Press Release

DBRS Assigns AAA Ratings to CAFFIL Public Sector Obligations Foncières New Issuances

Covered Bonds
January 28, 2019

DBRS Ratings Limited (DBRS) assigned a rating of AAA to 11 new Obligations Foncières (OF) issued under the CAFFIL SCF (CAFFIL or the Issuer) Public Sector Covered Bonds Programme (the Programme). At the same time, DBRS discontinued the ratings on six series that have matured and confirmed the AAA ratings of CAFFIL’s outstanding OF.

There are 531 series of covered bonds (CB) outstanding under the Programme, in different currencies, totalling an equivalent amount of EUR 51.7 billion. In addition to the OF outstanding, as at 30 September 2018 CAFFIL had other privileged liabilities that totalled EUR 423 million that are due under the swaps in case of termination. The amounts are due pari passu with the bonds. The public sector assets’ balance as at 30 September 2018 was EUR 54.4 billion and the substitute assets amounted to EUR 2.1 billion. Considering the EUR 1.7 billion proceeds of CB issued since end-September 2018 leads to a nominal overcollateralisation (OC) ratio of 11.6%.

The ratings are based on the following analytical considerations:
-- A Covered Bonds Attachment Point (CBAP) of AA (high), which is the Long-Term Issuer Rating of SFIL SA (SFIL). SFIL is the Reference Entity (RE) for the Programme, while CAFFIL is the Issuer.
-- While the Legal and Structuring Framework (LSF) Assessment does not currently affect the ratings in a material way, an LSF Assessment of “Very Strong” is associated with the Programme.
-- While the Cover Pool Credit Assessment (CPCA) level does not currently affect the rating in a material way, a CPCA of A (low) was assigned to the Programme.
-- An LSF-Implied Likelihood (LSF-L) of AAA.
-- While the level of recoveries does not currently affect the rating in a material way, a two-notch uplift for high recovery prospects is possible.
-- The level of OC of 9.8% to which DBRS gives credit.

The transaction was analysed using the DBRS European Covered Bond Cash Flow tool. The main assumptions focused on the timing of defaults and recoveries of the assets, interest rate stresses and market value spreads to calculate liquidation values on the cover pool (CP).

Everything else being equal, a downgrade of the CBAP by five notches to A (low) would lead to a downgrade of the LSF-L by three notches to AA (low), resulting in a downgrade of the CB rating by one notch. Everything else equal, the CB ratings would be downgraded if (1) DBRS’s ratings of the Republic of France were downgraded below AA (low); (2) the composition of the CP, the level of OC to which DBRS gives credit, interest rate stresses, or foreign currency exposure, changed adversely to a degree that a one-notch uplift for good recovery prospects could no longer be granted.

As of September 2018, the CP was composed of public sector assets (equivalent to EUR 54.4 billion) and substitute assets (equivalent to EUR 2.05 billion). Roughly 87% of the CP by loan balance is concentrated in France (the Domicile Sovereign), where the RE and the Issuer are also located in France (the Host Sovereign). In DBRS’s view, this exposes CB investors to an increased risk that the creditworthiness of the RE and the CP may deteriorate at the same time. According to DBRS’s “Rating European Covered Bonds” methodology, in this circumstance, the rating of the CB is typically capped at three notches above the rating of the sovereign.

CAFFIL has several hedging agreements in place with multiple commercial banks. CAFFIL is not required to post collateral under any of these agreements. All the hedging agreements entered into with counterparties other than SFIL either contain no downgrade language or downgrade language that is not in line with DBRS’s criteria. DBRS gave limited credit (20%) to these swaps in its analysis. The hedging agreements entered into with SFIL contain downgrade and collateral posting language in line with DBRS’s criteria and have been given full credit in DBRS’s analysis. The residual foreign currency assumed open position has been stressed.

CAFFIL enjoys a substantial liquidity position. In DBRS’s view, this mitigates the liquidity constraint imposed by the termination payments that might be due under the swaps. Moreover, DBRS has assumed a 12-month asset-liability matching rule in its analysis in lieu of the minimum six-month period required by the OF legislative framework. This is the main driver of the halving of the Pass-OC level associated with the CPCA of A (low). Although currently not a driver of the OF rating, a substantial and permanent impairment of the Issuer’s liquidity position would affect the Pass-OC level.

The DBRS-calculated WA life of the assets is roughly eight years while that of the covered bonds is 6.9 years. This generates an asset-liability mismatch that is mitigated by the available OC.

For further information on the Programme, please refer to the rating report at

All figures are in euros unless otherwise noted.

The principal methodology applicable to the ratings is: “Rating European Covered Bonds”.

In DBRS’s opinion, the changes under consideration do not require the application of the entire principal methodology. Therefore, DBRS focused on the cash flow analysis. A review of the transaction legal documents was limited to the documentation pertaining to the issuances listed at the end of this press release. All the other documents have remained unchanged since the most recent rating action.

Other methodologies referenced in this transaction are listed at the end of this press release.

These may be found on at:

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 Credit Ratings” of the “Rating Sovereign Governments” methodology at:

The sources of data and information used for these ratings include investor reports provided by the Issuer.

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

At the time of the initial rating DBRS was not supplied with third-party assessments. However, this did not impact the rating analysis.

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

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

This is the first rating action since the Initial Rating Date.

The lead analyst responsibilities for this transaction have been transferred to Roger Bickert.

Information regarding DBRS ratings, including definitions, policies and methodologies, is available on

For further information on DBRS historical default rates published by the European Securities and Markets Authority (“ESMA”) in a central repository, see:

Ratings assigned by DBRS Ratings Limited are subject to EU and US regulations only.

Lead Analyst: Roger Bickert, Vice President
Rating Committee Chair: Gareth Levington, Managing Director
Initial Rating Date: 10 September 2018

DBRS Ratings Limited
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Registered and incorporated under the laws of England and Wales: Company No. 7139960

The rating methodologies used in the analysis of this transaction can be found at:

-- Rating European Covered Bonds
-- Modelling Assumptions for Portfolios of Public Sector Exposures
-- Global Methodology for Rating Banks and Banking Organisations
-- Legal Criteria for European Structured Finance Transactions
-- Derivative Criteria for European Structured Finance Transactions
-- Interest Rate Stresses for European Structured Finance Transactions
-- Operational Risk Assessment for European Structured Finance Originators
-- Operational Risk Assessment for European Structured Finance Servicers
-- Rating Sovereign Governments

A description of how DBRS analyses structured finance transactions and how the methodologies are collectively applied can be found at:

For more information on this credit or on this industry, visit or contact us at