OREANDA-NEWS. Fitch Ratings has affirmed Caisse centrale Desjardins (CCD; 'AA-'/'F1+', Outlook Stable) outstanding CAD-equivalent 2.97 billion registered mortgage covered bonds at 'AAA' with a Stable Rating Outlook. The affirmation follows Fitch's annual review of the program.

KEY RATING DRIVERS
The rating is based on CCD's 'AA-' long-term Issuer Default Rating (IDR), an unchanged Discontinuity Cap (D-Cap) of 3 (moderate high risk) and the 93.7% asset percentage (AP) that Fitch takes into account in its analysis, which equals the Fitch's 'AAA' breakeven AP. The Stable Outlook for the covered bonds rating is due to the Stable Outlook on the Canadian sovereign and on CCD's IDR. Since bail-in is not an explicit provision under the current Canadian framework, in Fitch's view, the IDR remains a satisfactory indicator of the likelihood that the recourse against the cover pool would be enforced, and no IDR uplift is applicable.

The 93.7% AAA' breakeven AP, corresponding to a breakeven OC of 6.7% is driven by the cover pool's credit loss of 6.1%, followed by the asset disposal loss component of 4% due to maturity mismatches in a AAA scenario. The cash flow valuation component leads to a lower 'AAA' breakeven OC by 1.7% due to the short weighted average life of the mortgages, generally three to five years, which results in a high value for the cover pool. The breakeven AP considers whether timely payments are met in an 'AA' scenario and tests for recoveries given default of at least 91% in an 'AAA' scenario.

The 6.1% 'AAA' credit loss represents the impact on the breakeven OC from the 15.5% weighted average (WA) default rate and the 63% WA average recovery rate for the mortgage cover assets. This reflects a reduction in the 'AAA' credit loss from Fitch's prior analysis of 7.1% due to the cover pool's lower WA sustainable loan-to-value of 62.6% vs. 70.1%. The assets remain 100% concentrated in Quebec, for which Fitch assumes a sustainable market value decline of approximately 22%.

Fitch takes into account the contractual AP maintained in the program since amounts in excess of the contractual commitment are secured back to CCD through the demand loan and therefore not available to covered bond holders in the event of issuer default.

RATING SENSITIVITIES
The 'AAA' rating would be vulnerable to downgrade if any of the following occurs: (i) the IDR is downgraded by three or more notches to 'A-' or below; or (ii) the number of notches represented by the D-Cap is reduced to 0; or (iii) the AP that Fitch considers in its analysis increases above Fitch's 'AAA' breakeven level of 93.7%.

The Fitch breakeven AP for the covered bond rating will be affected, amongst others, by the profile of the cover assets relative to outstanding covered bonds, which can change over time, even in the absence of new issuance. Therefore the breakeven AP to maintain the covered bond rating cannot be assumed to remain stable over time.

More details on the cover pool and Fitch's analysis will be available in a credit update report, which will shortly be available at www.fitchratings.com.