Fitch has placed obligations foncières issued by CIF Euromortgage on Rating Watch Negative (RWN) because it is reviewing refinancing spread assumptions and believes that overcollateralisation may not be high enough to ensure full payment on the covered bonds in the event of an insolvency under triple-A stress assumptions.

Refinancing cost assumptions are the major driver of the OC supporting the rating despite asset and liability maturity mismatches for CIF Euromortgage being relatively limited compared with other covered bonds programmes, said Fitch.

The rating agency assumes that liquidity shortfalls between the cover assets and the obligations foncières could be bridged by selling parts of the cover pool, made of internal RMBS senior units (AAAsf-rated CIF Assets) or residential mortgages securing the issuer’s other assets. The issuer may also try to use CIF Assets’ senior tranches as collateral in repo transactions with the European Central Bank (ECB), added Fitch.

“Given this sensitivity to refinancing assumptions and concerns over the cost of entering into such repo agreements, the agency is reviewing its refinancing spread assumptions and this is expected to have an impact on the current level of OC supporting a AAA rating, which currently stands at 6.4%,” it said.

It said that the rating of the obligations foncières is also linked to the AAAsf rating of CIF Assets’ senior units and that the rating of the obligations foncières would be directly affected if the senior units are downgraded.

The rating agency expects to resolve the RWN once it receives clarification over the cost of entering into such repo agreements.

As of May 2012, 73.3% of the cover pool consisted of the senior AAA tranches of CIF Assets, 2.9% of other AAA-rated European RMBS notes, and 9.9% of one short term promissory note issued by Caisse Centrale du Credit Immobilier de France (3CIF). The remaining assets are substitution assets comprising loans to 3CIF secured by residential loans originated by the group (4.2%) and a one month certificate of deposit (9.7%) held with 3CIF.