Fitch downgraded CFF obligations foncières from AAA to AA+ yesterday (Wednesday), in line with the rating of the French sovereign, whose downgrade to that level in July led to higher loss expectations for French public sector assets.

Fitch placed Compagnie de Financement Foncier’s covered bonds on Rating Watch Negative (RWN) after downgrading France to AA+ in July. Yesterday’s downgrade of the obligations foncières reflects the rating agency’s updated loss expectations on CFF’s cover pool, according to Fitch. The covered bond rating is on stable outlook.

As of the beginning of September this included around 32.5% of public sector asset exposures, 50% residential mortgage loan exposures, 10% securitisation exposures and 3% of cash exposures held in account with the Banque de France.

The breakeven level of OC for the CFF obligations foncières at the AA+ level is 19%, compared with nominal OC of 19.3% observed as of November, according to Fitch. The reference issuer default rating is that of Credit Foncier de France (A). The Discontinuity Cap (D-Cap) assigned to Compagnie de Financement Foncier’s obligations foncières is 4, for moderate risk.

After cutting France to AA+ in July Fitch increased the losses it models in a triple-A scenario for entities with exposures to French public sector assets (60% in the case of CFF), with the AAA breakeven overcollateralisation level increasing to 35%.

“The 19% breakeven OC for the AA+ rating also reflects Fitch’s updated loss expectations on the securitisation and residential mortgage exposures within the cover pool,” said the rating agency.