MOODY'S ASSIGNED A PROVISIONAL ( P) Aaa RATING TO THE 5.625% OBLIGATIONS FONCIERES DUE JUNE 2010 TO BE ISSUED BY COMPAGNIE DE FINANCEMENT FONCIER.
Moody's assigned a provisional rating of (P)Aaa to the first issue of Obligations Foncières - French secured bonds - by Compagnie de Financement Foncier, the Société de Crédit Foncier created by Crédit Foncier de France.
Moody's said that its rating was based on
(1) the underlying assets, rated Aaa;
(2) the 106% overcollateralisation which protects secured bondholders against an eventual decrease in the yield on the assets;
(3) the different interest rate swap contracts which insure a perfect matching between the interests generated by the assets and the interests due to the secured bondholders;
(4) the strength and legal soundness of the issuer;
(5) the role of a Aaa rated French Etablissement Public as interest rate swap counterparty and guarantor of a determined yield on the cash generated by the assets; and
(6) the role of Crédit Foncier de France (Aa3) as administrator of the issuer.
THE FIRST ISSUE OF OBLIGATIONS FONCIERES IS BACKED BY Aaa ASSETS
Compagnie de Financement Foncier's eligible assets include, among other,
§ the senior classes of Teddy 1 FCC units, all rated Aaa; this FCC units are backed by Crédit Foncier de France mortgage loans. Their amortisation schedule mirrors the amortisation of their collateral, including prepayments;
§ a portfolio of corporate bonds of Aaa credit quality and;
§ a credit facility opened to a Aaa rated Etablissement Public, which essentially enables Compagnie de Financement Foncier to invest cash standing with the issuer at a determined interest rate. This cash results from quarterly principal payments received on Teddy 1 FCC units as well as from the bullet repayment of corporate bonds which mature before the Obligations Foncières. Moody's valued the fact that the borrower's commitment under this credit facility constitutes a first demand obligation and matures on the same maturity date as the Obligations Foncières.
THE FIRST ISSUE OF OBLIGATIONS FONCIERES IS FULLY HEDGED AGAINST INTEREST RATE MISMATCHES
Compagnie de Financement Foncier will enter into a series of asset swaps as well as into a macro-swap with the Aaa rated Etablissement Public in order to respectively transform fixed rate assets into floating rate ones and convert floating rate on the asset side into fixed rate due to the secured bondholders. These swaps also provide a perfect matching between different interest payment dates on the assets and on the Obligations Foncières.
THE FIRST ISSUE OF OBLIGATIONS FONCIERES BENEFIT FROM OVERCOLLATERALISATION
Compagnie de Financement Foncier's assets represent 106% of Obligations Foncières. This overcollateralisation is available to protect secured bondholders against potential losses in interest caused by a future decrease in the yield on the assets. This decrease will result from the fact that cash received on Teddy 1 FCC units and corporate bonds will be progressively on-lend to the Aaa rated Etablissement Public under the credit facility at a lower rate than the initial ones.
Compagnie de Financement Foncier is the Crédit Foncier de France's Société de Crédit Foncier, a new type of financial institution in France, whose sole purpose is the refinancing of specific eligible assets through the issuance of Obligations Foncières. Compagnie de Financement Foncier has been structured in order to reduce the risk of bankruptcy by, among other features, externalising its management to Crédit Foncier de France. Moody's reviewed and will go on monitoring the ability of Compagnie de Financement Foncier's mother company, as admistrator, to manage its assets and liabilities.
Provisional ratings are assigned to provide investors with a advance indication of what a security's final rating will likely be, either before the security is actually issued or before the terms of the security's indenture are completely final. The final rating may differ from the provisional one.
Moody's has issued a provisional rating in advance of the transfer of existing Crédit Foncier de France's mortgage bonds (Aa3 under review for possible upgrade) and their underlying assets to its new subsidiary, Compagnie de Financement Foncier. This transfer is expected to take place before end December 1999 as requested by new law on Obligations Foncières.
The assets and liabilities of a Société de Crédit Foncier are all fungible. As a consequence, a confirmation of the Aaa rating on the first Obligations Foncières issued by Compagnie de Financement Foncier is contingent upon a series of structural protections that Crédit Foncier de France is committed to put in place on the transfer date. The purpose of these additional structural protections is to protect investors against credit, liquidity and interest rate risks on the transferred assets and liabilities at a level consistent with a Aaa.
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