Obligations foncières of Compagnie de Financement Foncier are rated by Standard & Poor’s (S&P), Moody’s and Scope Ratings.
|Standard & Poor’s (S&P)||Moody’s||Scope Ratings|
The rating of Compagnie de Financement Foncier not only reflects the stringent legal and regulatory framework but also the additional commitments it has made to investors, taken into account by the rating agencies.
Compagnie de Financement Foncier is committed to maintain an overcollateralization level on its covered bond program commensurate with a AAA rating from S&P Global Ratings.
Indeed Compagnie de Financement is required to effect management requirements allowing it to achieve overcollateralization above the regulatory minimum and minimize its risks:Credit and counterparty risks
Credit and counterparty risks
Asset purchasing criteria by category
In addition to the high level of security conferred by the very nature of the eligible assets, Compagnie de Financement Foncier sets up additional asset purchasing criteria for each asset category, so as to limit its exposure to credit risk.
A selection is thus made on the basis of ratings, probability of default, repayment capacities, score at origination, loss expectations and possible hedging of assets. The assets meeting the purchase filter criteria are then purchased at a price incorporating the characteristics of each asset and the market rate curves.
Furthermore, the safe and liquid short term exposures to credit institutions held by Compagnie de Financement Foncier benefit from very good credit ratings assigned by the external rating agencies.
The minimum acceptable credit rating for each asset depends on the investment horizon and must meet the minimum rating criteria of each of the two main agencies, as shown below:
|Standard & Poor’s||Moody’s|
|From 0 to 60 days||ST : A1||ST : P1|
|From 61 days to 365 days||ST : A1 +||ST : P1|
|LT : Aa3|
Scope Ratings applies no predefined minimum rating. The analysis is done on a case by case basis.
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 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.
Each counterparty agrees to pay Compagnie de Financement Foncier on a daily basis (or on a weekly basis for some of them) depending on the counterparty’s rating a security deposit equal to its net debt position, with no compensation for this.
On 9 January 2013, Compagnie de Financement Foncier made the following committments:
- in the event of a counterparty’s downgrade rating below a certain level, new circumstance allowing Compagnie de Financement Foncier to terminate a swap contract: committment to find under sixty days an equivalent coverage or to have the necessary overcollateralisation to set off the risk that has become uncovered for swaps overpassing 5% of obligations foncières outstanding;
- in the event of BPCE’s downgrade rating below A1 (Standard & Poor’s rating): committment to put in order under sixty days non-compliant swap contracts and whose outstandings overpass 5% of the privileged resources, or to replace the counterparties.
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||Limits in €bn|
|Less than 2 years||€1.5bn|
|Threshold of 8-16 years||€2.1bn|
No currency risk
Compagnie de Financement Foncier prohibits any open foreign exchange positions. As such, all 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 €3m by currency with a €5m cap for all currencies.Hedging liquidity risks
Hedging liquidity risks
In accordance with 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 adopted a specific process to monitor its 180 day liquidity. This guarantees that it always maintains enough liquidity to honor its privileged liability commitments for at least 180 days.
The high quality of the receivables on its balance sheet enables Compagnie de Financement Foncier’s to have immediate access to significant amounts of funding from central banks, such as the ECB.
Thus, at all times, Companie de Financement Foncier has its ’s cash, its safe and liquid exposures to credit institutions and its level 1, 2A and 2B liquid assets [see Delegated Regulation (EU) 2015/61 of October 10, 2014] in order to ensure the contractual repayments of its privileged debt over the following 180 days.
With the volume of Compagnie de Financement Foncier’s assets eligible for the European Central Bank’s liquidity facility (€14.1 bn as of December 31, 2022), it could service its payments and build up its liquidity for much longer than the 6 months to which it is committed.
In accordance with regulatory provisions, Compagnie de Financement Foncier also limits the difference between the average duration of its total assets and its privileged liabilities to 18 months. At December 31, 2022, the total assets average duration was 6.6 years and the privileged liabilities average duration was 7 years.Rating agencies’ reports