OREANDA-NEWS. Fitch Ratings has affirmed BNP Paribas Public Sector SCF (BNPP PS SCF)'s EUR2bn obligations foncieres (OF) at 'AA' with a Stable Outlook.

KEY RATING DRIVERS
The 'AA' rating of the OF is based on BNP Paribas (BNPP)'s Long-term Issuer Default Rating (IDR) of 'A+', which acts as the reference IDR for this programme, a revised IDR uplift of '1' notch from '2' notches, an unchanged Discontinuity Cap (D-Cap) of '4' notches (moderate discontinuity risk) and on the legal minimum overcollateralisation (OC) level of 5%, which is equal to Fitch's 'AA' breakeven OC. The Stable Outlook on the OF reflect that on BNPP's IDR and on the French sovereign's IDR.

The 'AA' rating of the OF is based on BNPP's IDR adjusted by the IDR uplift of 'AA-' and a one-notch recovery uplift corresponding to a recovery given default higher than 51% on the covered bonds. The unchanged 5% 'AA' breakeven OC is mainly driven by a credit loss component of 10%. Other OC components are limited as all assets and liabilities are indexed to a floating interest rate and maturities are well-matched.

In Fitch's analysis, the OF rating is credit-linked to the rating of France and the agency assumes that no losses occur on Coface guarantee/insurance exposures in a rating scenario at or below the French sovereign rating.

The revision to the IDR uplift reflects Fitch's updated Covered Bonds Rating Criteria, under which the agency no longer gives credit to the large senior unsecured debt buffer for this specialised covered bond-issuing subsidiary as Fitch does not view export credit agency guaranteed/insured receivables as key to the survival of the BNPP group. The IDR uplift of '1' notch reflects Fitch's view that France is a covered bond intensive jurisdiction.

The unchanged D-Cap of '4' notches remains driven by the 'moderate' assessment of the liquidity gap and systemic risk component, the six month pre-maturity test being consistent with Fitch's stressed liquidation assumptions for the underlying assets, and the privileged derivatives components. The assessment of asset segregation was revised to 'Low' from 'Very Low' based on the only partial mitigation of commingling risk, with no impact on the D-Cap.

RATING SENSITIVITIES
The 'AA' rating of the OF would be vulnerable to a downgrade if any of the following occurs: (i) BNPP's IDR is downgraded to 'BB+' or below or (ii) the French sovereign Long-term IDR is downgraded below 'AA'.

In its analysis, Fitch relies on the minimum legislative 5% OC applicable to the programme. The agency notes that the 5% OC as well as the 5.5% minimum OC committed by the issuer are unlikely to be sufficient for maintaining the 'AA' rating of the OF, should the reference IDR of the programme be downgraded.