DBRS Ratings Limited (DBRS) assigned a rating of AA (low) to the Series 22 Obrigações Hipotecárias (OH, the Portuguese legislative covered bonds) issued under the Banco BPI S.A. (BPI or the Issuer) Covered Bond Programme (the Programme).
Series 22 is a EUR 500 million fixed-rate bond, paying a coupon of 0.25%. The expected maturity date is 22 March 2024 and the final (extended) maturity date falls in March 2025.
At the same time, DBRS discontinued the rating of Series 10, which was repaid on 22 March 2019.
All covered bonds (CBs) issued under the Programme rank pari passu with each other and are currently rated AA (low) by DBRS.
The ratings are based on the following analytical considerations:
-- A Covered Bonds Attachment Point (CBAP) reflective of the likelihood that the source of payments will switch from the Reference Entity (RE) to the cover pool (CP). BPI is the Issuer of and RE for the Programme. BPI was not assigned a Long Term Critical Obligations Rating (COR) nor does DBRS consider Portugal as a jurisdiction in which CB are a particularly important financing tool.
-- 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”.
-- A two-notch uplift for high recovery prospects.
-- A level of overcollateralisation (OC) of 14.1% to which DBRS gives credit, which is the minimum level observed in the last 12 months adjusted by a scaling factor of 0.85.
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 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 CB rating.
In addition, all else unchanged, the OH ratings would be downgraded if any of the following occurred: (1) the CPCA was downgraded to below BBB (low); (2) the sovereign rating of the Republic of Portugal was downgraded to 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 the OH and CP moved adversely; or (6) volatility in the financial markets caused the currently estimated market value spreads to increase.
The vast majority of the loans in the CP (approximately 96%) are floating rate, indexed to different bases and reset at different times, while Series 22 is fixed rate and the remaining outstanding OH (roughly 84%) linked to different Euribor rates with quarterly or semi-annual resets. The interest rate mismatch is mitigated by swap agreements; however, the swap documentation is not consistent with DBRS’s “Derivative Criteria for European Structured Finance Transactions”. As such, no credit was given to swaps in DBRS’s analysis, and the interest rate mismatch has been taken into account in DBRS’s analysis.
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”.
In DBRS’s opinion, the changes under consideration do not require the application of the entire principal methodology. Therefore, DBRS focused on the cash flow analysis.
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 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 these ratings 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 13 December 2018, when DBRS assigned an AA (low) rating to BPI OH Series 21, discontinued its rating of Series 15 and confirmed the AA (low) ratings on the outstanding OH.
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, Managing Director
Initial Rating Date: 1 April 2015
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
-- Derivative 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.