DBRS Assigns Rating to the Class A Notes Issued by RED & BLACK HOME LOANS FRANCE 1

DBRS Ratings Limited (DBRS) has assigned the following rating to RED & BLACK HOME LOANS FRANCE 1 (the Issuer):

-- Class A Notes rated AA (sf)

The rating of the Class A Notes reflects the timely payment of interest to noteholders on every monthly payment date and the ultimate payment of principal by the legal final maturity date.

The Issuer is a French securitisation fund (Fonds Commun de Titrisation) established on the closing date (27 July 2017). The Issuer is governed by the French Monetary and Financial code and has been established with the sole purpose of issuing Class A and B Notes (together, the Notes) in order to fund the purchase of a portfolio of French home loans. The home loan portfolio totals approximately EUR 9.2 billion as at the Portfolio Cut-Off Date (30 June 2017) and comprises loans guaranteed by Crédit Logement SA (Crédit Logement; rated AA (low) with a Stable trend by DBRS; 84.84%) and mortgages. All loans in the portfolio have been originated by Société Générale, S.A. (Société Générale or the Seller; rated A (high) with a Stable trend by DBRS) through its retail branches in Metropolitan France and will be serviced by Société Générale. The loan portfolio pays a fixed rate of interest, with a weighted-average interest rate of 1.90%. The coupon on the Class A and B Notes is also fixed rate at 0.65% and 1.50%, respectively.

Société Générale is an experienced lender and servicer of French home loans. DBRS has assessed historical performance data for Société Générale–originated home loans and considers it to be above average for the French market. Loans with a Crédit Logement guarantee have shown superior performance compared with ¬mortgages in the data assessed by DBRS.

Credit enhancement for the Class A Notes is provided by the subordination of the Class B Notes (5% of the total issuance). Liquidity for the Class A Notes is supported by the combined waterfall structure, whereby all monthly collections are disbursed through a single priority of payments. A Liquidity and Commingling Reserve Account is available to support the transaction’s liquidity and can be applied as available collections if there is a disruption event that prevents monthly collections from being transferred. The Liquidity and Commingling Reserve Account will not be replenished after closing, and will amortise to remain at 1.8% of the outstanding Class A Notes, subject to a EUR 5 million floor. Any excess amounts following amortisation of the reserve will flow through the priority of payments.

Société Générale is the transaction’s account bank, cash manager and servicer. DBRS’s ratings for Société Générale and the presence of account-bank-replacement conditions lead DBRS to conclude that the provisions are sufficient to support the AA (sf) rating of the Class A Notes.

Initially, the Notes will amortise sequentially: The Class B Notes will not amortise while the Class A Notes are outstanding. The Class A and B Notes will amortise such that the credit enhancement for the Class A Notes is maintained at the target level, if the credit enhancement reaches 110% of the initial credit enhancement.

As the Seller is a deposit-taking institution, the Issuer is exposed to set-off risk. DBRS has analysed deposit data for the borrowers comprising the collateral pool and accounted for a loss resulting from set-off. DBRS has modelled a commingling stress when analysing the transaction’s cash flows in order to reflect the potential loss of one month’s collections.

The Issuer has optionality that allows for further issuance of Class A and B Notes following close, providing that an acceleration event has not been triggered. Further note issuance, if exercised, will allow for the Issuer to purchase additional home loans. Prior to any further issuance, the Issuer must obtain rating agency confirmation.

DBRS has applied two default timing curves (front and back ended) and its prepayment curves (low, medium and high assumptions). DBRS applied an additional 0% Conditional Prepayment Rate stress to assess the sensitivity to low prepayments. The transaction’s cash flows were analysed using INTEX DealMaker.

As a result of the analytical considerations, DBRS derived a base-case probability of default of 3.19% and loss given default of 6.60%, which resulted in an expected loss of 0.21% using the DBRS European RMBS Credit Model. DBRS’s cash flow model assumptions stress the timing of defaults, recoveries and prepayment speeds. Based on a combination of these assumptions, a total of eight cash flow scenarios were applied to test the capital structure and rating of the Class A Notes.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the rating is the “Master European Residential Mortgage-Backed Securities Rating Methodology and Jurisdictional Addenda.”

Other methodologies referenced in this transaction are listed at the end of this press release.

These may be found on www.dbrs.com at: http://www.dbrs.com/about/methodologies

For a more detailed discussion of the sovereign risk impact on Structured Finance ratings, please refer to the DBRS commentary “The Effect of Sovereign Risk on Securitisations in the Euro Area” found at http://www.dbrs.com/industries/bucket/id/10036/name/commentaries/.

The sources of data and information used for this rating include Société Générale.

DBRS did not rely upon third-party due diligence in order to conduct its analysis.

DBRS was supplied with third-party assessments. However, this did not impact the rating analysis.

DBRS considers the data and information available to it for the purposes of providing this rating to be of satisfactory quality.

DBRS does not audit or independently verify the data or information it receives in connection with the rating process.

This rating concerns a newly issued financial instrument. This is the first DBRS rating on this financial instrument.

Information regarding DBRS ratings, including definitions, policies and methodologies is available on www.dbrs.com.

To assess the impact of changing the transaction parameters on the rating, DBRS considered the following stress scenarios, as compared to the parameters used to determine the rating (the “Base Case”):

In respect of the Class A Notes:
-- A hypothetical increase in both PD and LGD by 25%, ceteris paribus, would not lead to a rating action.
-- A hypothetical increase in both PD and LGD by 50%, ceteris paribus, would lead to a downgrade to AA (low) (sf).
-- A hypothetical increase in PD by 25%, ceteris paribus, would not lead to a rating action.
-- A hypothetical increase in PD by 50%, ceteris paribus, would not lead to a rating action.
-- A hypothetical increase in LGD by 25%, ceteris paribus, would not lead to a rating action.
-- A hypothetical increase in LGD by 50%, ceteris paribus, would not lead to a rating action.
-- A hypothetical increase in PD by 25% and increase in LGD by 50%, ceteris paribus, would not lead to a rating action.
-- A hypothetical increase in PD by 50% and increase in LGD by 25%, ceteris paribus, would not lead to a rating action.

For further information on DBRS historical default rates published by the European Securities and Markets Authority (“ESMA”) in a central repository, see: http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml.

Ratings assigned by DBRS Ratings Limited are subject to EU and U.S. regulations only.

Lead Analyst: Lloyd Morrish-Thomas, Financial Analyst, RMBS.
Rating Committee Chair: Christian Aufsatz, Managing Director, European Structured Finance.
Initial Rating Date: 27 July 2017.

DBRS Ratings Limited
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London EC3M 3BY United Kingdom
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The rating methodologies used in the analysis of this transaction can be found at: http://www.dbrs.com/about/methodologies

-- Master European Residential Mortgage-Backed Securities Rating Methodology and Jurisdictional Addenda
-- Legal Criteria for European Structured Finance Transactions
-- Operational Risk Assessment for European Structured Finance Servicers
-- Operational Risk Assessment for European Structured Finance Originators

A description of how DBRS analyses structured finance transactions and how the methodologies are collectively applied can be found at: http://www.dbrs.com/research/278375