DBRS Places Banco Commercial Português Covered Bonds Programme Under Review with Developing Implications

DBRS Ratings Limited (DBRS) has today placed the A (low) rating of the EUR 8.85 billion Obrigações Hipotecárias (OH or the Portuguese legislative covered bonds) issued under the Banco Commercial Português (BCP or the Issuer) covered bond programme Under Review with Developing Implications following the implementation of DBRS’s “Rating European Covered Bonds” methodology published on 17 December 2014 (the Methodology).

The rating action reflects a material update to the methodology DBRS uses to rate and monitor European covered bonds. The Methodology supersedes the previous methodology “Rating European Covered Bonds,” published 30 January 2014.

The placement of the A (low) rating of the OH issued under BCP OH programme Under Review with Developing Implications is a result of the BCP rating of BBB (low) being placed Under Review with Negative Implications.

The implementation of the new Methodology could potentially lead to an upgrade of the BCP OH programme rating to “A” from A (low) if the rating of the Issuer were to be confirmed, based on the following analytical considerations:

• A Covered Bonds Attachment Point of BBB (low) Under Review with Negative Implications, being the Senior Long-Term Debt & Deposit Rating of BCP. BCP is the Issuer and Reference Entity for the BCP OH Programme.
• A Legal and Structuring Framework (LSF) Assessment of Average assigned to the BCP OH Programme.
• A Cover Pool Credit Assessment (CPCA) of BBB (low) as the lowest CPCA in line with the covered bonds rating.
• An LSF-Implied Likelihood (LSF-L) of BBB (high).
• Two notches uplift for high recovery prospects.
• A level of overcollateralisation (OC) to which DBRS gives credit of 31%, being the level of OC to which the Issuer commits in the investor report. Such a level is not subject to haircut as DBRS has observed that it has been persistent for the past 24 months.

The Reference Entity’s rating is Under Review with Negative Implications. The review of the covered bonds will be resolved only once the conditions that led to the assignment of review of the Reference Entity’s rating are resolved.

A downgrade of the Reference Entity rating by one notch would lead to a downgrade of the LSF-L by two notches, resulting in a downgrade of the current covered bonds rating by one notch.

The transaction was modelled with the DBRS European Covered Bond Cash Flow Model. The main assumptions focused on the timing of defaults and recoveries of the assets, interest rate stresses and market value spreads to calculate liquidation values on the cover pool.

As at 30 September 2014, the cover pool had a total outstanding balance of EUR 11,917,256,020. The available OC is 34.66%, which is above the current Issuer commitment OC of 31%.

For further information on the BCP OH programme, please refer to the rating report that can be found on www.dbrs.com.

DBRS has assessed the LSF related to BCP OH as Average according to its rating methodology. For more information, please refer to DBRS commentaries “DBRS Assigns LSF Assessment to Portuguese Covered Bonds” and “Portuguese Covered Bonds: Legal and Structuring Framework Review,” available at www.dbrs.com.

On 13 March 2023, DBRS Morningstar amended the above press release to correct the Initial Rating Date.

Notes:
All figures are in Euro unless otherwise noted.

The principal methodology applicable is Rating European Covered Bonds (December 2014), which can be found at www.dbrs.com. Other methodologies and criteria referenced in this transaction are listed at the end of this press release.

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

The sources of information used for this rating include historical default performance data spanning from 1998 to 2013, investor reports and loan-by-loan level information on the cover pool provided by BCP that allowed DBRS to further assess the portfolio. DBRS considers that the information available to it for the purposes of providing this rating was of satisfactory quality.

DBRS does not audit the information it receives in connection with the rating process, and it does not and cannot independently verify that information in every instance.

The last rating action on this transaction took place on 31 October 31 2014 when DBRS placed the rating Under Review Negative Implications following a similar action of the Issuer rating.

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

For further information on DBRS historic default rates published by the European Securities and Markets Administration 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 regulations only.

Initial Lead Analyst: Keith Gorman
Initial Rating Date: 28 February 2012
Initial Rating Committee Chair: Claire Mezzanotte

Last Rating Date: 31 October 2014

Lead Analyst: Valentina Cicerone
Rating Committee Chair: Quincy Tang

DBRS Ratings Limited
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Registered in England and Wales: No. 7139960.

The rating methodologies and criteria used in the analysis of this transaction can be found at http://www.dbrs.com/about/methodologies.

• Rating European Covered Bonds
• Global Methodology for Rating Banks and Banking Organisations
• Legal Criteria for European Structured Finance Transactions
• Master European Residential Mortgage-Backed Securities Rating Methodology and Jurisdictional Addenda
• Master European Structured Finance Surveillance Methodology
• Operational Risk Assessment for European Structured Finance Servicers
• Unified Interest Rate Model for European Securitisations