Fitch downgraded obligations foncières (OFs) issued by CIF Euromortgage and Compagnie de Financement Foncier (CFF) from AA+ to AA yesterday (Tuesday), after having cut France likewise on Friday.

Downgrading CFF’s covered bonds, the rating agency cited the cover pool’s large exposure to public sector assets (40.7%), with the majority being French (67.3%).

Fitch said that overcollateralisation of 16.7% (the lowest nominal OC over the last 12 months) is not sufficient to support a AA+ rating of the covered bonds (i.e. a rating higher than that of the sovereign) following the downgrade of France to AA, but that it is above the 11% breakeven OC for the AA rating.

The rating agency said that the required OC level for the previous AA+ rating of CIF Euromortgage’s covered bonds is above the 8.3% level committed by the issuer. It said that the AA breakeven OC is aligned with the legal minimum of 5%.

Fitch also lowered the IDR uplift assigned to CIF Euromortgage’s programme from 2 to 1 and the Discontinuity Cap (D-Cap) from 3 (moderate high risk) to 2 (high risk).

As reported on Monday, downgrades of BNP Paribas Public Sector SCF and Caffil covered bonds by Fitch from AA+ to AA are also expected by analysts.