S&P affirmed the covered bonds of GE SCF at AAA on Tuesday after the former French issuer replaced its residential loan portfolio in a restructuring of the programme, which is being wound down. General Electric meanwhile completed the sale of GE SCF’s former parent, the last major sale of its consumer finance business.

S&P noted that on 14 December GE SCF sold its portfolio of residential mortgages – which were originated by GE Money Bank France – to a fonds commun de créances, a French SPV, funded by Bawag PSK. GE SCF then on 19 December bought a static portfolio of high quality European sovereign and supranational bonds to collateralise its outstanding covered bonds.

Following the restructuring and as part of its ongoing surveillance, the rating agency then on Tuesday affirmed its AAA rating on GE SCF’s obligations foncières, on stable outlook.

S&P said that as the portfolio is neither granular nor diversified, it used its weak link methodology to analyse its credit quality, viewing the pool’s credit risk of default to be commensurate with the credit quality of the weakest asset in the pool, which in this case is AA.

“We have also considered that the ratings on the bonds can be delinked from that on the issuer because the assets mature earlier than and close to the liabilities’ maturities, the pool is static, the programme is in wind-down, and the bondholders benefit from the overcollateralization in the transaction,” said the rating agency.

S&P said the covered bonds benefit from a double recourse, firstly to GE Capital Global Holdings (rated AA-) through a collection advance mechanism, which it considers to be akin to a guarantee to the SCF’s obligations, and secondly to the portfolio.

“We have given benefit to this double recourse by borrowing from our joint support criteria,” it said. “We have used the low-correlation matrix, given that GE Capital Global Holdings and the portfolio are in different jurisdictions.

“The entries to the matrix are the rating on the issuer, as guaranteed by GE Capital Global Holdings, and that determined using the weak link approach on the portfolio. This leads us to a rating on the bonds of AAA.”

The potential sale of GE SCF’s mortgage portfolio was first announced in August, and had been expected to close by the end of 2016, subject to approval from the regulator.

GE announced on Tuesday that it had closed the sale of GE Money Bank France to an affiliate of Cerberus Capital Management. It said this would be the last major sale in its plan, enacted in April 2015, to sell most of GE Capital’s assets and focus on its core industrial business.

When GE first announced that it had received a binding offer for the sale of its French consumer finance business, it indicated that ownership of GE SCF would be transferred from GE Money Bank France to another entity in the GE Group.

Photo: GE