OREANDA-NEWS. March 30, 2015. Fitch Ratings has affirmed Caisse de Refinancement de l'Habitat's (CRH) EUR48bn outstanding bonds at 'AAA' with a Stable Outlook.

KEY RATING DRIVERS

The 'AAA' rating is based on Fitch's credit view of the programme's main debtor of recourse, CRH, a Discontinuity-Cap (D-Cap) of 3 (Moderate high) and the levels of over-collateralisation (OC) that CRH requires from its shareholders, which support a 'AA' rating on a probability of default basis (PD) and recoveries above 91% on an aggregate basis in a 'AAA' scenario.

Fitch's 'AA' breakeven OC for the bonds on a PD basis is calculated for each shareholder banks' exposures. The average value is 25%, with the highest at 37%. This compares with an average OC of 44% for the underlying promissory notes. The updated breakeven OC reflects Fitch's revised asset analysis for the underlying portfolios, which includes more conservative assumptions on missing data for some of the banks.

Fitch's analysis reflects the fact that there is no cross-collateralisation between the cover pools. As such, the agency calculates a level of OC for each bank's exposure that supports a 'AA' rating on a PD basis. In a 'AAA' scenario, Fitch calculates recoveries on the bonds from the proceeds of all underlying pools, hence assuming all the originator banks would have defaulted on their promissory notes.

The Stable Outlook on the bonds reflects the Stable Outlook on most of the borrowing banks and on the underlying French residential loans.

The unchanged D-Cap of 3 (Moderate high) is driven by the weakest link assessment of the liquidity gap and systemic risk and the cover pool-specific alternative management components. The moderate high risk assessment of the liquidity gap and systemic risk component reflects, in particular, the joint and several commitments of the shareholders to provide a liquidity line of up to 5% of CRH's outstanding bonds and the regulator's ability to ask for contributions above 5%.

The unchanged IDR uplift of 0 reflects the fact that (i) Fitch does not expect CRH to be resolved by other means than liquidation, (ii) the importance of covered bonds as funding instruments in France has already been factored into the liquidity gap and systemic risk assessment of the programme's D-Cap, and (iii) CRH has no outstanding senior unsecured debt.

RATING SENSITIVITIES

CRH's bonds' ratings would be vulnerable to a downgrade if any of the following occurs: (i) the OC Fitch gives credit to drops below the break-even OC for a 'AA' tested rating on a PD basis for one of the 10 shareholder banks; or (ii) the OC Fitch gives credit to at an aggregate level drops below the break-even OC for 91% recoveries in a 'AAA' scenario; or (iii) Fitch's view of CRH's creditworthiness, based on the IDRs of all its main shareholders, is lowered by one or more notches; or (iv) the current D-Cap of 3 (Moderate high) is revised down to 2 (High) or lower.