DBRS Morningstar Assigns AAA Rating to CAFFIL Public Sector Obligations Foncières New Issuance

DBRS Ratings Gmbh (DBRS Morningstar) assigned a AAA rating to the EMTN Series 2020-2B (Series 2020-2B) notes issued under the CAFFIL SCF (CAFFIL, Caisse Française de Financement Local, or the Issuer) Public Sector Covered Bonds Programme (the Programme). Series 2020-2B is a EUR 250 million tap issuance of the existing Series 2020-2, a fixed-rate bond that pays a coupon of 0.375% and matures on 13 February 2040. Series 2020-2 was issued on 13 February 2020 with a nominal amount of EUR 750 million.

All covered bonds (CBs) issued under the Programme rank pari passu with each other and DBRS Morningstar currently rates them AAA.

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 for the Programme.
-- A Legal and Structuring Framework (LSF) Assessment of “Very Strong” associated with the Programme, although the LSF Assessment does not currently affect the rating in a material way.
-- A Cover Pool Credit Assessment (CPCA) of A (low) can currently be achieved.
-- An LSF-Implied Likelihood (LSF-L) of AAA can currently be achieved.
-- A two-notch uplift for high recovery prospects is possible, although the level of recoveries does not currently affect the rating in a material way.
-- The level of overcollateralisation (OC) of 9.4% to which DBRS Morningstar gives credit.

DBRS Morningstar analysed the transaction using its 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).

To assign ratings to new issuances, the following stressed assumptions are used: a CPCA of BB, because BB is the lowest-tested stress level currently compatible with the AAA CB rating, and an LSF-L of AA (high) compatible with this level of CPCA.

Everything else being equal, provided a CPCA of A (low) is currently achievable, a five-notch downgrade of the CBAP would lead to a three-notch downgrade of the LSF-L to AA (low) and a one-notch downgrade of the CB ratings. Based on the BB CPCA (level tested to assign ratings to new issuances), a downgrade of the CBAP by two notches to AA (low) would lead to a downgrade of the LSF-L by two notches to AA (low), resulting in a downgrade of the CB ratings by one notch.

In addition, all else unchanged, the CB ratings would be downgraded if any of the following occurred:
(1) the sovereign rating of the Republic of France was downgraded below AA; (2) the relative amortisation profile of the CB and CP moved adversely; (3) volatility in the financial markets caused the currently estimated market value spreads to increase; or (4) the composition of the CP, the level of OC to which DBRS Morningstar 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.

For further information on the Programme, please refer to the rating report at www.dbrsmorningstar.com.

The Coronavirus Disease (COVID-19) and the resulting isolation measures have caused an economic contraction, leading to sharp increases in unemployment rates and income reductions for many borrowers.

On 16 April 2020, the DBRS Morningstar Sovereign group released a set of macroeconomic scenarios for the 2020 22 period in select economies. These scenarios were last updated on 2 December 2020. For details see the following commentaries: https://www.dbrsmorningstar.com/research/370672/global-macroeconomic-scenarios-december-update and https://www.dbrsmorningstar.com/research/359903/global-macroeconomic-scenarios-application-to-credit-ratings. The DBRS Morningstar analysis considered impacts consistent with the moderate scenario in the referenced reports.

On 24 April 2020, DBRS Morningstar published a commentary outlining how the coronavirus crisis is likely to affect the DBRS Morningstar-rated CBs in Europe. For more details, please see: https://www.dbrsmorningstar.com/research/359987/covid-19-the-impact-on-european-covered-bonds and https://www.dbrsmorningstar.com/research/362712/european-structured-finance-covid-19-credit-risk-exposure-roadmap.

For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.

For more information regarding structured finance rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/358308.

ESG CONSIDERATIONS
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework and its methodologies can be found at: https://www.dbrsmorningstar.com/research/357792.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the rating is: “Rating and Monitoring Covered Bonds” (27 April 2020).

In DBRS Morningstar’s opinion, the changes under consideration do not require the application of the entire principal methodology. Therefore, DBRS Morningstar focused on the cash flow analysis.

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

These may be found at: http://www.dbrsmorningstar.com/about/methodologies.

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/364527/global-methodology-for-rating-sovereign-governments.

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

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

At the time of the initial rating, DBRS Morningstar was not 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 this rating 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.

The last rating action on this transaction took place on 19 January 2021, when DBRS Morningstar assigned a AAA rating to the EMTN Series 2021-1 notes and discontinued its ratings on eight series that had matured.

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

For further information on DBRS Morningstar 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. 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.

This rating is endorsed by DBRS Ratings Limited for use in the United Kingdom.
Lead Analyst: Covadonga Aybar, Vice President
Rating Committee Chair: Ketan Thaker, Managing Director
Initial Rating Date: 10 September 2018

DBRS Ratings GmbH, Sucursal en España
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Tel. +34 (91) 903 6500

DBRS Ratings GmbH
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Tel. +49 (69) 8088 3500
Geschäftsführer: Detlef Scholz
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The rating methodologies used in the analysis of this transaction can be found at: http://www.dbrsmorningstar.com/about/methodologies.

-- Rating and Monitoring Covered Bonds (27 April 2020)
https://www.dbrsmorningstar.com/research/360260/rating-and-monitoring-covered-bonds.
-- Modelling Assumptions for Portfolios of Public Sector Exposures (12 August 2020) and Public Sector Model v 0.2.1, https://www.dbrsmorningstar.com/research/365614/modelling-assumptions-for-portfolios-of-public-sector-exposures.
-- Global Methodology for Rating Banks and Banking Organisations (8 June 2020)
https://www.dbrsmorningstar.com/research/362170/global-methodology-for-rating-banks-and-banking-organisations.
-- Legal Criteria for European Structured Finance Transactions (11 September 2019)
https://www.dbrsmorningstar.com/research/350234/legal-criteria-for-european-structured-finance-transactions.
-- Derivative Criteria for European Structured Finance Transactions (24 September 2020)
https://www.dbrsmorningstar.com/research/367092/derivative-criteria-for-european-structured-finance-transactions.
-- Interest Rate Stresses for European Structured Finance Transactions (28 September 2020)
https://www.dbrsmorningstar.com/research/367292/interest-rate-stresses-for-european-structured-finance-transactions.
-- Operational Risk Assessment for European Structured Finance Originators (30 September 2020), https://www.dbrsmorningstar.com/research/367603/operational-risk-assessment-for-european-structured-finance-originators.
-- Operational Risk Assessment for European Structured Finance Servicers (19 November 2020), https://www.dbrsmorningstar.com/research/370270/operational-risk-assessment-for-european-structured-finance-servicers.
-- Global Methodology for Rating Sovereign Governments (27 July 2020),
https://www.dbrsmorningstar.com/research/364527/global-methodology-for-rating-sovereign-governments.
-- Currency Stresses for Global Structured Finance Transactions (15 April 2020),
https://www.dbrsmorningstar.com/research/359639/currency-stresses-for-global-structured-finance-transactions.

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

This press release was amended on 4 February 2021 to clarify that the DBRS Morningstar legal entity is DBRS Ratings Gmbh not DBRS Ratings Limited.