OREANDA-NEWS. S&P Global Ratings has assigned its credit ratings to FCT Ginkgo Compartment PERSONAL LOANS 2016-1's (Ginkgo PL 2016) asset-backed floating-rate class A and B notes, and fixed-rate class C notes. At closing, the issuer also issued unrated class D notes (see list below).

Ginkgo PL 2016 is the twelfth securitization of French consumer loans originated by CA Consumer Finance (CACF), a specialized lender fully owned by Credit Agricole S. A. CACF has the second largest consumer lending market share in France, behind the BNP Paribas group.

The personal loans branch of CACF's securitization program securitizes its short distribution channels (i. e., direct sales through branches, call centers, and the internet), and its sales finance branch securitizes its long distribution channels (i. e., point-of-sale credit offers through car dealers, household equipment retailers, and brokers).

The collateral backing the notes comprises French unsecured personal and debt consolidation loan receivables, which CACF originated and granted to private individual borrowers in the ordinary course of its business.

RATING RATIONALE

Our ratings in this transaction reflect our assessment of the following factors:

Economic OutlookIn our base-case scenario, following the Brexit vote, we forecast that France will record GDP of 1.5% in 2016, 1.2% in 2017, and 1.4% in 2018, compared with 1.2% in 2015. We expect the unemployment rate to slightly decrease to 9.9% in 2016, 9.4% in 2017, and 9.3% in 2018, from 10.4% in 2015 (see "Europe's Economic Outlook After The Brexit Vote," published on July 4, 2016, and "European Economic Snapshots--May 2016: Signs Point To Sustained Recovery Despite External Headwinds," published on May 31, 2016). In our view, changes in GDP growth and the unemployment rate largely determine the performance of consumer loan portfolios. We have considered the French economic outlook, notably the structurally high level of unemployment, when determining our base-case credit assumptions.

Operational RiskThe originator and servicer in this transaction is CACF, a specialized lender, fully owned by Credit Agricole. CACF has the second largest market share in the French consumer lending market. We visited CACF in May 2016 and believe that the company's origination, underwriting, servicing, and risk management policies and procedures are in line with market standards and are adequate to support the ratings assigned. Our operational risk criteria focus on key transaction parties (KTPs) and the potential effect of a disruption in the KTP's services on the issuer's cash flows, as well as the ease with which the KTP could be replaced if needed (see "Global Framework For Assessing Operational Risk In Structured Finance Transactions," published on Oct. 9, 2014). Based on our view of the servicer's capabilities and the nature of the securitized receivables, our operational risk criteria do not constrain our ratings in this transaction.

Credit RiskWe analyzed credit risk under our European consumer finance criteria, using cumulative gross loss vintage curves for the personal loans and debt consolidation loans subpools (see "European Consumer Finance," published on March 10, 2000).

As the transaction re-invests principal collections into new receivables during the eighteen-month replenishment period, there is a risk of portfolio deterioration through substitution. To account for this risk, we considered at the start of the amortization, a worst-case asset pool based on the implemented concentration limits, which limit the debt consolidation loans to 35% of the asset portfolio and enforce a minimum weighted-average asset yield of 4.9%. The transaction also benefits from the protection of certain performance triggers, which would stop the replenishment period if the transaction's performance were to deteriorate substantially.

Considering our macroeconomic forecasts and the historical data provided, we expect to see 11.05% of cumulative defaults in our worst-case pool scenario.

We also sized a base-case recovery rate of 32.5%, based on historical cumulative recovery data provided by the originator with a split between accelerated loans and overindebteness loans.

We set mid-range gross loss multipliers (4.4 at the 'AAA' level) and recovery rate haircuts (45% at the 'AAA' level) for our base-case assumptions, as we consider that CACF is a repeat issuer with significant securitization experience. Furthermore, the originator has provided more than 10 years of historical data.

Payment Structure And Cash Flow AnalysisWe have assessed the transaction's documented payment structure. During the eighteen-month revolving period, the transaction benefits from a principal deficiency ledger (PDL) mechanism, combined with an asset-liability test. If available excess spread is insufficient to cure monthly defaults recorded in the PDL, the transaction would stop revolving and the notes would start to redeem.

During the revolving and normal amortization period, the transaction uses separate interest and principal priorities of payments, under which repayment of the notes is fully sequential. The transaction also benefits from a nonamortizing liquidity reserve. The latter primarily provides liquidity support to mitigate any temporary shortfalls, and at legal final maturity date, can only be used to redeem the notes.

Our analysis indicates that the credit enhancement available to the notes is sufficient to withstand the credit and cash flow stresses that we apply in the relevant scenarios for the ratings assigned to the class A, B, and C notes (see "Global Framework For Cash Flow Analysis Of Structured Finance Securities," published on Oct. 9, 2014).

Counterparty RiskThe transaction is exposed to counterparty risk through CACF as the issuer bank account provider, fixed-to-floating interest rate swap counterparty, and servicer--potentially funding the commingling reserve. The transaction's replacement mechanisms adequately mitigate its exposure to counterparty risk at the assigned rating levels under our current counterparty criteria (see "Counterparty Risk Framework Methodology And Assumptions," published on June 25, 2013).

Legal RiskThe issuer is a French "Fonds Commun de Titrisation" (FCT), which is bankruptcy remote by law.

We reviewed legal opinions confirming that the sale of the assets would survive the seller's insolvency. Notably, the seller has to produce a solvency certificate before each additional purchase once its rating falls below 'BBB', which mitigates claw-back risk under French law (see "Europe Asset Isolation And Special-Purpose Entity Criteria--Structured Finance," published on Sept. 13, 2013).

The transaction is not exposed to setoff risk, as the originator is not a deposit-taking institution in France, and the eligibility criteria exclude the seller's employees from the securitization's scope.

Additionally, we believe the transaction may become exposed to servicer commingling risk, as the collection account is in CACF's name. To mitigate this risk, the servicer would have to post a commingling reserve representing two months' worth of collection, assuming a stressed prepayment rate, should its long-term rating fall below 'BBB', or short-term rating below 'A-2'. In our view, this remedy mechanism is in line with our current counterparty criteria and adequately mitigates the commingling risk.

Ratings StabilityWe have analyzed the effect of a moderate stress on the credit variables, and its ultimate effect on our ratings on the notes. We have run two scenarios, the results of which are in line with our credit stability criteria (see "Methodology: Credit Stability Criteria," published on May 3, 2010).

Sovereign RiskOur unsolicited foreign currency long-term sovereign rating on France is 'AA'. Therefore, our ratings in this transaction are not constrained by our criteria for rating single-jurisdiction securitizations above the sovereign foreign currency rating (see "Methodology And Assumptions For Ratings Above the Sovereign--Single-Jurisdiction Structured Finance," published on May 29, 2015).