DBRS Ratings Limited (DBRS) confirmed its A (high) ratings on the Obrigações Hipotecárias (OH; the Portuguese legislative Covered Bonds) issued under the Banco de Investimento Imobiliário (BII or the Issuer) Covered Bonds programme (the Programme). The confirmation follows the completion of a full review of the Programme.
Banco Comercial Português (BCP) is the Reference Entity for the BII OH Programme as BCP is liable for BII’s obligations. BCP’s liability, which is irrevocable and unconditional, shall survive the end of the group relationship and last until satisfaction of all entitlements of the Issuer's creditors.
There is one series of OH outstanding under the Programme, with a nominal amount of EUR 895 million, which is entirely retained.
The ratings are based on the following analytical considerations:
-- A Covered Bonds Attachment Point (CBAP) of BBB, which is the Long-Term Critical Obligations Rating of BCP. BCP is the Reference Entity for the Programme.
-- A Legal and Structuring Framework (LSF) Assessment of “Average” associated with the Programme.
-- A Cover Pool Credit Assessment (CPCA) of BBB (low), which is the lowest CPCA in line with the LSF-Implied Likelihood (LSF-L).
-- An LSF-L of A (low).
-- A two-notch uplift for high recovery prospects.
-- A committed minimum overcollateralisation (OC) of 12.5%. DBRS gives full credit to such commitment in accordance with its principal methodology. Such a level is not subject to haircut as DBRS considers it to be persistent based on historically observed levels.
The transaction was analysed with the DBRS European Covered Bond Cash Flow tool. 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 (CP).
Everything else being equal, a one-notch downgrade of the CBAP would lead to a one-notch downgrade of the LSF-L, resulting in a one-notch downgrade of the covered bonds rating. In addition, all else unchanged, the OH ratings would be downgraded if any of the following occurred: (1) the CPCA was downgraded below BBB (low); (2) the sovereign rating of the Republic of Portugal was downgraded below BBB (low); (3) the LSF assessment associated with the Programme was downgraded; (4) the quality of the CP and the level of OC were no longer sufficient to support a two-notch uplift for high recovery prospects; (5) the relative amortisation profile of OH and CP moved adversely; or (6) volatility in the financial markets caused the currently estimated market value spreads to increase.
The aggregated outstanding balance of the CP backing BII’s OH was EUR 1,022 million as of 31 December 2018 while the total amount of liabilities outstanding is EUR 895 million, yielding a current OC ratio of 14.2%. The Issuer has publicly committed to maintain an OC level of 12.5%.
As of 31 December 2018, the mortgage CP comprised 27,390 residential mortgages granted to individuals, with an average loan amount of EUR 32,738. The weighted-average (WA) current loan-to-value of the mortgages was 53.7% with a seasoning of 178 months. The CP is located mainly in Lisbon (37.2% by outstanding balance), Northern Portugal (41.7%) and Central Portugal (15.4%).
Of the loans in the portfolio, 95.9% pay a floating interest rate, indexed to Euribor, and 4.1% of the loans pay a fixed rate, while the only outstanding covered bond is floating rate.
The DBRS-calculated WA life of the mortgage assets is roughly 12 years based on a 0% prepayment rate, which is longer than the 0.9 years of WA life on the CB, not accounting for any maturity extension. This risk is mitigated by the OC available and by a long 20-year extendable maturity feature by which, should the Issuer default on its payment on the covered bonds at the expected maturity date, the covered bond maturity is automatically extended up to 20 years, with a pass-through structure until such date.
All CP assets and CB are denominated in euros. As such, investors are not currently exposed to any foreign-exchange risk.
DBRS has assessed the LSF related to the Programme as “Average” according to its rating methodology. For more information, please refer to DBRS’s commentaries, “DBRS Assigns LSF Assessment to Portuguese Covered Bonds” and “Portuguese Covered Bonds: Legal and Structuring Framework Review,” both available at www.dbrs.com.
For further information on the Programme, please refer to the rating report at www.dbrs.com.
All figures are in euros unless otherwise noted.
The principal methodology applicable to the ratings is: “Rating European Covered Bonds”.
DBRS has applied the principal methodology consistently and conducted a review of the transaction in accordance with the surveillance section of the principal methodology.
A review of the transaction legal documents was not conducted as the legal documents have remained unchanged since the most recent rating action.
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 “Appendix C: The Impact of Sovereign Ratings on Other DBRS Credit Ratings” of the “Rating Sovereign Governments” methodology at: https://www.dbrs.com/research/333487/rating-sovereign-governments.
The sources of data and information used for these ratings include investor reports, loan-by-loan data on the CP and historical default performance data provided by the Issuer.
DBRS did not rely upon third-party due diligence in order to conduct its analysis.
At the time of the initial ratings, DBRS was not 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.
The last rating action on this transaction took place on 9 March 2018, when DBRS confirmed its A (high) rating of BII’s outstanding OH at that time.
Information regarding DBRS ratings, including definitions, policies and methodologies, is available on www.dbrs.com.
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 US regulations only.
Lead Analyst: Roger Bickert, Vice President
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: 28 February 2012
DBRS Ratings Limited
20 Fenchurch Street
Registered and incorporated under the laws of England and Wales: Company No. 7139960
The rating methodologies used in the analysis of this transaction can be found at: http://www.dbrs.com/about/methodologies.
-- Rating European Covered Bonds
-- Rating European Covered Bonds Addendum: Market Value Spreads
-- Global Methodology for Rating Banks and Banking Organisations
-- Legal Criteria for European Structured Finance Transactions
-- Interest Rate Stresses for European Structured Finance Transactions
-- Master European Residential Mortgage-Backed Securities Rating Methodology and Jurisdictional Addenda
-- Operational Risk Assessment for European Structured Finance Originators
-- Operational Risk Assessment for European Structured Finance Servicers
-- Rating Sovereign Governments
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.
For more information on this credit or on this industry, visit www.dbrs.com or contact us at email@example.com.