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

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

(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=" "> Excelbased Residential Mortgage Asset Model. EMEA Cash Flow Model. <a href=" ">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: Additional information is available at 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. 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