Fitch yesterday (Wednesday) downgraded BNP Paribas and Caffil obligations foncières from AAA to AA+ and lowered the ratings of several major French banks as a consequence of its downgrade of the sovereign on Friday.

The covered bonds issued by BNP Paribas Public Sector SCF and Caisse Française de Financement Local (Caffil) were negatively affected because the cover pools contain exposures to French sovereign or public sector entities.

Fitch cut France from AAA to AA+ on Friday, which means that France and the UK (AA+) are the lowest rated sovereigns to which the BNP Paribas collateral is exposed.

The cover pool has a 21.4% exposure to France as of the end of June, according to Fitch, which recalculated the breakeven OC levels for the programme following the downgrade of the sovereign.

“Under its analysis, the AAA breakeven OC increases above the level of OC the agency gives credit to, which is the lowest level of OC observed for the programme over the last 12 months (10%),” it said. “As a result, BNP SCF’s OF have been downgraded to AA+.”

Caffil’s cover pool also includes exposures to French public sector entities, which represent around 70% of the issuer’s balance sheet, according to Fitch.

“Given CFFL’s large exposure to French public sector entities, a significant proportion of CFFL’s cover pool is assumed to default in a AAA scenario and recoveries on all defaulted entities are assumed to be low,” said the rating agency. “As a result, the 15.4% OC Fitch gives credit to, which is the lowest OC observed for the last 12 months, is now below the breakeven OC for the AAA rating.”

Recoveries modelled on the obligations foncières in a AAA scenario are insufficient to provide for full redemption of earlier maturing bonds and at least 51% on the aggregated longest dated bonds, added Fitch, which means that it cannot grant a one notch recovery uplift. The covered bonds were therefore downgraded to AA+.

Separately, Fitch yesterday downgraded several major French banks as a consequence of the downgrade of their sovereign.

Crédit Agricole, Société Générale, Group BPCE, Dexia and Dexia Crédit Local were cut from A+ to A. La Banque Postale was also downgraded, from A+ to AA-. Government guaranteed long term debt issued by 3CIF was cut to AA+, in line with the sovereign rating.

“The downgrade of the French state to AA+ means that Fitch considers its ability to support French banks has decreased slightly,” said the rating agency. “Hence, the agency has revised certain French banks’ SRFs [Support Rating Floors].

“Accordingly, Fitch has downgraded the long term IDRs of banks whose IDRs were derived from their SRFs (because they were higher than their VRs) and whose SRFs have been revised.”