spreads (8 May 2023), https://dbrs.morningstar.com/research/413652
-- Modelling Assumptions for Portfolios of Public Sector Exposures (12 July 2023) and Public Sector Model version 0.2.1, https://dbrs.morningstar.com/research/417064
-- Global Methodology for Rating Banks and Banking Organisations (22 June 2023), https://dbrs.morningstar.com/research/415978
-- 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
-- Interest Rate Stresses for European Structured Finance Transactions (15 September 2023), https://dbrs.morningstar.com/research/420602
-- Operational Risk Assessment for European Structured Finance Originators (7 March 2024), https://dbrs.morningstar.com/research/429054
-- Operational Risk Assessment for European Structured Finance Servicers (15 September 2023), https://dbrs.morningstar.com/research/420572
-- Global Methodology for Rating CLOs and Corporate CDOs (23 February 2024),
https://dbrs.morningstar.com/research/428544
-- Global Methodology for Rating Sovereign Governments (6 October 2023),
https://dbrs.morningstar.com/research/421590
-- Currency Stresses for Global Structured Finance Transactions (30 January 2024),
https://dbrs.morningstar.com/research/427281
-- 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].