OREANDA-NEWS. Fitch Ratings has affirmed AXA Bank Europe SCF's EUR 3.9bn Obligations Foncieres (OF, French legislative covered bonds) at 'AAA'. The Outlook is Stable.

KEY RATING DRIVERS
The unchanged 5% breakeven overcollateralisation (OC) for the 'AAA' rating of the OF is driven by the asset disposal loss component of 7.6%, which reflects the maturity mismatches between the assets and the liabilities and the haircuts applied to the sale of assets needed to repay maturing OF. The cash flow valuation component of negative 2.6% reflects the limited excess spread generated under the structure and the well matched post-swap interest-rate position of the assets and liabilities, together with the gap between the stressed WA life of the assets (7.5 years) and the liabilities (4 years). The credit loss component of 0.8% is not a key driver of the OC as the cover pool is mainly composed of 'AAA' rated RMBS notes (90% of the cover pool), for which no expected loss is assumed in the OF analysis.

The Stable Outlook on the OF rating reflects the Outlook on the reference IDR (Axa Bank Europe) and Fitch's view on the underlying Belgian and French residential loan assets backing the senior RMBS notes collateral and promissory note collateral, respectively.

The rating reflects AXA Bank Europe's Long-Term Issuer Default Rating (IDR) - which acts as reference IDR for the programme - an unchanged IDR uplift of 1, an unchanged Discontinuity-Cap (D-Cap) of 4 (moderate risk) and the 19.6% nominal OC that Fitch takes into account in its analysis, which provides more protection than the 5% 'AAA' breakeven OC.

The unchanged IDR uplift of 1 reflects the OF's exemption from bail-in and Fitch's view that France is a covered bond-intensive jurisdiction. Fitch has revised its assessment of the Privileged Derivatives component to 'moderate' from 'low', notably reflecting the material exposure to external hedge counterparties whose replacement language is not in line with the agency's applicable criteria.

RATING SENSITIVITIES
The 'AAA' rating of the OF would be vulnerable to a downgrade if any of the following occurs: (i) the reference IDR was downgraded to 'BBB' or below, (ii) the total number of notches represented by the IDR uplift and the D-Cap is reduced to two or lower.

Fitch's breakeven OC for the OF rating will be affected, among others, by the profile of the cover assets relative to outstanding OF, which can change over time, even in the absence of new issuance. Therefore the breakeven OC to maintain the OF rating cannot be assumed to remain stable over time.