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TEXT - S&P affirms Compagnie de Financement Foncier
January 9, 2013 / 5:42 PM / 5 years ago

TEXT - S&P affirms Compagnie de Financement Foncier

(The following statement was released by the rating agency)

OVERVIEW 

     -- On Dec. 19, 2012, we placed the long-and short-term ratings on 
Compagnie de Financement Foncier (CFiF)'s SCF (societe de credit foncier) 
covered bond program on CreditWatch negative following a review of the 
progress the program had made toward meeting our updated criteria for 
assessing counterparty risk by Jan. 11, 2013.
     -- The issuer has continued to renegotiate its derivative documentation 
to bring these agreements in line with the structural features for 
counterparty replacement outlined in our current or previous counterparty 
criteria. We understand CFiF is still pursuing this initiative.
     -- On Dec. 28, 2012, CFiF also made a public commitment that mitigates 
the immediate impact of the updated counterparty criteria on the rating on the 
program. In particular, it has committed to taking action on swaps that do not 
follow a replacement framework commensurate with our counterparty criteria 
should the short-term issuer credit rating (I CR) on its parent, BPCE, fall 
below 'A-1'.
     -- We have reviewed the credit and cash flows of the transaction after 
applying the new counterparty criteria. Following these results, we are 
affirming and removing from CreditWatch negative our 'AAA/A-1+' long- and 
short-term ratings on the covered bonds issued under CFiF's SCF program. The 
outlook on these covered bonds is stable. 
  
PARIS (Standard & Poor's) Jan. 9, 2013--Standard & Poor's Ratings Services 
today affirmed and removed from CreditWatch negative its 'AAA/A-1+' long- and 
short-term ratings on the covered bonds issued by Compagnie de Financement 
Foncier (CFiF) under its SCF program. The outlook is stable (see list below).

On Dec. 19, 2012, we placed the program on CreditWatch negative based on the 
execution risk following our review of the progress made toward meeting our 
updated criteria for assessing counterparty risk by Jan. 11, 2013, especially 
around derivatives obligations. 

In particular, unsubordinated termination payments could be due by CFiF to the 
counterparty, should the contract end prematurely. These are not mitigated by 
a replacement framework in line with Standard & Poor's methodology for a 
number of swaps in the transaction, covering more than 5% of the amount of 
privileged liability. According to paragraph 36 of "Covered Bonds Counterparty 
And Supporting Obligations Methodology And Assumptions," this constrains the 
rating to one notch above the rating on the issuer. 

Also, the additional termination event language (ATE), which gives the issuer 
the option to terminate the swap agreement if there is no mutually accepted 
replacement, and which is present in most of the transaction's swaps, had not 
yet been clarified in line with paragraph 38 of "Covered Bonds Counterparty 
And Supporting Obligations Methodology And Assumptions." This leads us to 
consider that these swaps do not have a replacement framework in line with our 
methodology.

We understand that since Dec. 19, 2012, the issuer has continued to 
renegotiate the documentation for its derivatives agreements to bring them in 
line with a replacement framework that follows structural features outlined in 
the current counterparty criteria or reflects previous counterparty criteria, 
but as of today, the remaining notional amount as a percentage of the 
outstanding covered bonds remains above 5%.

Moreover, on Dec. 28, 2012, the issuer published the following commitments on 
its Web site: 
     -- For swap contracts with an ATE provision: upon the ATE trigger being 
hit, the issuer commits to find a replacement, take over the derivative 
obligation, or increase the overcollateralization to address unhedged risk 
within 60 calendar days. 
     -- For the unsubordinated termination costs in swap contracts with no 
Standard & Poor's replacement framework: if BPCE is no longer rated 'A-1', the 
issuer undertakes to replace or amend the swap contracts (including 
contractual subordination of swap termination payments) to bring the notional 
amount of such swaps below 5% of the outstanding privileged liability within 
60 days. 

These commitments mitigate the risk of an immediate constraint on the rating 
on the program to one notch above the ICR on CFiF. 


HEDGES WITH RELATED AND UNRELATED COUNTERPARTIES

Swap contracts with related entities of the issuer's group have been updated 
to reflect our latest counterparty criteria. The benefit of these swaps is 
therefore reflected in the cash flow analysis. 

We do not give benefit to swap contracts with unrelated counterparties which 
do not have a Standard & Poor's replacement framework, and therefore the cash 
flows remain unhedged and exposed to foreign exchange and interest rate risk 
in our cash flow models.

Swap contracts with unrelated counterparties which follow previous Standard & 
Poor's counterparty criteria or the current counterparty criteria with 
variants have been analysed in accordance with paragraph 7 of the covered bond 
counterparty criteria. Because the single unrelated counterparty concentration 
is below 25%, the applicable ICR on the unrelated derivative counterparties is 
in the 'AAA' to 'A-' group, and the ICR on the issuer is in the 'AAA' to 'A-' 
group, there is no constraint on the maximum uplift achievable by the program. 

CASHFLOWS RUN WITH 'AAA' STRESSES
We affirmed our ratings on CFiF's covered bonds following our review of the 
latest cash flow information provided (as of Sept. 30, 2012). This now 
excludes the benefit of swaps without a Standard & Poor's replacement 
framework. 

Following the application of our five-step approach for rating covered bonds, 
we have assessed the current asset-liability mismatch (ALMM) risk measure, the 
program's categorization, the maximum potential covered bond ratings uplift, 
the cash flow and market value risk, and the credit enhancement provided.

The key results of this assessment are:

Classification of ALMM                                Low
Program categorization                                  1
Maximum potential ratings uplift (notches)              7
Maximum potential rating                              AAA
Target credit enhancement (%)                        14.5
Available credit enhancement (%)*                    18.1

*We calculate the current enhancement as (assets - liabilities)/liabilities.

When determining the program categorization, we consider primarily our view of 
the jurisdiction of a program and its ability to access external financing or 
monetize the cover pool. We then assign the covered bonds to one of three 
distinct categories. Under our criteria, to achieve the maximum potential 
number of notches of uplift, the available credit enhancement needs to be 
commensurate with the target credit enhancement. 

Following our analysis, and given our view of the French SCF legal framework, 
we have categorized CFiF's covered bonds in category "1" and determined a 
"low" ALMM classification. Under our criteria for rating covered bonds, this 
combination enables us to assign to the covered bonds a maximum potential 
ratings uplift of seven notches above our long-term ICR. Our assessment of the 
external swap counterparties shows that currently it does not affect the 
maximum number of notches uplift achievable by the program.

We believe that the cover pool can support a 'AAA' rating on CFiF's covered 
bonds issued under its SCF covered bond program. This reflects our assessment 
of the target credit enhancement, combined with the available credit 
enhancement for the covered bonds. We have consequently affirmed and removed 
from CreditWatch negative our 'AAA/A-1+' long- and short-term ratings on these 
covered bonds.

As the program uses only five of the seven notches of potential uplift above 
the ICR to achieve its current rating, we have also assigned a stable outlook 
to the 'AAA/A-1+' long- and short-term ratings on CFiF's covered bonds and 
program. 


RELATED CRITERIA AND RESEARCH
Related criteria
     -- Counterparty Risk Framework Methodology And Assumptions, Nov. 29, 2012
     -- Covered Bond Ratings Framework: Methodology And Assumptions, June 26, 
2012
     -- Covered Bonds Counterparty And Supporting Obligations Methodology And 
Assumptions, May 31, 2012
     -- Global Investment Criteria For Temporary Investments In Transaction 
Accounts, May 31, 2012
     -- Assessing Asset-Liability Mismatch Risk In Covered Bonds: Revised 
Methodology And Assumptions For Target Asset Spreads, April 24, 2012
     -- Nonsovereign Ratings That Exceed EMU Sovereign Ratings: Methodology 
And Assumptions, June 14, 2011
     -- Principles Of Credit Ratings, Feb. 16, 2011
     -- Advance Notice Of Proposed Criteria Change: Methodologies And 
Assumptions For Rating Certain Covered Bonds And CDOs, Aug. 5, 2010
     -- Revised Methodology And Assumptions For Assessing Asset-Liability 
Mismatch Risk In Covered Bonds, Dec. 16, 2009
     -- Methodology And Assumptions: Update To The Cash Flow Criteria For 
European RMBS Transactions, Jan. 6, 2009 (not applicable for U.K. programs)
     -- Methodology And Assumptions: Update To The Criteria For Rating French 
Residential Mortgage-Backed Securities, Jan. 6, 2009
     -- European Legal Criteria For Structured Finance Transactions, Aug. 28, 
2008
     -- Methodology & Assumptions: Applying The Derivative Counterparty 
Framework To Covered Bonds, Feb. 26, 2008
     -- Revised Framework For Applying Counterparty And Supporting Party 
Criteria, May 8, 2007 
     -- CDO Spotlight: Rating Approach To Synthetic CDOs Of Sovereigns Or 
Local And Regional Governments, May 3, 2006
     -- Cash Flow Criteria for European RMBS Transactions, Nov. 20, 2003 (not 
applicable for U.K. programs)
     -- Surviving Stress Scenarios: Assessing Asset Quality of Public Sector 
Covered Bond Collateral, Sept. 30, 2003
     -- Criteria for Rating French Residential Mortgage-Backed Securities, 
July 16, 2003 
     -- Swap Counterparty Requirements Expanded For Interest Rate Swaps, May 
19, 2000
     -- Standard & Poor's Develops Criteria for Rating Obligations Foncieres, 
May 5, 2000

Related research
     -- Compagnie de Financement Foncier Covered Bond Program On Watch Neg On 
Review Of Progress In Meeting Updated Criteria, Dec. 19, 2012
     -- A Listing Of S&P's New Actions Aimed At Strengthening The Ratings 
Process, Feb. 7, 2008
  
Related articles are available on RatingsDirect. Criteria, presales, servicer 
evaluations, and ratings information can also be found on Standard & Poor's 
Web site at www.standardandpoors.com. Alternatively, call one of the following 
Standard & Poor's numbers: Client Support Europe (44) 20-7176-7176; London 
Press Office (44) 20-7176-3605; Paris (33 1-4420-6708; Frankfurt (49) 
69-33-999-225; Stockholm (46) 8-440-5914; or Moscow (7) 495-783-4011.

RATINGS LIST

Ratings Affirmed/CreditWatch Action
Program                           To              From
Compagnie de Financement Foncier  AAA/Stable      AAA/Watch Neg  
                                  A-1+/Stable     A-1+/Watch Neg

Country: France Covered bond type: Obligation Fonciere

 (Caryn Trokie, New York Ratings Unit)

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