Rated AAA/Aaa/AAA since its inception
Since its inception in 1999, Compagnie de Financement Foncier has benefitted from the AAA/Aaa/AAA ratings conferred by the three leading rating agencies.
|Ratings*||S & P||Moody's||Fitch Ratings|
* Long-term ratings updated as of 12/31/2011
The AAA/Aaa/AAA rating of Compagnie de Financement Foncier not only reflects the stringent legal and regulatory framework, which ensures that obligations foncières holders enjoy a guaranteed minimum level of security, but also the additional commitments it has made to investors, taken into account by the rating agencies.
Stringent management rules
Indeed Compagnie de Financement Foncier has adopted rules and imposed to itself requirements to minimize the following risks:
Credit and counterparty risks
Asset purchasing criteria by category
Although regulations require that a société de crédit foncier invest only in high quality assets, to limit its exposure to credit risk, Compagnie de Financement Foncier implements additional asset purchasing criteria that include purchasing scores and minimum credit ratings. Compagnie de Financement Foncier will not, for example, buy commercial real estate assets and corporate mortgage loans without complementary guarantees.
Compagnie de Financement Foncier selects the assets that it wishes to acquire based on their rating, probability of default, score at origination, expected loss and any hedging of assets, as well as yield curves. The assets that meet the Compagnie de Financement Foncier’s criteria are then purchased at a price determined by the previous study.
Furthermore, Compagnie de Financement Foncier replacement securities have the very good external credit ratings. The minimum acceptable credit rating for each asset (except for intragroup assets) depends on the investment horizon and must meet the minimum rating criteria of each of the three main agencies, as shown below:
|Standard & Poor's||Moody's||Fitch Ratings|
|From 0 to 1 month
||ST A-1; LT A
||ST P1||ST F1|
|From 1 month to 12 months
||ST A-1; LT A
||ST P1||ST F1+|
|More than 1 year||LT AAA||LT Aaa||LT AAA|
Limiting counterparty risk
Crédit Foncier Group’s risk policy specifies per-counterparty limits and Compagnie de Financement Foncier observes these limits in its decision process.
For its hedging transactions and repurchasing agreements the company executes a framework agreement with each of its counterparties, with asymmetrical collateralisation and other specific terms set forth in an appendix to this agreement.
The counterparty agrees to pay Compagnie de Financement Foncier on a daily or weekly basis depending on the counterparty’s rating a security deposit equal to its net debt position, with no compensation for this.
Currency and interest rate risks
Systematically hedged variable-rate assets and liabilities
Management of interest rate risk
Compagnie de Financement Foncier is committed to keeping its interest rate gaps within the specific limits set for each period and to correct any excess observed by the following quarter.
|Horizon||Maximum rate gap as a % of projected assets|
|Less than 2 years||2 %|
|5-10 years||5 %
|Over 10 years
Compagnie de Financement Foncier’s balance sheet is structurally protected against interest rate risk, since assets and liabilities are systematically hedged with adjustable-rate swaps.
No currency risk
Compagnie de Financement Foncier maintains no open currency positions. Asset purchase or refinancing transactions that are not denominated in euros are systematically hedged against currency risk.
In practice, Compagnie de Financement Foncier limits its residual currency positions to 0.1% of its balance sheet.
Beyond the legislative constraints requiring that sociétés de crédit foncier ensure that, at all times, all of their cash flow requirements are hedged for a period of 180 days, Compagnie de Financement Foncier has its own additional strict management rules. These guarantee that, it always maintains enough liquidity to honour its privileged liability commitments with no need for new resources for one year, with no need for new resources in a run-off scenario (i.e. with no new activity).
Thus, the Company’s cash position is sufficient at any given time to meet the contractual payments on its privileged debt over the coming twelve months.
With the volume of Compagnie de Financement Foncier’s assets eligible for the liquidity facility of the European Central Bank (€27 billion), it could service its payments and build up its liquidity for much longer than the 12 months to which it is committed.
Long aware of the importance of maintaining liquidity, as early as 1995, Crédit Foncier Group implemented a rigorous
policy for managing its liquid assets through disposals of loan portfolios to the public sector, and then, in 2011, by the use of other refinancing channels. The high quality of Compagnie de Financement Foncier’s assets, and in particular of its eligible securities and receivables, give it immediate access to funding from central banks, such as the ECB for important amounts.
Compagnie de Financement Foncier also limits the duration gap between its assets and its overall liabilities to two years at most. At December 31, 2011, the duration gap was insignificant (asset duration being 6.2 years and liabilities duration being 6.4 years).
Rating agencies’ reports
- S & P
- Fitch Ratings
- 2013-01-09 Rating confirmation
- 2009-12-16 Methodo and Assumptions for Assessing Asset-Liability Mismatch Risk in CB
- 2011-01-13 Counterparty and Supporting Obligations Update
- 2011-01-13 Covered Bonds Methodology
- 2011-06-30 Changes to prospectus do not impact on rating of covered bonds
- 2010-07-01 Rating AAA - USMTS programme
- 2010-03-04 Rating Approach to European Covered Bonds
- 2010-01-21 Confirmation - Compagnie de Financement Foncier
- 2011-07-26 Confirmation of CieFF’s AAA rating
- 2010-08-16 Covered Bonds Rating Criteria
- 2010-10-06 Exposure Draft: Covered Bond Counterparty Criteria