DBRS Ratings Limited (DBRS) confirmed its “A” ratings on the Obrigações Hipotecárias (OH; the Portuguese legislative Covered Bonds) issued under the Caixa Económica Montepio Geral (Montepio or the Issuer) CPT Covered Bonds programme (the Programme). The confirmation follows the completion of a full review of the Programme.
There are five series of OH outstanding under the Programme totalling a nominal amount of EUR 2.3 billion.
The ratings are based on the following analytical considerations:
-- A Covered Bonds Attachment Point (CBAP) of BB. Montepio is the Issuer and Reference Entity for the Programme. Montepio was not assigned a Long Term Critical Obligations Rating nor does DBRS consider Portugal a jurisdiction in which Covered Bonds are a particularly important financing tool;
-- A Legal and Structuring Framework (LSF) Assessment of “Adequate” associated with the Programme;
-- A Cover Pool Credit Assessment (CPCA) of A (low), which is the lowest CPCA in line with the LSF-Implied Likelihood (LSF-L);
-- An LSF-L of BBB (high);
-- A two-notch uplift for high recovery prospects;
-- A committed minimum overcollateralisation (OC) of 18%. DBRS gives full credit to such commitment in accordance with its principal methodology. Such level is not subject to a 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 and interest rate stresses.
Everything else being equal, a downgrade of the CBAP by one notch would lead to a downgrade of the LSF-L by one notch, resulting in a downgrade of the covered bonds rating by one notch.
In addition, all else unchanged, the OH ratings would be downgraded if any of the following occurred: (1) the CPCA was downgraded below A (low); (2) the LSF Assessment associated with the Programme was downgraded; or (3) the quality of the cover pool (CP) and the level of OC were no longer sufficient to support a two-notch uplift for high recovery prospects.
As of 31 March 2019, the aggregated outstanding balance of the CP underlying the Issuer’s OH was EUR 2.74 billion, including EUR 2.73 billion of mortgages and EUR 11.9 million of cash. The total amount of liabilities outstanding is EUR 2.30 billion, yielding a current nominal OC ratio of 19.1%. The Issuer has publicly committed to maintain an OC level of 18.0%.
As at March 2019, the CP assets comprised 61,627 residential mortgage loans, with a weighted-average (WA) current unindexed loan-to-value ratio of 51.2%, a WA seasoning of 137 months and a WA remaining time to maturity of 255 months. The CP is located mainly in Lisbon (36.5% by outstanding balance), Northern Portugal (27.7%) and Central Portugal (15.7%).
The vast majority of the loans in the CP (approximately 93%) are floating rate, while 67% of the OH Series is floating-rate, indexed to three-month Euribor. The interest rate mismatch is mitigated by an external interest rate swap on the fixed-rate bond.
The DBRS-calculated WA life of the mortgage assets is roughly 12 years based on a 0% prepayment rate, which is longer than the 4.1 years of WA life on the OH, not accounting for any maturity extension. This risk is mitigated by the conditional pass-through (CPT) nature of the OH.
All CP assets and OH 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 “Adequate” according to its rating methodology. For more information, please refer to DBRS’s commentaries, “DBRS Assigns LSF Assessment to Portuguese Covered Bonds,” “Portuguese Covered Bonds: Legal and Structuring Framework Review” and “DBRS Upgrades Caixa Económica Montepio Geral Covered Bonds to A (high) Upon Restructuring in CPT, Removes UR-D,” which are 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 and Monitoring 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 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 6 July 2018, when DBRS confirmed its “A” ratings on Montepio’s then 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 Aufsatz, Managing Director
Initial Rating Date: 1 December 2011
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 and Monitoring Covered Bonds
-- Rating and Monitoring 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.