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Fitch Assigns Swiss Home Loan Securities 2016-1 SARL's Notes Final Ratings
December 12, 2016 / 5:14 PM / 7 months ago

Fitch Assigns Swiss Home Loan Securities 2016-1 SARL's Notes Final Ratings

15 Min Read

(The following statement was released by the rating agency) Link to Fitch Ratings' Report: Swiss Home Loan Securities 2016-1 SARL here PARIS, December 12 (Fitch) Fitch Ratings has assigned Swiss Home Loan Securities 2016-1 SARL's notes final ratings as follows: CHF52.2m Class A1: 'AAAsf'; Outlook Stable CHF102.4m Class A2: 'AAAsf'; Outlook Stable CHF46.1m Class B: not rated Swiss Home Loan Securities 2016-1 SARL is the first public transaction of Credit Agricole Financements (Suisse) S.A. (CAF). The notes are backed by a static portfolio of CHF200.6m residential mortgage loans. The related properties, primarily flats and houses, are all located in Switzerland, primarily in the western parts. The securitised loans are amortising or interest-only loans bearing either a fixed or floating interest rate. KEY RATING DRIVERS Low Expected Portfolio Losses Fitch expects losses from the loan portfolio of just 0.1%. The low level of losses results from the combination of low default assumptions supported by historical data received from CAF and high recovery expectations, mainly due to a low current loan-to-value (CLTV) of 62.8%. The assumed loss rate in a 'AAA' rating scenario is 11.6%. Concentrations as Key Risk The small size of the portfolio translates into a higher borrower concentration than usual in EMEA RMBS transactions (only 343 borrowers with the top 10 representing 9.9%). Properties are mainly located in western Switzerland (75% in the cantons of Vaud and Geneva), reflecting the bank's main area of business. Fitch took concentration risk into account in stressed scenarios by increasing its default expectation. Fitch used an originator adjustment of 1.5x, which is higher than the 1.2x applied if no concentration risk existed. High Interest Rate Risk The transaction does not benefit from an interest rate swap. It includes a mechanism that aims to provide an approximate natural hedge. Assets and liabilities change their interest rate nature over time. The unhedged part of the interest risk proved particularly stressful resulting in considerable losses due to negative carry. Concentration of Counterparty Roles CAF performs most of the important counterparty roles in the transaction. Related risks are reduced by mechanisms consistent with our criteria, such as guarantees provided by Caisse Regionale Mutuel des Savoie, part of the Credit Agricole Group (A/Positive/F1). Legal Risk in Swiss RMBS The history of public RMBS in Switzerland is limited. In addition, the country's legal framework has some peculiarities, eg restrictions for property purchases by foreigners (Lex Koller). Fitch is comfortable with the legal risks following a review and discussion of the legal opinions provided. RATING SENSITIVITIES Fitch tested the rating sensitivity of the notes to various scenarios, including an increase in the base case default rate and/or a decrease in the base case recovery rate for the portfolio. The model-implied sensitivities indicate that an increase in the base case default rate and a decrease in the base case recovery rate by 50% each may result in a six-notch downgrade of the class A notes to 'A-sf' from 'AAAsf'. More details on rating sensitivities are in the related new issue report. USE OF THIRD-PARTY DUE DILIGENCE PURSUANT TO RULE 17G-10 Form ABS Due Diligence-15E was not provided to, or reviewed by, Fitch in relation to this rating action DATA ADEQUACY Fitch reviewed the results of a third party assessment conducted on the asset portfolio information, and concluded that there were no findings that affected the rating analysis. Fitch conducted a review of a small targeted sample of CAF's origination files in June 2016 and found the information contained in the reviewed files to be adequately consistent with the originator's policies and practices and the other information provided to the agency about the asset portfolio. Overall, Fitch's assessment of the asset pool information relied upon for the agency's rating analysis according to its applicable rating methodologies indicates that it is adequately reliable. CRITERIA VARIATION In this transaction Fitch has used the Criteria Addendum: Switzerland - Residential Mortgage Assumptions. The treatment of loans in arrears constitutes a variation from this criteria addendum. Loans in arrears for up to 30 days comprise 8% of the portfolio balance. These are predominantly loans paid by money transfer, which is a widely used payment method for loans in the pool and for Switzerland in general. According to CAF, such delinquencies are usually corrected within a few days. Fitch did not consider loans up to 30 days past due and paying by money transfer as delinquent in its analysis. SOURCES OF INFORMATION The information below was used in the analysis. - Loan-by-loan data provided by CAF as at 30 November 2016 - Static cumulative default and recovery data on CAF's mortgage loan book from 1Q06 to 2Q16 - Cures rate on defaulted loans on CAF's loan book from 1Q06 to 2Q16 and foreclosure data for a number of cases between 3Q06 and 2Q13. - Dynamic arrears and prepayments data on CAF's mortgage loan book from 1Q07 to 3Q16 MODELS The models below were used in the analysis. Click on the link for a description of the model. Excel based Residential Mortgage Asset Model. <a href="https://www.fitchratings.com/web_content/pages/rmbs/ermam-disclosure.htm "> Excelbased Residential Mortgage Asset Model. EMEA Cash Flow Model. <a href="https://www.fitchratings.com/web_content/pages/sf/emea-cash-flow-model.htm ">EMEA Cash Flow Model. REPRESENTATIONS AND WARRANTIES A description of the transaction's representations, warranties and enforcement mechanisms (RW&Es) that are disclosed in the offering document and which relate to the underlying asset pool is available by accessing the appendix referenced under "Related Research" below. The appendix also contains a comparison of these RW&Es to those Fitch considers typical for the asset class as detailed in the Special Report titled "Representations, Warranties and Enforcement Mechanisms in Global Structured Finance Transactions," dated May 2016. Contacts: Primary Analyst Raul Domingo Director +33 1 44 29 91 70 Fitch France S.A.S. 60 rue de Monceau 75008 Paris Secondary Analyst Adrian Pfaff-Seiler, CFA Associate Director +49 69 768076 259 Committee Chairperson Eberhard Hackel Senior Director +49 69 768076 117 Media Relations: Athos Larkou, London, Tel: +44 203 530 1549, Email: athos.larkou@fitchratings.com. Additional information is available at www.fitchratings.com. Applicable Criteria Counterparty Criteria for Structured Finance and Covered Bonds (pub. 01 Sep 2016) here Counterparty Criteria for Structured Finance and Covered Bonds: Derivative Addendum (pub. 18 Jul 2016) here Criteria Addendum: Switzerland - Residential Mortgage Assumptions (pub. 17 May 2016) here Criteria for Interest Rate Stresses in Structured Finance Transactions and Covered Bonds (pub. 26 Oct 2016) here EMEA RMBS Rating Criteria (pub. 29 Nov 2016) here Global Structured Finance Rating Criteria (pub. 27 Jun 2016) here Related Research Swiss Home Loan Securities 2016-1 SARL - Appendix here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here _id=1016321 Solicitation Status here Endorsement Policy here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE. Copyright © 2016 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. The manner of Fitch's factual investigation and the scope of the third-party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third- party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. Users of Fitch's ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. As a result, despite any verification of current facts, ratings and forecasts can be affected by future events or conditions that were not anticipated at the time a rating or forecast was issued or affirmed. The information in this report is provided "as is" without any representation or warranty of any kind, and Fitch does not represent or warrant that the report or any of its contents will meet any of the requirements of a recipient of the report. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion and reports made by Fitch are based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings and reports are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating or a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. Fitch is not engaged in the offer or sale of any security. All Fitch reports have shared authorship. Individuals identified in a Fitch report were involved in, but are not solely responsible for, the opinions stated therein. The individuals are named for contact purposes only. A report providing a Fitch rating is neither a prospectus nor a substitute for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the securities. Ratings may be changed or withdrawn at any time for any reason in the sole discretion of Fitch. Fitch does not provide investment advice of any sort. Ratings are not a recommendation to buy, sell, or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature or taxability of payments made in respect to any security. Fitch receives fees from issuers, insurers, guarantors, other obligors, and underwriters for rating securities. Such fees generally vary from US$1,000 to US$750,000 (or the applicable currency equivalent) per issue. In certain cases, Fitch will rate all or a number of issues issued by a particular issuer, or insured or guaranteed by a particular insurer or guarantor, for a single annual fee. Such fees are expected to vary from US$10,000 to US$1,500,000 (or the applicable currency equivalent). The assignment, publication, or dissemination of a rating by Fitch shall not constitute a consent by Fitch to use its name as an expert in connection with any registration statement filed under the United States securities laws, the Financial Services and Markets Act of 2000 of the United Kingdom, or the securities laws of any particular jurisdiction. Due to the relative efficiency of electronic publishing and distribution, Fitch research may be available to electronic subscribers up to three days earlier than to print subscribers. For Australia, New Zealand, Taiwan and South Korea only: Fitch Australia Pty Ltd holds an Australian financial services license (AFS license no. 337123) which authorizes it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001

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