Press Release

DBRS Morningstar Assigns Ratings to FCT FE Durable 2023

Structured Credit

February 17, 2023

DBRS Ratings GmbH (DBRS Morningstar) assigned ratings to the following notes due in April 2060 issued by FCT FE Durable 2023 (the Issuer):

-- EUR 808,000,000 Class A Notes at AAA (sf)
-- EUR 170,000,000 Class B Notes at AA (sf)

The Issuer also issued EUR 22,000,000 Class C Asset Backed Floating Rate Notes due 27 April 2060 (together with the Class A and Class B Notes, the Notes), which were not rated by DBRS Morningstar.

The rating on the Class A Notes addresses the timely payment of interest and the ultimate repayment of principal on or before the legal final maturity date in April 2060. The rating on the Class B Notes addresses the ultimate payment of scheduled interest and the ultimate repayment of principal by the legal final maturity date, in accordance with the transaction documentation (the rating addresses the timely payment of interest once the Class B Notes become the most senior class of notes outstanding).

FCT FE Durable 2023 is a cash flow securitisation collateralised by a portfolio of social housing loans to French social and affordable housing providers (SAHP) that were granted by Caisse des Dépôts et Consignations (CDC or the originator) through its savings fund division (Fonds d’Epargne).

As of 31 January 2023 (the cut-off date), the portfolio consisted of 1,890 loans extended to 206 SAHP borrowers, with an aggregate par balance of EUR 1.0 billion. All loans were performing, with no amount in arrears. The economic effect of the initial portfolio transfer started on 17 February 2023 (the purchase date).

The transaction is static and the structure includes separate waterfalls for the payment of interest and principal on the Notes, with the Class A Notes ranking in priority to the Class B Notes on both interest and principal payments.

The transaction includes a general reserve, which provides liquidity support and will be available to cover expenses, senior fees, and interest on the Class A and Class B Notes. The target cash reserve is equal to 1.0% of the principal outstanding of the Class A and Class B Notes, subject to a floor of EUR 1.0 million. In addition, principal funds are available to cover any additional shortfalls in expenses, senior fees, swap payments, and interest on the Class A Notes. The Class A and Class B Notes benefit from a total credit enhancement of 19.2% and 2.2%, respectively, which is provided by the overcollateralisation of the portfolio.

The initial portfolio consists of floating-rate loans, indexed at Livret A rate. The initial portfolio shows a relatively high SAHP borrower concentration, as the largest and the top five and top 10 largest borrower groups account for 1.7%, 8.6%, and 17.0% of the outstanding portfolio balance, respectively. The initial portfolio exhibits a higher geographic concentration in the French region of Auvergne-Rhône-Alpes, which accounts for 19.9% of the outstanding portfolio balance. The portfolio is further concentrated in the regions of Occitanie and Normandy, accounting for 9.7% and 9.7%, respectively. The total initial portfolio benefits from the guarantees extended by local authorities (collectivités locales). The covered amount is 100% of the outstanding principal balance.

CDC acts as the servicer for this transaction and will remain the servicer until the liquidation of the Issuer. Only CDC is authorised to originate, manage, and collect regulated social housing loans. The management company ensures that the loans are duly managed and collected in accordance with the terms of the servicing agreement.

CDC covers several key roles in the transaction including that of seller, servicer, account bank, general reserve deposit provider, and swap counterparty. Based on the account bank’s private rating and the replacement provisions included in the transaction documents, DBRS Morningstar considers the counterparty risk to be consistent with the ratings assigned to the Class A and Class B Notes, in accordance with its “Legal Criteria for European Structured Finance Transactions” methodology.

The transaction is exposed to basis and repricing risk due to the mismatch between the floating-rate assets indexed to Livret A rate and the floating-rate liabilities indexed to three-month Euribor. This risk is mitigated by an interest rate swap with an eligible counterparty. CDC is the swap counterparty for the transaction. Based on the swap counterparty’s private rating DBRS Morningstar concluded that CDC meets the minimum requirements to act in this capacity in relation to the ratings assigned. The transaction documents feature downgrade provisions consistent with DBRS Morningstar criteria.

DBRS Morningstar determined its ratings based on the principal methodology and the following analytical considerations:
-- DBRS Morningstar determined the default rate for the portfolio using the internal assessments of the borrowers, assessed through financial and operational metrics supplied. DBRS Morningstar carried out internal assessments on the SAHP borrowers based on DBRS Morningstar’s “Rating European Social and Affordable Housing Providers” methodology.
-- The WAL of the portfolio was 11.8 years.
-- DBRS Morningstar used the internal assessments and WAL as inputs in its Public Sector Exposure Model to generate the stressed default rate for the assigned ratings. The default rate is 14.1% and 11.3% at the AAA (sf) and AA (sf) rating levels, respectively.
-- DBRS Morningstar determined the recovery rate in line with its “Modelling Assumptions for Portfolios of Public Sector Exposures” methodology. The recovery rate is 78.7% and 79.3% at the AAA (sf) and AA (sf) rating levels, respectively.
-- DBRS Morningstar carried out the cash flow analysis based on its “Cash Flow Assumptions for Corporate Credit Securitizations” methodology. DBRS Morningstar determined the breakeven rates for the interest rate stresses and default timings using its cash flow tool.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factors that had a significant or relevant effect on the credit analysis.

A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the “DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings” at https://www.dbrsmorningstar.com/research/396929/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings.

DBRS Morningstar analysed the transaction structure in its proprietary Excel-based cash flow engine.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the ratings is: “Rating CLOs and CDOs of Large Corporate Credit” (7 February 2023), https://www.dbrsmorningstar.com/research/409498/rating-clos-and-cdos-of-large-corporate-credit.

Other methodologies referenced in this transaction are listed at the end of this press release. These may be found at: https://www.dbrsmorningstar.com/about/methodologies.

DBRS Morningstar has applied the principal methodology consistently and conducted a review of the transaction in accordance with the principal methodology.

For a more detailed discussion of the sovereign risk impact on Structured Finance ratings, please refer to “Appendix C: The Impact of Sovereign Ratings on Other DBRS Morningstar Credit Ratings” of the “Global Methodology for Rating Sovereign Governments” at: https://www.dbrsmorningstar.com/research/401817/global-methodology-for-rating-sovereign-governments.

The DBRS Morningstar Sovereign group releases baseline macroeconomic scenarios for rated sovereigns. DBRS Morningstar analysis considered impacts consistent with the baseline scenarios as set forth in the following report: https://www.dbrsmorningstar.com/research/384482/baseline-macroeconomic-scenarios-application-to-credit-ratings

The sources of data and information used for these ratings include performance data relating to the receivables provided by the seller directly or through the arranger, Crédit Agricole Corporate and Investment Bank.

DBRS Morningstar received the following data information:
-- Yearly financials and operational metrics of SHP borrowers from 2018 to 2020,
-- Static annual loss data from 2015 to 2020,
-- Dynamic monthly delinquency data from September 2016 to October 2021.

In addition, DBRS Morningstar received loan-level characteristics, stratification tables, contractual amortisation profile as at 31 January 2023. DBRS Morningstar also received set-off exposure as at 31 December 2022.

DBRS Morningstar did not rely upon third-party due diligence in order to conduct its analysis.

DBRS Morningstar was supplied with third-party assessments. However, this did not impact the rating analysis.

DBRS Morningstar considers the data and information available to it for the purposes of providing these ratings to be of satisfactory quality.

DBRS Morningstar does not audit or independently verify the data or information it receives in connection with the rating process.

These ratings concern newly issued financial instruments. These are the first DBRS Morningstar ratings on these financial instruments.

Information regarding DBRS Morningstar ratings, including definitions, policies, and methodologies, is available on www.dbrsmorningstar.com.

Sensitivity Analysis: To assess the impact of changing the transaction parameters on the ratings, DBRS Morningstar considered the following stress scenarios as compared with the parameters used to determine the ratings (the Base Case):
-- Default Rates Used: Base case default rate of 14.1% and 11.3% at the AAA (sf) and AA (sf) stress level, a downgrade of the Republic of France to AA and AA (low) to increase the base case default rate.
-- Recovery Rates Used: Base case recovery rate of 78.7% and 79.3% at the AAA (sf) and AA (sf) stress level, a 10% and 20% decrease in the base case recovery rate. Note that the percentage decreases in the recovery rates are assumed for the other stress recovery rate levels.

DBRS Morningstar concludes that a hypothetical downgrade of the sovereign rating of France to AA or a hypothetical decrease of the recovery rate by 10% would lead to a confirmation of the Class A and Class B Notes at AAA (sf) and AA (sf), respectively. A hypothetical downgrade of the sovereign rating of France to AA (low) would lead to a downgrade of the Class A and Class B Notes to AA (high) (sf) and A (high) (sf), respectively. A hypothetical decrease of the recovery rate by 20% would lead to a confirmation of the Class A Notes at AAA (sf) and a downgrade of the Class B Notes to A (high) (sf). A scenario combining both a downgrade of the sovereign rating of France to AA (low) and a decrease in the recovery rate by 10% would lead to a confirmation on the Class A Notes at AAA (sf) and a downgrade of the Class B Notes to A (high) (sf).

For further information on DBRS Morningstar historical default rates published by the European Securities and Markets Authority (ESMA) in a central repository, see: https://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml. DBRS Morningstar understands further information on DBRS Morningstar historical default rates may be published by the Financial Conduct Authority (FCA) on its webpage: https://www.fca.org.uk/firms/credit-rating-agencies.

These ratings are endorsed by DBRS Ratings Limited for use in the United Kingdom.

Lead Analyst: Ilaria Maschietto, Vice President
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: 17 February 2023

DBRS Ratings GmbH
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60311 Frankfurt am Main Deutschland
Tel. +49 (69) 8088 3500
Geschäftsführer: Detlef Scholz
Amtsgericht Frankfurt am Main, HRB 110259

The rating methodologies used in the analysis of this transaction can be found at: https://www.dbrsmorningstar.com/about/methodologies.

A description of how DBRS Morningstar analyses structured finance transactions and how the methodologies are collectively applied can be found at: https://www.dbrsmorningstar.com/research/278375.

For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at info@dbrsmorningstar.com.

ALL MORNINGSTAR DBRS RATINGS ARE SUBJECT TO DISCLAIMERS AND CERTAIN LIMITATIONS. PLEASE READ THESE DISCLAIMERS AND LIMITATIONS AND ADDITIONAL INFORMATION REGARDING MORNINGSTAR DBRS RATINGS, INCLUDING DEFINITIONS, POLICIES, RATING SCALES AND METHODOLOGIES.

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