DBRS Ratings Limited (DBRS) confirmed its rating of the Class A Notes issued by FCT Opera 2014 (Issuer) at AAA (sf).
The rating addresses the timely payment of interest and ultimate payment of principal on or before the legal final maturity date. The Issuer is a securitisation fund of home loans originated by BNP Paribas (BNPP or the Seller) originally established on 12 November 2014. The transaction is managed by France Titrisation (the Management Company). The portfolio is serviced by BNPP.
The confirmation is based on the following analytical considerations:
--Transaction capital structure and sufficiency of available credit enhancement.
-- Credit quality of the portfolio. DBRS calculated a probability of default (PD), loss given default (LGD) and expected loss based on the current portfolio and the worst-case portfolio assuming reinvestment of principal proceeds during the third revolving period, considering the eligibility criteria.
-- The ability of the transaction to withstand stressed cash flow assumptions and repay the rated notes according to their terms. The transaction’s cash flows incorporate PD and LGD outputs provided by DBRS’s European RMBS Credit Model. Transaction cash flows were analysed using Intex DealMaker.
-- The legal structure and presence of legal opinions addressing assignment of the assets to the Issuer is consistent with DBRS’s “Legal Criteria for European Structured Finance Transactions” methodology.
The confirmation follows an amendment to the transaction anticipated to occur on 25 February 2019, which involved an increase of the principal amount outstanding on the Class A Notes, whereas the principal amount outstanding on the Class B Notes will be partially redeemed. The proceeds of the issue on the Class A Notes will be used to purchase a portfolio of fixed and floating rate residential home loans and their respective ancillary rights during a newly incorporated third revolving period.
In addition to the further issuance of notes and purchase of additional home loans during the third revolving period, lasting until 25 November 2020, during which time the Issuer may purchase further home loans and their ancillary rights, certain other structural features have been added or amended. These include an adjustment of the capital structure and credit enhancement for the Class A Notes, the reserve fund mechanism to also cover principal shortfalls on the Class A Notes and amendments to the eligibility criteria for the purchase of additional home loans and their ancillary rights.
CREDIT ENHANCEMENT AND RESERVE
The credit enhancement available to the Class A Notes consists of 13% subordination which is down from 38% as at the 2016 restructuring and 33% as at the November 2018 payment date, provided by the Class B Notes and the Reserve Fund which is equal to 5.0% of the total balance of the Class A Notes and Class B Notes. The Reserve Fund will be available to pay senior fees and expenses, swap payments and interest due on the Class A Notes. Moreover, following the amendment, the Reserve Fund will be used to pay any principal shortfalls on the Class A Notes, during the revolving and normal redemption period as well as during the accelerated redemption period.
PORTFOLIO PERFORMANCE AND ASSUMPTIONS
As of 25 February 2019, the updated portfolio of home loans is equal to EUR 8.1 billion. The weighted-average seasoning of the portfolio is equal to 4.7 years, with a remaining weighted-average term of 13.07 years. The weighted-average current loan-to-value (CLTV) is 70.9% with 41.0% having a CLTV greater than 80%. The portfolio has 8.3% interest-only loans and 36.4% buy-to-let loans. The portfolio’s geographic concentration is primarily in the French regions of Ile-de-France (51.9% by allocated loan amount), Provence-Alpes-Côte-d'Azur (8.3%) and Rhône-Alpes (6.9%).
The third revolving period will allow the Issuer to purchase additional home loans from the Seller until 25 November 2020. The amendment includes updated conditions for further purchases of home loans, which consists of delinquency and default triggers as well as eligibility criteria for additional home loans. The DBRS credit analysis assumes principal receipts received during the revolving period will be reinvested in additional home loans, which have the highest risk characteristics to assess the potential credit migration of the portfolio during the revolving period. The updated portfolio was analysed with DBRS’s European RMBS Credit Model to estimate the expected portfolio PD for each rating scenario.
Almost all of the loans pay a fixed rate of interest. As of the 2019 issue date, the portfolio consists of 99.4% fixed rate loans. However, during the third revolving period the Issuer’s eligibility criteria allows for the Issuer to purchase up to 25% floating rate loans. The Issuer has entered into an interest rate swap agreement with BNPP to hedge the potential interest rate mismatch between the assets and liabilities. The senior unsecured rating of BNPP is currently AA (low) with a Critical Obligation Rating of AA (high). The rating of BNPP and language in the downgrade replacement triggers in the interest rate swap agreement are consistent with DBRS’s “Derivative Criteria for European Structured Finance Transactions” given the rating of the notes.
BNP Paribas Securities Services S.C.A. (BNP SS) is the main account bank provider in this transaction. Based on DBRS’s private rating of BNP SS and the mitigants outlined in the transaction documents, DBRS considers the risk arising from the exposure to the account bank to be consistent with the rating assigned to the Class A Notes, as described in DBRS’s “Legal Criteria for European Structured Finance Transactions” methodology.
All figures are euros unless otherwise noted.
The principal methodology applicable to the rating is the “Master European Residential Mortgage-Backed Securities Rating Methodology and Jurisdictional Addenda”.
Other methodologies referenced in this transaction are listed at the end of this press release.
These may be found on www.dbrs.com at: http://www.dbrs.com/about/methodologies.
DBRS has applied the principal methodology consistently and conducted a review of the transaction in accordance with the principal methodology.
An asset and a cashflow analysis were both conducted. Due to the inclusion of a revolving period in the transaction, the analysis continues to be based on the worst-case replenishment criteria set forth in the transaction legal documents.
A review of the transaction legal documents was conducted as the legal documents have been amended since the most recent rating action.
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: http://dbrs.com/research/319564/rating-sovereign-governments.pdf.
The sources of data and information used for this rating are loan-by-loan data from European DataWarehouse GmbH as well as investor reports and performance data provided by the Management Company, France Titrisation and BNP Paribas.
DBRS did not rely upon third-party due diligence in order to conduct its analysis.
DBRS was supplied with third-party assessments, at the restructuring, which occurred in November 2016. 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.
The last rating action on this transaction took place on 31 October 2018, when DBRS confirmed its rating on the Class A Notes at AAA (sf).
Information regarding DBRS ratings, including definitions, policies and methodologies is available at www.dbrs.com.
To assess the impact of the changing the transaction parameters on the rating, DBRS considered the following stress scenarios, as compared to the parameters used to determine the rating (the Base Case):
-- A PD rate of 27.8% and LGD rate of 39.7%, corresponding to a AAA (sf) rating scenario, were stressed assuming a 25% increase to the PD and LGD.
-- All else being equal, the Class A Notes would be expected to be downgraded to AA (sf) rating for hypothetical increases of each of the PD and LGD stresses.
-- The Risk Sensitivity overview below illustrates the ratings expected if the PD and LGD increase by a certain percentage over the base case assumption. For example, if the LGD increases by 50%, the rating on the Class A Notes would be downgraded to AA (sf), assuming no change in the PD. If the PD increases by 50%, the rating on the Class A Notes would be downgraded to AA (sf), assuming no change in the LGD. Furthermore, if both the PD and LGD increase by 50%, the rating on the Class A Notes would be expected to be downgraded to A (low) (sf).
Class A Notes Risk Sensitivity:
-- 25% increase in LGD, expected rating of AA (high) (sf)
-- 50% increase in LGD, expected rating of AA (sf)
-- 25% increase in PD, expected rating of AA (high) (sf)
-- 50% increase in PD, expected rating of AA (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of AA (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of A (high) (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of A (high) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of A (low) (sf)
For further information on DBRS historical default rates published by the European Securities and Markets Authority (ESMA) in a central repository, see: http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml.
Ratings assigned by DBRS Ratings Limited are subject to EU and US regulations only.
Lead Analyst: Alessandra Maggiora, Assistant Vice President
Rating Committee Chair: Christian Aufsatz, Managing Director, Head of European Structured Finance
Initial Rating Date: 4 November 2014
DBRS Ratings Limited
20 Fenchurch Street
Registered in England and Wales: No. 7139960.
The rating methodologies used in the analysis of this transaction can be found at: http://www.dbrs.com/about/methodologies.
-- Legal Criteria for European Structured Finance Transactions
-- Master European Structured Finance Surveillance Methodology
-- Operational Risk Assessment for European Structured Finance Servicers
-- Operational Risk Assessment for European Structured Finance Originators
-- Derivative Criteria for European Structured Finance Transactions
-- Master European Residential Mortgage-Backed Securities Rating Methodology and Jurisdictional Addenda
A description of how DBRS analyses structured finance transactions and how the methodologies are collectively applied can be found at: http://www.dbrs.com/research/278375.
For more information on this credit or on this industry, visit www.dbrs.com or contact us at email@example.com.