DBRS Ratings GmbH (DBRS) upgraded its rating to AA (low) from A (high) of the outstanding Cédulas Hipotecarias (CH or the Spanish mortgage covered bonds) issued by Abanca Corporación Bancaria S.A. (Abanca or the Issuer). At the same time, DBRS discontinued its rating of Cedulas Hipotecarias - ES0414843146, which matured on 23 January 2019.
This rating action follows the upgrade of Abanca’s Long-Term Issuer Rating to BBB from BBB (low) on 18 July 2019. This has a positive impact on the Covered Bonds Attachment Point (CBAP) of Abanca CH.
The rating is based on the following analytical considerations:
-- A CBAP of BBB (high). Abanca is the Issuer and Reference Entity for the programme. There is no Critical Obligations Rating (COR) associated with Abanca, but DBRS considers Spain a jurisdiction for which covered bonds are a particularly important financing tool. As such, the CBAP is set at the level of the Issuer Rating plus one notch;
-- A Legal and Structuring Framework (LSF) Assessment of “Average” associated with Abanca CH;
-- A Cover Pool Credit Assessment (CPCA) of AA, which is the lowest CPCA in line with the LSF-Implied Likelihood (LSF-L);
-- A LSF-L of “A”;
-- A two-notch uplift for high recovery prospects; and
-- A level of overcollateralisation (OC) of 322% to which DBRS gives credit, which is the minimum observed OC level during the past 12 months adjusted by a scaling factor of 0.85.
The transaction structure 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 downgrade of the covered bonds rating by one notch. In addition, all else unchanged, the CH ratings would be downgraded if any of the following occurred: (1) the CPCA were downgraded below AA; (2) the sovereign rating of Spain were downgraded below A (low); (3) the LSF Assessment associated with the programme were 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 CH and CP moved adversely; or (6) volatility in the financial markets caused the currently estimated market value spreads to increase.
As of today, the total outstanding amount of CH is EUR 2.48 billion, which includes one DBRS-rated bond with an outstanding balance of EUR 50 million. As of March 2019, the aggregate balance of the mortgages in the CP was EUR 14.98 billion, resulting in a total OC of 503%. The eligible CP stands at EUR 9.33 billion, resulting in an eligible OC of 276%.
As of 31 March 2019, the CP amounted to EUR 14.98 billion split into 76.4% residential, 15.6% commercial, 3.5% developers, 0.7% land and 3.8% other type of loans by outstanding loan balance. The CP comprises 181,069 mortgages with a weighted-average current unindexed loan-to-value ratio of 60.6%. Approximately 48.4% of the CP is geographically concentrated in Galicia, Abanca’s home region, while 4.5% of the CP assets are located outside Spain. The pool is 94-months seasoned on average.
As is customary in the Spanish market, CH holders do not receive the benefit of any swap contract to hedge the mismatches between the interest yield by the CP (94.7% floating rate linked to different indices and resets) and the interest due on the CH (100% fixed). All liabilities are denominated in euros while 2.0% of the loans were originated in a different currency. These are mainly loans that were originated in Abanca’s Swiss branch. This residual exposure is mitigated by the OC available and accounted for in the Pass-OC.
As of March 2019, the weighted-average life of the assets was roughly 10.3 years as reported by the Issuer, while that of the covered bonds as of today is 6.6 years. This generates an asset-liability mismatch that is mitigated by the available OC.
For further information on Abanca CH, please refer to the rating report available on www.dbrs.com.
DBRS has assessed the LSF related to Abanca CH as “Average” according to its rating methodology. For more information, please refer to the DBRS Commentary “Spanish Mortgage Covered Bonds: Legal and Structuring Framework Review” and “DBRS Assigns Legal and Structuring Framework Assessment to Spanish Mortgage Covered Bonds Programmes,” available at www.dbrs.com.
All figures are in euros unless otherwise noted.
The principal methodology applicable to the rating is: “Rating and Monitoring Covered Bonds”.
In DBRS’s opinion, the change(s) under consideration do not require the application of the entire principal methodology. Therefore, DBRS focused on the cash flow analysis.
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: http://dbrs.com/research/319564/rating-sovereign-governments.pdf.
The sources of data and information used for this rating include CP stratification tables provided by Abanca that allowed DBRS to further assess the portfolio.
DBRS did not rely upon third-party due diligence in order to conduct its analysis.
At the time of the initial rating, 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 programme took place on 7 December 2018, when DBRS confirmed the ratings on Abanca CH following completion of the annual deal review.
Information regarding DBRS ratings, including definitions, policies and methodologies are 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 GmbH, Sucursal en España are subject to EU and US regulations only.
Lead Analyst: Covadonga Aybar, Vice President
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: 10 December 2014
DBRS Ratings GmbH, Sucursal en España
Calle del Pinar, 5
DBRS Ratings GmbH
Neue Mainzer Straße 75
60311 Frankfurt am Main Deutschland
Geschäftsführer: Detlef Scholz
Amtsgericht Frankfurt am Main, HRB 110259
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
-- Interest Rate Stresses for European Structured Finance Transactions
-- European RMBS Insight Methodology
-- European RMBS Insight: Spanish Addendum
-- Operational Risk Assessment for European Structured Finance Originators
-- Operational Risk Assessment for European Structured Finance Servicers
-- Rating CLOs and CDOs of Large Corporate Credit
-- Rating CLOs Backed by Loans to European SMEs
-- 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.