Scope Ratings has today assigned first-time Issuer Credit-Strength Ratings (ICSRs) of AA- with Stable Outlook to Crédit Foncier de France SA (Crédit Foncier) and its wholly owned subsidiary Compagnie de Financement Foncier SA (CoFF). The agency also assigned first-time ratings of AAA with Stable Outlook to the French covered bonds (obligations foncières) issued by CoFF at AAA, Stable Outlook.

The ICSR for Crédit Foncier – fully owned by BPCE SA (BPCE), rated AA- / S-1 with Stable Outlook, which is France’s second-largest banking group – reflects the strong cohesiveness and support mechanism between BPCE group members. CoFF’s ICSR reflects its strong integration into its parent, Crédit Foncier, and its dedicated role of refinancing the mortgage and public-sector lending of Crédit Foncier and BPCE. The covered bond ratings are enhanced above CoFF’s issuer ratings by the fundamental support for French covered bonds and an at-least-as-high credit support provided by the cover pool analysis. Credit and market risks, in particular cash-flow-mismatch risk, are low and well buffered by the available overcollateralisation.

Bank ratings

Scope says that all regulated credit institutions with the BPCE group benefit from an internal guarantee and solidarity system defined by law, under which BPCE is legally obliged to guarantee the liquidity and solvency of affiliated banks. Crédit Foncier’s business and funding profile is fully aligned within BPCE’s business model, strategy and competitive position in the French market. In addition, Crédit Foncier is able to benefit from the group’s risk management set-up. According to the rating agency, the integrated group structure of BPCE should eliminate intra-group competition, support improved efficiency and drive profitability. Scope notes that all these analytical considerations underpin its decision to align Credit Foncier’s issuer rating with that of BPCE’s.

CoFF is a fully owned specialised credit institution (société de crédit foncier), with the dedicated role of providing secured funding to its parent and the group. Scope’s credit view on CoFF as an issuer ultimately reflects its full ownership by Crédit Foncier and its participation into BPCE’s support system.

Scope highlights that positive rating changes will depend on the ability of BPCE to further increase cohesiveness, reduce excess capacity, improve efficiencies, increase cross-selling opportunities and, ultimately, raise profitability. Negative changes to BPCE’s credit quality will directly impact the credit quality of both Credit Foncier and CoFF. Any signs of weakened commitment by or reduced strategic importance of Credit Foncier or CoFF, including atypical and counter-cyclical negative results compared to competitors, could also prompt negative reviews of both issuers’ credit quality.

Covered bond ratings

CoFFs covered bond ratings are primarily based on fundamental support factors applicable to French covered bonds. The benefits from the French legal covered bond framework and Scope’s credit-positive view on the resolution regime, combined with the systemic importance of both the issuer and French covered bonds, translate into a six-notch fundamental credit differentiation.

Although the covered bonds only need an uplift of three notches above the issuer rating to reach AAA, the fundamental credit differentiation already provides rating stability as a result of the potential support of up to six notches. The fundamental uplift effectively protects the covered bond ratings from credit-negative impacts arising from the cover pool composition and covered bond structure.

In addition, the covered bond ratings benefit from a pool of high-quality, low-credit-risk cover assets that are funded with low mismatch risk. The covered bonds have recourse to a mixed cover pool almost equally comprising mortgage and public-sector collateral. The predominantly domestic and residential mortgage collateral is composed of standard mortgage loans, buy-to-let and mortgage loans that also benefit from state guarantees, together supporting very high recoveries.

Scope assesses public-sector collateral at a weighted average credit quality of ‘single a minus’. Scope’s public-sector credit analysis reflects that 70% of the sub-pool consists of strongly interconnected French public-sector borrowers, meaning the credit quality of the public-sector sub-pool is susceptible to changes in the credit quality of French public authorities.

The cash flows of CoFF’s covered bond programmes are fully hedged against foreign exchange risks and exhibit a low sensitivity to interest rate movements. The programmes also exhibit low scheduled asset-liability mismatches with internal cash-flow-matching requirements extending the regulatory short-term liquidity coverage of six months to one year. In addition to the relatively small size of the mismatches, Scope takes comfort that these generally only occur in the medium term, giving CoFF sufficient time to address them. The cover pool in combination with the sound credit quality of the issuer is able to support at least the same credit differentiation as the fundamental uplift suggests. Cover pool support could elevate the covered bonds up to nine notches above the issuer, assuming adequate overcollateralisation is provided. Both fundamental and cover pool support sustain the Stable Outlook on the covered bonds.

Outlook: Stable 

The Stable Outlook on CoFFs covered bonds reflect: i) Scope’s Stable Outlook for the issuer and its status within the BPCE group; ii) the lack of indication that the credit-positive support from fundamental support is likely to alter, or that the systemic importance of French covered bonds would significantly lessen; and iii) the ongoing availability of sufficient overcollateralisation, which protects against adverse changes in the collateral asset quality and cash flow structure. A downgrade of the covered bonds might only occur if the issuer was downgraded by more than three notches and the supporting overcollateralisation reduced.

Scope’s outlook on the covered bonds also reflects that the issuer will likely maintain its prudent risk-management strategies and that the covered bonds’ high importance as a funding source for Crédit Foncier will remain. The agency does not expect changes to the willingness and ability of CoFF to continuously provide sufficient overcollateralisation to support the very strong credit quality of its covered bonds.

Notes

Scope has today published rating reports which provide important disclosures and the detailed rating rationales, including the agency’s assessment of individual credit factors for Crédit Foncier and CoFF, as well as a separate report for the French covered bonds issued by CoFF. The rating reports are freely available on www.scoperatings.com or under the following links: Credit Foncier and CoFF rating report; CoFF covered bond rating report.

Contacts:

Scope Ratings AG: Phone: +49 (0)30 27891-0
Samuel Theodore (Crédit Foncier/Compagnie de Financement Foncier): Phone: +44 (0)203 45704-52; Email: s.theodore@scoperatings.com
Michaela Seimen Howat (Crédit Foncier/Compagnie de Financement Foncier): Phone: +44 203 45704-45; Email: m.seimenhowat@scoperatings.com
Guillaume Jolivet (covered bonds issued by Compagnie de Financement Foncier): Phone: +49 (0)30 27891-241; Email: g.jolivet@scoperatings.com
Karlo Fuchs (covered bonds issued by Compagnie de Financement Foncier): Phone: +49 30 27891-134; Email: k.fuchs@scoperatings.com

Regulatory disclosures

Information pursuant to Regulation (EC) No 1060/2009 on credit rating agencies, as amended by Regulations (EU) No. 513/2011 and (EU) No. 462/2013

Responsibility
The party responsible for the dissemination of the financial analysis is Scope Ratings AG, Berlin, District Court for Berlin (Charlottenburg) HRB 161306 B, Executive Board: Torsten Hinrichs (CEO), Dr. Stefan Bund and Dr. Sven Janssen.
The rating analysis for the ICSR’s of CFF/ CoFF has been prepared by Michaela Seimen Howat, Executive Director
Responsible for approving the bank ratings: Sam Theodore, Group Managing Director
The covered bond rating analysis has been prepared by Karlo Fuchs, Executive Director
Responsible for approving the covered bond rating: Guillaume Jolivet, Managing Director

The rating outlook indicates the most likely direction of the rating if the rating were to change within the next 12 to 18 months. A rating change is, however, not automatically ensured.

Information on interests and conflicts of interest
The rating was prepared independently by Scope Ratings but for a fee based on a mandate of the issuers and with participation of the issuers (solicited).
As at the time of the analysis, neither Scope Ratings AG nor companies affiliated with it hold any interests in the rated entity or in companies directly or indirectly affiliated to it. Likewise, neither the rated entity nor companies directly or indirectly affiliated with it hold any interests in Scope Ratings AG, or any companies affiliated to it. Neither the rating agency, the rating analysts who participated in this rating, nor any other persons who participated in the provision of the rating and/or its approval hold, either directly or indirectly, any shares in the rated entity or in third parties affiliated to it. Notwithstanding this, it is permitted for the above-mentioned persons to hold interests through shares in diversified undertakings for collective investment, including managed funds such as pension funds or life insurance companies, pursuant to EU Rating Regulation (EC) No 1060/2009. Neither Scope Ratings nor companies affiliated with it are involved in the brokering or distribution of capital investment products. In principle, there is a possibility that family relationships may exist between the personnel of Scope Ratings and that of the rated entity. However, no persons for whom a conflict of interests could exist due to family relationships or other close relationships will participate in the preparation or approval of a rating.

Key sources of information for the rating
Website of the rated entities, Annual reports/ quarterly reports of the rated entities, public covered bond specific reports, Programme documentation and terms and conditions of the covered bonds issued, confidential information on the cover pool composition and related cash flow structures Current performance record, Detailed information provided on request, Data provided by external data providers, Interview with the rated entity, External market reports, Press reports, data series and research by central banks from reputable market participants.
Scope Ratings considers the quality of the available information on the evaluated entity to be satisfactory. Scope ensured as far as possible that the sources are reliable before drawing upon them, but did not verify each item of information specified in the sources independently.

Examination of the rating by the rated entity prior to publication
Prior to publication, the rated entity was given the opportunity to examine the rating and the rating drivers, including the principal grounds on which the credit rating or rating outlook is based. The rated entity was subsequently provided with at least one full working day, to point out any factual errors, or to appeal the rating decision and deliver additional material information. Following that examination, the rating was not modified.

Methodology
The methodology applicable for the bank ratings is the “Bank Rating Methodology” (May 2016). The main methodology applicable for the covered bond ratingis: “Covered Bond Rating Methodology”, published 22. July 2016. All methodologies are available on www.scoperatings.com. The historical default rates of Scope Ratings can be viewed on the central platform (CEREP) of the European Securities and Markets Authority (ESMA): http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml. A comprehensive clarification of Scope’s credit rating, definitions of rating symbols and further information on the analysis components of a rating can be found in the documents on methodologies on the rating agency’s website.

Conditions of use / exclusion of liability
© 2017 Scope SE & Co. KGaA and all its subsidiaries including Scope Ratings AG, Scope Analysis, Scope Investor Services GmbH (collectively, Scope). All rights reserved. The information and data supporting Scope’s ratings, rating reports, rating opinions and related research and credit opinions originate from sources Scope considers to be reliable and accurate. Scope cannot, however, independently verify the reliability and accuracy of the information and data. Scope’s ratings, rating reports, rating opinions, or related research and credit opinions are provided “as is” without any representation or warranty of any kind. In no circumstance shall Scope or its directors, officers, employees and other representatives be liable to any party for any direct, indirect, incidental or otherwise damages, expenses of any kind, or losses arising from any use of Scope’s ratings, rating reports, rating opinions, related research or credit opinions. Ratings and other related credit opinions issued by Scope are, and have to be viewed by any party, as opinions on relative credit risk and not as a statement of fact or recommendation to purchase, hold or sell securities. Past performance does not necessarily predict future results. Any report issued by Scope is not a prospectus or similar document related to a debt security or issuing entity. Scope issues credit ratings and related research and opinions with the understanding and expectation that parties using them will assess independently the suitability of each security for investment or transaction purposes. Scope’s credit ratings address relative credit risk, they do not address other risks such as market, liquidity, legal, or volatility. The information and data included herein is protected by copyright and other laws. To reproduce, transmit, transfer, disseminate, translate, resell, or store for subsequent use for any such purpose the information and data contained herein, contact Scope Ratings AG at Lennéstraße 5 D-10785 Berlin.

Rating issued by
Scope Ratings AG, Lennéstraße 5, 10785 Berlin