DBRS Confirms Banco Comercial Português Covered Bonds Ratings, Keeps Under Review with Developing Implications

DBRS Ratings Limited (DBRS) has today confirmed its rating of A (low) on all outstanding series of obrigações hipotecárias (the Portuguese legislative covered bonds) issued under Banco Comercial Português (BCP or the Issuer) EUR 12,500,000,000 Covered Bonds Programme and has kept them Under Review with Developing Implications following the amendments to Series 8.

According to its restated terms, Series 8 for EUR 2 billion now matures on 23 October 2020 versus 29 August 2015 previously.

There are six series of covered bonds outstanding under the Programme for a total amount of EUR 8.85 billion. As of March 2015, the cover pool (CP) amounts to EUR 11.596 billion, resulting in a nominal overcollateralisation (OC) of 31.04%. This is above the Issuer commitment OC of 31%.

The Issuer Rating was initially placed Under Review with Negative Implications on 28 October 2014, following the European Banking Authority’s stress test results. The rating of the covered bonds were initially placed Under Review with Developing Implications on 17 December 2014 when, following the implementation of DBRS’s new “Rating European Covered Bonds” (December 2014) methodology, they could have potentially been upgraded to “A” from the current A (low), based on the following analytical considerations:
-- A Covered Bonds Attachment Point (CBAP) of BBB (low) Under Review with Negative Implications being the Senior Long-Term Debt & Deposit Rating of the Issuer. The Issuer is also the Reference Entity for the Covered Bonds.
-- A Legal and Structuring Framework (LSF) Assessment of “Average” assigned to BCP OH Programme.
-- A Cover Pool Credit Assessment (CPCA) of BBB (low) being 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 overcollateralization which DBRS gives credit to of 31%. Such level is not subject to haircut, as DBRS has observed it has been persistent for the past 24 months.

The Issuer’s Intrinsic Assessment was recently reviewed and confirmed at BB (high) on 28 May 2015. However, its Senior Long-Term Debt & Deposit Rating of BBB (low) remained Under Review with Negative Implications, as DBRS is reviewing the implications of recent developments in European regulation and legislation regarding the Bank Recovery and Resolution Directive on its European banks ratings. Moreover, on 22 May 2015 DBRS published a Request for Comments for the “Rating European Covered Bonds” methodology that may affect the determination of the CBAP. The review on the covered bonds will be resolved only once the review on the issuer rating is resolved and the Request for Comments for the “Rating European Covered Bonds” methodology is finalised.

All else equal, a downgrade of the issuer rating by one notch would lead to a downgrade of the covered bonds by two notches, resulting in a downgrade of the current covered bonds rating by one notch.

All the loans in the CP are prime residential mortgage loans, with a weighted-average (WA) current unindexed loan-to-value ratio of 49.05% and a WA seasoning of 101 months. The pool is geographically diversified across the country and originated for the purpose of acquiring first or second homes.

Fixed-rate mortgages in the CP accounted for 6.09% of the notional balance, whilst floating-rate mortgages represented 93.91% of CP balance. 28.25% of covered bonds outstanding pay a fixed coupon. The interest rate mismatch in the Programme is mitigated in part by the OC.

All CP assets are denominated in euros, as well as all covered bonds. As such, investors are not currently exposed to any foreign exchange risk.

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

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable is: “Rating European Covered Bonds”. This can be found on www.dbrs.com at: http://www.dbrs.com/about/methodologies.

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’s “The Effect of Sovereign Risk on Securitisations in the Euro Area” commentary on: http://www.dbrs.com/industries/bucket/id/10036/name/commentaries/.

DBRS is undertaking a review and will remove the rating from this status as soon as it is appropriate.

The sources of information used for this rating include historical default performance data and loan-by-loan level information on the CP provided by BCP that allowed DBRS to further assess the portfolio. DBRS considers 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.

DBRS does not rely upon third-party due diligence in order to conduct its analysis; DBRS was not supplied with third-party assessments. However, this did not impact the rating analysis.

The last rating action on this Programme took place on 26 May 2015, when DBRS placed the rating of all outstanding Series Under Review with Developing Implications.

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 (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 regulations only.

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

Last Rating Date: 26 May 2015

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
-- Master European Structured Finance Surveillance Methodology
-- Operational Risk Assessment for European Structured Finance Servicers
-- Unified Interest Rate Model Methodology for European Securitisations