Rating action

Scope Ratings GmbH (Scope) has affirmed the AAA rating on the French covered bonds (obligations foncières) issued by Compagnie de Financement Foncier. The Outlook is Stable.

Download the performance report.

Key rating drivers

Covered bond rating anchor: A+. The issuer rating forms the starting point of the covered bond rating. It reflects Compagnie de Financement Foncier’s (CieFF) full ownership by Crédit Foncier de France (CFF) and the close integration with BPCE Group, one of France’s leading banking franchises (see detailed rating report here).

Governance support (plus up to six notches). This rating uplift reflects the high likelihood of covered bonds being maintained as a going concern in the event of regulatory action in the issuer or its parent as well as a smooth transition from the first (issuer) to the second recourse (cover pool) if needed. It consists of four notches from our resolution regime and systemic importance assessment and two notches from Scope’s legal framework and structural support assessment.

Scope’s legal framework and structural support analysis for CieFF’s covered bonds considers: 1) the cover pool’s valid segregation from the group’s general insolvency estate; 2) the very high likelihood of bond payments continuing after insolvency; 3) the strong legal and programme specific asset eligibility and risk management principles; 4) that enhancements to the covered bond programme remain available after an insolvency of the issuer; and 5) the strong regulatory oversight specifically for French covered bonds. (ESG factor)

The resolution regime and systemic importance assessment considers: 1) the existence of statutory provisions (Bank Recovery and Resolution Directive) that protect the covered bonds against regulatory actions; 2) the strength of statutory provisions including their exemption from being bailed-in; 3) the very high systemic importance in France of CieFF as an integral part of BPCE group and French covered bonds in general; and 4) France’s strong proactive stakeholder community. (ESG factor)

Cover pool support (plus up to three notches). This rating uplift reflects the impact of the second recourse. (ESG factor)

An overcollateralisation (OC) of 5% (legal minimum) is needed to support the current AAA rating. The current OC is 17.5%. The rating-supporting OC reflects:

• Credit risk – highly diversified seasoned mixed pool. The covered bonds are covered by a portfolio of mixed cover pool assets comprising public-sector loans, residential mortgage loans, commercial mortgage loans and substitute assets. The share of public sector loans is increasing following the groups strategic decision to use this programme to refinance its public sector lending. The public sector assets mainly consist of granular, domestic sub-sovereign and lower-tier public sector exposures. The mortgage portfolio is highly granular and benefits from around 50% of state guaranteed housing loans as well as first lien mortgages. Commercial loans are limited (1%). We have calculated a weighted average annualised default rate of 31bps together with an average coefficient of variation of 132% and stressed recovery rate of 67.2%.
   
• Market risk – issuer with prudent hedge strategy. The issuer has a prudent strategy to mitigate market risk (i.e. interest and foreign exchange risks). Residual interest rate risk is low. Maturity mismatch is also limited, reflecting the issuer’s focus on hedging cash flows and its provision of liquidity for the first 180 days via highly liquid collateral.

All else equal, an OC of 9.0% would shield the current rating against a five-notch issuer downgrade.

One or more key drivers of the credit rating action are considered an ESG factor.

Outlook and rating sensitivities

The Stable Outlook on CieFF’s covered bonds reflects Scope’s view on the stable issuer rating as well as governance support factors and the cover pool which together provide a rating buffer of five notches.

Upside scenarios are not applicable as the ratings are the highest achievable.

The downside scenarios for the ratings and outlooks are (individually or collectively):

• An issuer rating/outlook downgrade by six notches
   
• A reduction in the governance support uplift by six notches
   
• A deterioration in the programme’s interplay between complexity and transparency that worsens Scope’s CPC assessment and reduces the number of notches from cover pool support
   
• Available or committed OC falling below rating-supporting level

Environmental, social and governance (ESG) factors

Governance is a key rating driver. For more detail, please refer to ‘governance support’ and ‘cover pool support’ (CPC assessment) under the ‘key rating drivers’ section above.

Quantitative analysis and assumptions

For its quantitative analysis Scope applied assumptions as laid down in the covered bond methodology.

Stress testing
No stress testing was performed.

Cash flow analysis
The cover pool support uplift is based on a cash flow analysis using Scope Ratings’ covered bond model (Covered Bonds Expected Loss Model Version 1.2). The model applies Credit Rating distance-dependent stresses to scheduled cash flows to simulate the impact of increasing credit and market risks. The outcome of the analysis is an expected loss rate and an expected weighted average life for the instruments based on the generated cash flows.

Methodology
The methodology used for this Credit Rating and Outlook, (Covered Bond Rating Methodology, 26 July 2024), is available on https://scoperatings.com/governance-and-policies/rating-governance/methodologies.
The model used for this Credit Rating and Outlook is (Covered Bonds Expected Loss Model Version 1.2), available in Scope Ratings’ list of models, published under https://scoperatings.com/governance-and-policies/rating-governance/methodologies.
Information on the meaning of each Credit Rating category, including definitions of default, recoveries, Outlooks and Under Review, can be viewed in ‘Rating Definitions – Credit Ratings, Ancillary and Other Services’, published on https://www.scoperatings.com/governance-and-policies/rating-governance/definitions-and-scales. Historical default rates of the entities rated by Scope Ratings can be viewed in the Credit Rating performance report at https://scoperatings.com/governance-and-policies/regulatory/eu-regulation. Also refer to 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 Ratings’ definitions of default and Credit Rating notations can be found at https://www.scoperatings.com/governance-and-policies/rating-governance/definitions-and-scales. Guidance and information on how environmental, social or governance factors (ESG factors) are incorporated into the Credit Rating can be found in the respective sections of the methodologies or guidance documents provided on https://scoperatings.com/governance-and-policies/rating-governance/methodologies.
The Outlook indicates the most likely direction of the Credit Rating if the Credit Rating were to change within the next 12 to 18 months.

Solicitation, key sources and quality of information
The Rated Entity and/or its Related Third Parties participated in the Credit Rating process.
The following substantially material sources of information were used to prepare the Credit Rating: public domain, the Rated Entity and Scope Ratings’ internal sources.
Scope Ratings considers the quality of information available to Scope Ratings on the Rated Entity or instrument to be satisfactory. The information and data supporting the Credit Rating originate from sources Scope Ratings considers to be reliable and accurate. Scope Ratings does not, however, independently verify the reliability and accuracy of the information and data.
Prior to the issuance of the Credit Rating action, the Rated Entity was given the opportunity to review the Credit Rating and Outlook and the principal grounds on which the Credit Rating and Outlook are based. Following that review, the Credit Rating and Outlook were not amended before being issued.

Regulatory disclosures
The Credit Rating and Outlook are issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0. The Credit Rating and Outlook are UK-endorsed.
Lead analyst: Mathias Pleißner, Executive Director
Person responsible for approval of the Credit Rating: Karlo Fuchs, Managing Director
The Credit Rating/Outlook was first released by Scope Ratings on 7 February 2017. The Credit Rating/Outlook was last updated on 23 October 2023.

Potential conflicts
See www.scoperatings.com under Governance & Policies/Regulatory for a list of potential conflicts of interest disclosures related to the issuance of Credit Ratings, as well as a list of Ancillary Services and certain non-Credit Rating Agency services provided to Rated Entities and/or Related Third Parties.

Conditions of use / exclusion of liability
© 2024 Scope SE & Co. KGaA and all its subsidiaries including Scope Ratings GmbH, Scope Ratings UK Limited, Scope Fund Analysis GmbH, and Scope ESG Analysis 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 does not, 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 other 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 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 GmbH at Lennéstraße 5, D-10785 Berlin.