Fitch affirmed its A rating of Crédit Immobilier de France Développement (CIFD) on Friday and said that its rating of CIF Euromortgage’s obligations foncières was unaffected by a trading suspension, but said that the suspension highlights how risky CIFD’s funding model has become.

The rating agency cut CIFD’s Viability Rating (VR) from “a” to “bbb+” and placed it on Rating Watch Negative, saying that this was linked to trading in CIFD’s bonds being suspended following the group’s failure to publish audited 2011 accounts. Fitch warned that the VR could be cut several notches further if the group remains unable to refinance, something it said the group could not envisage until 2011 accounts have been released.

“If CIFD’s ability to issue debt in the market is renewed, capacity to issue at sustainable spreads after this trading suspension will have to be assessed before resolving the RWN,” it said.

“The trading suspension highlights how risky CIFD’s funding model has become in the current environment and CIFD’s reputation will undoubtedly be damaged.”

Fitch’s base case scenario is for CIFD to be sold to a “solid” European banking group in the short to medium term and it said a sale to a strongly rated European banking group could lead to an upgrade of CIFD’s A rating. It said it believes the French government supports such a sale. Press reports have said that HSBC has been mandated to find a buyer.

The rating agency noted that CIFD is not under any pressure to issue mortgage covered bonds in the short term due to a stock of repo-able assets. In a release on CIF Euromortgage’s obligations foncières, Fitch said that the next OF maturity is in October and the issuer has enough liquid assets to ensure full and timely payment on that.

“Given CIFD’s strong reputation as a real estate specialist in France, the group’s failure would be damaging for the French banking system and difficult to endorse by the French government,” it said. “Fitch therefore estimates there is an extremely high probability that the French state would intervene to secure CIFD’s future if required, as reflected in the upgrade of CIFD’s Support Rating to ‘1’ and revision of the Support Rating Floor to ‘A’.”

Affirming the AAA rating of CIF Euromortgage’s OFs, Fitch said that it will closely monitor future developments of the group and especially CIF Euromortgage’s “ability, in an uncertain period, to manage the level of OC between the cover pool and the OF in a dynamic manner”. The rating agency said that, independently, it will review the OF rating and the OC supporting this rating by early July.