Fitch Ratings has upgraded Union Finances Grains' (UFG) negotiable European commercial paper (NEU CP) programmes and CPs guaranteed by Credit Cooperatif and Caisse d'Epargne et de Prevoyance Grand Est Europe (CEGEE) to 'F1+' from 'F1'.

This mirrors a similar action taken on the long-term and short-term senior preferred (SP) debt of Credit Cooperatif and CEGEE's (both: A+/Negative/F1) parent group, Groupe BPCE (A+/Negative/F1; see 'Fitch Upgrades Groupe BPCE's Senior Preferred to 'AA-', Affirms IDR at 'A+'; Negative Outlook' at www.fitchratings.com). The upgrade of GBPCE's short-term SP debt's ratings to 'F1+' reflects our expectation that GBPCE's buffers of subordinated and senior non-preferred debt will sustainably exceed 10% of risk-weighted assets (RWAs) in the next 18 months.

Fitch has also affirmed at 'F1+' the short-term ratings of UFG's other four CP programmes guaranteed by Credit Agricole Corporate and Investment Bank (CACIB; A+/Stable/F1), Le Credit Lyonnais (LCL), Banque Europeenne du Credit Mutuel (BECM), and Banque CIC-Ouest (BCO).

Key Rating Drivers

Ratings Based on Guarantees: The ratings of UFG's NEU CP programmes and the associated CPs are aligned with the respective guarantor banks' or ultimate parent's short-term SP debt ratings or Fitch's assessment of the creditworthiness of the banks. The ratings reflect our view that each guarantor will honour their unconditional, irrevocable and timely guarantee, if required.

Six Bank Guarantors: The six French commercial banks guaranteeing UFG's CP programmes are CACIB, LCL, BECM, BCO, Credit Cooperatif and CEGEE.

Protection from Junior Debt Buffer: The CP programmes and CPs guaranteed by the six banks benefit from the protection that accrues to their respective SP creditors from more junior bank resolution debt and equity buffers held by their respective parent groups (Credit Agricole for CACIB and LCL, Credit Mutuel Alliance Federale for BECM and BCO, and Groupe BPCE for Credit Cooperatif and CEGEE). The CP programmes and CPs guaranteed are consequently rated in line with the ultimate parent group's short-term SP debt.

Maximum Programme Limit: Currently the banks guarantee the repayment of their respective CP programmes, subject to a total issuance limit of EUR1,240.4 million applicable until 30 June 2023. The issuance limit is split between the banks, with EUR409 million for CACIB, EUR169.9 million for LCL, EUR328 million for BECM, EUR50 million for BCO, EUR186.5 million for Credit Cooperatif and EUR97 million for CEGEE.

Severally Liable Guarantee: The banks' guarantees are independent of one another and are not joint. Guarantees are renewed annually on 1 July and cover CPs issued up to 30 June of the following year and maturing before 30 September of that year. The CPs have a maximum maturity of 92 days.

UFG Is Solely an Issuing Vehicle: UFG is a union of agricultural cooperatives with 34 members at end-2021. Fitch does not rate UFG as it is purely an issuing vehicle, whose sole purpose is to issue CPs to fund part of the cooperatives' cereal inventories. UFG has no funding needs for its own operations and its overheads are paid by contributions from its cooperative members.

Promissory Notes Secure Guarantors: The advances extended to cooperatives are secured by promissory notes based on their cereal inventories and issued for the benefit of the bank guarantors. The notes are endorsed by FranceAgriMer (FAM), a state-owned entity supervised by the Ministry of Agriculture. FAM counter-guarantees the bank guarantors as it is the only entity legally allowed to seize the cereal inventory of a cooperative should the latter default.

Rating Sensitivities

Factors that could, individually or collectively, lead to negative rating action/downgrade:

The ratings of UFG's CP programmes and CPs guaranteed by CACIB and LCL could be downgraded if CACIB's Short-Term Issuer Default Rating (IDR) is downgraded or if LCL's creditworthiness deteriorates, in our view. The ratings could also be downgraded by one notch if Fitch no longer expects Credit Agricole to meet its resolution buffer requirements with only senior non-preferred debt and more junior instruments.

The ratings of UFG's CP programmes and CPs guaranteed by BCO and BECM could be downgraded if BCO's and BECM's creditworthiness deteriorates, in our view. The ratings could also be downgraded by one notch if Fitch no longer expects Credit Mutuel Alliance Federale to meet its resolution buffer requirements with only senior non-preferred debt and more junior instruments.

The ratings of the CP programmes and CPs guaranteed by Credit Cooperatif and CEGEE could be downgraded if Credit Cooperatif's and CEGEE's Short-Term IDRs are downgraded. The ratings could also be downgraded by one notch if Fitch no longer expects Groupe BPCE's buffer of senior non-preferred debt and more junior instruments to sustainably exceed 10% of RWAs.

The ratings of the six programmes and CPs could be downgraded if Fitch's assumptions about the guarantors' propensity to honour their guarantee change. This could notably result from a weakening of the terms of the guarantees.

Factors that could, individually or collectively, lead to positive rating action/upgrade:

UFG's CP programmes ratings benefit from the highest possible short-term rating of 'F1+' and, therefore, cannot be upgraded.

Best/Worst Case Rating Scenario

International scale credit ratings of Financial Institutions and Covered Bond issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are based on historical performance. For more information about the methodology used to determine sector-specific best- and worst-case scenario credit ratings, visit https://www.fitchratings.com/site/re/10111579

REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING

The principal sources of information used in the analysis are described in the Applicable Criteria.

Public Ratings with Credit Linkage to other ratings

The ratings of the programmes and associated CPs are driven by the irrevocable and unconditional guarantee from their respective bank guarantors.

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