OREANDA-NEWS. Fitch Ratings has affirmed Credit Agricole Home Loan SFH's (CA HL SFH) EUR21.4bn Obligations de Financement de l'Habitat (OFH) at 'AAA' with a Stable Outlook.

KEY RATING DRIVERS
The 'AAA' rating is based on Credit Agricole SA's (CA SA) Long-Term Issuer Default Rating (IDR) of 'A' with a Positive Outlook, which acts as the reference IDR for this programme, an unchanged IDR uplift of '2' notches, an unchanged Discontinuity Cap (D-Cap) of 3 notches (moderate high discontinuity risk) and the programme's 82% asset percentage (AP) used for the purpose of the asset cover test (ACT), which provides more protection than the revised 90.5% 'AAA' breakeven AP. The Stable Outlook on the OFH is based on the Positive Outlook on CA SA's IDR as well as the Stable Outlook on the French sovereign's IDR and for French residential asset performance.

Fitch's 'AAA' breakeven AP has increased to 90.5% from 84.0% due to improved asset and liability mismatches following recent issuances, a slightly higher interest rate spread between assets and liabilities, lower modelled refinancing spreads compared with the previous analysis (see Fitch Reviews Refinancing Stresses for French Home Loans dated 19 December 2014 at www.fitchratings.com) and first-time adjustment for the presence of a negative carry factor in the ACT using the minimum 0.5% carrying cost percentage defined in the documentation. The 90.5% 'AAA' breakeven AP is equivalent to a 10.5% breakeven overcollateralisation (OC). It is based on the combination of a 'AA' tested rating on a probability of default (PD) basis and a two-notch uplift for recoveries given default.

The 10.5% 'AAA' breakeven OC is driven by the credit loss component of 8% resulting from the asset analysis. The second driver is the cash flow valuation (7%). The longer weighted average life of assets compared with liabilities (6.9 years compared with 4.8 years as estimated by Fitch) and the presence of a vast majority of fixed rate assets and liabilities results in a lower net present value of assets compared with liabilities when starting from a theoretical OC of zero in the increasing interest rate scenario driving the results. Finally, the negative asset disposal loss of reduces the breakeven OC by 0.7%. This takes into account the adjustment of the breakeven AP for the presence of a negative carry factor in the ACT (negative 2.6%), which more than offsets the limited cost of modelled asset sales (1.8%).

The unchanged D-Cap of 3 notches remains driven by the weak link assessment of both the liquidity gap and systemic risk and the cover pool-specific alternative management components.

The unchanged IDR uplift of '2' notches reflects exemptions of covered bonds from bail-in, Fitch's view that France is a covered bond intensive jurisdiction and the fact that Fitch considers that resolution by other means than liquidation is likely for Credit Agricole.

RATING SENSITIVITIES
The rating of the OFH would be vulnerable to a downgrade if any of the following occurs: (i) CA SA's IDR is downgraded to 'BBB' or below; (ii) the sum of the IDR uplift and the D-Cap falls to two notches or below; (iii) the level of AP that Fitch gives credit to in its analysis increases above Fitch's 'AAA' breakeven AP of 90.5%.