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Rating Action:

MOODY'S CONFIRMS Aaa RATING ASSIGNED TO OBLIGATIONS FONCIERES (MORTGAGE BONDS) ISSUED BY COMPAGNIE DE FINANCEMENT FONCIER

04 Jul 2000
MOODY'S CONFIRMS Aaa RATING ASSIGNED TO OBLIGATIONS FONCIERES (MORTGAGE BONDS) ISSUED BY COMPAGNIE DE FINANCEMENT FONCIER

Approximately Euro 27 Billion of Debt Securities Affected.

PARIS, July 04, 2000 -- Moody's today confirms the Aaa rating assigned to the Obligations Foncieres (OFs) issued by Compagnie de Financement Foncier (CieFF), the societe de credit foncier (SCF) established by Credit Foncier in October 1999. Based on the formalisation of contractual provisions that CieFF has agreed to enter in and complete by September 2000, Moody's is now in a position to confirm the Aaa rating assigned to the OFs issued by CieFF on a prospective basis in October 1999.

Moody's Aaa rating is based on:

(1) the credit quality of the underlying assets backing the OFs, composed of a mix of residential and commercial real estate loans, loans to local authorities and a portfolio of highly rated securities;

(2) the dynamic credit support, in the form of overcollateralisation initially set at €1.53 billion, aimed at protecting OF holders against the credit risks and interest rate risks;

(3) the contractual rules related to ALM, loan additions and liquidity management under which CieFF has agreed to operate;

(4) the role of Credit Foncier (Aa3/P-1) as originator and servicer of the portfolio of loans backing the OFs; and

(5) the Law of June 25th 1999 regulating the OFs and SCF.

CREDIT QUALITY OF THE ASSETS

Moody's reviewed the credit quality of the various sub-pools of assets backing the OFs. These include various types of residential housing loans (both from the open market and from state subsidised mortgage loan programmes), loans to local authorities as well as commercial real estate loans. According to Moody's, CieFF's asset portfolio comprises different sub-pools ranging from low risk assets (state guaranteed housing loans) to much riskier assets (commercial real estate). CieFF is expected to acquire new loans in the future either from Credit Foncier -- subject to certain preliminary conditions, such as credit enhancement adjustment, or from other originators, subject to Moody's prior confirmation of the OF credit ratings.

INTEREST RATE RISKS

The main source of interest rate risk for CieFF results from prepayment risk. A significant portion of CieFF's assets are fixed rate housing loans, which like the majority of housing loans available in France, offer the possibility to prepay at marginal cost to borrowers. Although each loan addition is hedged immediately when acquired, prepayments outside the assumptions made as of the hedge date, expose CieFF to mismatch between fixed rate assets and fixed rate liabilities. CieFF has committed to hedge its interest rate risk position on an on-going basis to maintain interest rate gaps within certain preset limits.

DYNAMIC CREDIT ENHANCEMENT FOR CREDIT AND INTEREST RATE RISKS

For each sub-pool of loans, based on historical performances and the characteristics of the assets, Moody's measured the credit enhancement to cover future expected losses under stressed scenarios consistent with Aaa. The credit enhancement levels vary for each sub-pool, ranging from 2.5% (regulated housing loans) to 50% (commercial real estate loans). Credit enhancement against credit losses (initially set at €1.3 billion) will dynamically adjust to reflect likely changes in the asset portfolio size and composition and possible changes in the asset performance.

Additional credit enhancement was set up to cover exposure to interest rate risk. This protection, also in the form of overcollateralisation and initially set at €230 million, will dynamically adjust to the sensitivity of CieFF's profitability to interest rate movements, so ensuring that protection is available to OF holders under stressed interest rate scenarios consistent with the Aaa rating.

SERVICING OF THE ASSETS

The loans transferred by Credit Foncier to CieFF will remain serviced by Credit Foncier. The servicing fee is a function of the principal amount of loans serviced.

LEGAL FRAMEWORK OF OBLIGATIONS FONCIERES

In its analysis, Moody's took into account the legal framework specific to SCF:

1) The priority claim granted to OF holders. In case of SCF's liquidation, this priority claim supersedes all other legal claims (including salary and tax payments); all other debtors become sequential and cannot receive payments until OFs have been fully repaid.

2) The law tightly restricts the business purposes of SCF to granting or acquisition of eligible loans limited to commercial and residential mortgage loans (with certain LTV limits), prêts cautionnes, public sector loans and Fonds Commun de Creances Units.

3) In addition to the supervision of the French Banking Commission, SCF are subject to the tighter control of a special supervisor (controleur specifique), which must ensure that SCF's assets meet the eligibility criteria and must monitor interest rate and liability mismatch.

CieFF is a societe de credit foncier, fully owned by Credit Foncier de France, a French financial institution specialising in housing loans. As of December 31st 1999, CieFF's total balance sheet amounted to approximately €32 billion. Credit Foncier de France has a deposit rating of Aa3/Prime-1. The Caisse Nationale des Caisses d'Epargne et de Prevoyance (CNCEP), rated Aa2/Prime-1/C, owns a 90.6% stake.

London
Frederic Drevon
Managing Director
Structured Finance Group
Moody's Investors Service Ltd.

Paris
Annick Poulain
Vice President - Sr Credit Offi
Structured Finance Group
Moody's France S.A.

44 20 7772 5454

No Related Data.
© 2020 Moody's Corporation, Moody's Investors Service, Inc., Moody's Analytics, Inc. and/or their licensors and affiliates (collectively, "MOODY'S"). All rights reserved.

CREDIT RATINGS ISSUED BY MOODY'S INVESTORS SERVICE, INC. AND/OR ITS CREDIT RATINGS AFFILIATES ARE MOODY'S CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES, AND MATERIALS, PRODUCTS, SERVICES AND INFORMATION PUBLISHED BY MOODY'S (COLLECTIVELY, "PUBLICATIONS") MAY INCLUDE SUCH  CURRENT OPINIONS. MOODY'S INVESTORS SERVICE DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL FINANCIAL OBLIGATIONS AS THEY COME DUE AND ANY ESTIMATED FINANCIAL LOSS IN THE EVENT OF DEFAULT OR IMPAIRMENT. SEE MOODY'S RATING SYMBOLS AND DEFINITIONS PUBLICATION FOR INFORMATION ON THE TYPES OF CONTRACTUAL FINANCIAL OBLIGATIONS ADDRESSED BY MOODY'S INVESTORS SERVICE CREDIT RATINGS. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS, NON-CREDIT ASSESSMENTS ("ASSESSMENTS"), AND  OTHER OPINIONS INCLUDED IN MOODY'S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. MOODY'S PUBLICATIONS MAY ALSO INCLUDE QUANTITATIVE MODEL-BASED ESTIMATES OF CREDIT RISK AND RELATED OPINIONS OR COMMENTARY PUBLISHED BY MOODY'S ANALYTICS, INC. AND/OR ITS AFFILIATES. MOODY'S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND MOODY'S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND  PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL, OR HOLD PARTICULAR SECURITIES. MOODY'S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND  PUBLICATIONS DO NOT COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. MOODY'S ISSUES ITS CREDIT RATINGS, ASSESSMENTS AND OTHER OPINIONS AND PUBLISHES  ITS PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL, WITH DUE CARE, MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING, OR SALE.

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