Société Générale Lettres de Gage Banque issued its first covered bonds yesterday (Thursday), using the issuance proceeds of four series totalling Eu900m to fund a secured loan facility to Société Générale, according to Standard & Poor’s.

The rating agency yesterday assigned a AAA rating to the lettres de gage, in line with preliminary ratings assigned on 18 October. S&P said that the Luxembourg issuer will use the issuance proceeds to fund a secured loan facility to Société Générale, the owner of its 100% parent Société Générale Bank & Trust, and that SG will make payments on the loan facility to match payments due on the covered bonds.

“This structure creates a payment obligation of SG on the LdGs,” said S&P.

Three-quarters of the initial cover pool (74.62%) comprises French public sector assets, according to the rating agency, with loans to Spanish public sector entities making up the remainder (25.38%).

The covered bonds’ rating is on negative outlook to reflect the outlook on S&P’s rating of France.

“If we were to downgrade France, we would downgrade SG LdG’s covered bonds as a result of our country risk analysis, all else remaining equal,” said S&P.

The rating agency has classified asset-liability mismatch risk as being “low” and allocated the programme to Category 2 under its covered bond rating criteria.

“Because the level of available credit enhancement is greater than the level of credit enhancement commensurate with the maximum six notch uplift above the ICR, the covered bonds can achieve a AAA rating,” it said.

S&P rates SG A, negative outlook, and considers SG LdG Banque to be a core subsidiary.

Because the cover pool has a concentrated exposure to French public sector assets, S&P caps the ratings on the covered bonds at one notch above the rating on France, but the sovereign rating (AA+, negative outlook) does not presently limit the ratings of SG LdG Banque’s covered bonds.