OREANDA-NEWS. Fitch Ratings has affirmed Societe Generale SFH's (SG SFH) EUR22bn Obligations de Financement de l'Habitat (OFH; French legislative covered bonds) at 'AAA'. The Outlook is Stable.

KEY RATING DRIVERS

The 'AAA' OFH rating is based on Societe Generale's (SG) Long-term Issuer Default Rating (IDR) of 'A'/Stable, which acts as reference IDR for the programme, an unchanged IDR uplift of two notches, an unchanged Discontinuity-Cap (D-Cap) assessment of three notches (moderate high risk) and the programme's contractual minimum over-collateralisation (OC) of 8.5%. The Stable Outlook on the OFH reflects that on SG's IDR and for the underlying French residential assets' performance.

The 'AAA' breakeven OC for the OFH remains unchanged at 5.0%. It is driven by the credit loss component of 6.3%, reflecting Fitch's updated overall 'AAA' expected loss on the cover pool. The cash flow valuation component of 0.9% reflects the natural hedge between assets and the liabilities (both mostly fixed-rate), the excess interest for the programme and the well matched weighted average life (WAL) of the assets and liabilities. Under Fitch's driving scenario of high prepayments and base interest rate assumptions, the increase in the gap between the WAL of the assets and of that of the liabilities (to four years) is offset by the excess interest generated for the programme. The asset disposal loss component of 2.2% is driven primarily by the cost of reinvestment of excess cash below Euribor in Fitch's driving scenario. The 'AAA' OFH-rating considers a two-notch recovery uplift above the 'AA' rating tested on a probability of default basis.

The unchanged three notch D-Cap assessment continues to be driven by Fitch's assessment of the liquidity gap and systemic risk component (moderate high risk), while the unchanged two notch IDR uplift reflects the exemption of covered bonds from bail-in, Fitch's view that France is a covered bond-intensive jurisdiction and that resolution by other means than liquidation would be more likely for SG and that protection provided by senior unsecured debt, in excess of 5% of total adjusted assets.

RATING SENSITIVITIES

The 'AAA' rating of the OFH would be vulnerable to a downgrade if either of the following occurs: (i) Societe Generale's Issuer Default Rating (IDR) is downgraded by three notches to 'BBB' or below; or (ii) the total number of notches represented by the IDR uplift and the Discontinuity-Cap is reduced to two notches or lower.