DBRS Ratings Limited (DBRS) confirmed its BBB (low) ratings of the Greek Covered Bonds (GCB; the Greek legislative covered bonds) issued under the EUR 10.0 billion Piraeus Bank SA Global Covered Bonds Programme (Piraeus GCB).
There are five series currently outstanding under the Programme, with a total nominal amount of EUR 4.5 billion. The cover pool (CP) is composed of residential mortgage loans.
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 CP. Piraeus Bank SA (Piraeus) is the Issuer and RE for the Programme. DBRS does not currently classify Greece as a jurisdiction for which covered bonds (CB) are a particularly important financing tool. Piraeus is subject to the European Union’s Bank Recovery and Resolution Directive. DBRS considers it likely that this form of lending would be part of the activity of a going-concern entity possibly resulting from the resolution of the RE.
--A Legal and Structuring Framework (LSF) Assessment of “Very Strong” associated with the Programme.
-- A Cover Pool Credit Assessment (CPCA) of B, which is the lowest CPCA in line with the LSF-Implied Likelihood (LSF-L).
--An LSF-L of BB (high).
--A one-notch uplift for high recovery prospects.
--A level of overcollateralisation (OC) of 27.9% to which DBRS gives credit, being the minimum-observed OC level during the past 12 months adjusted by a scaling factor of 0.93. The Issuer contractually commits to maintain a minimum 25% OC level in the nominal value test.
The transaction was analysed using 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. In accordance with the DBRS “Rating and Monitoring Covered Bonds” methodology, no forced asset liquidation has been considered for this transaction, given the conditional pass-through structure. DBRS has assumed several prepayment scenarios.
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 ratings. In addition, the CB ratings would be downgraded if any of the following were to occur: (1) the CPCA were downgraded to below B; (2) the LSF Assessment associated with the Programme were downgraded; or (3) the quality of the CP and the level of OC were no longer sufficient to support a one-notch uplift for high recovery prospects.
Citibank NA, London branch acts as Transaction Bank and holds the Commingling Reserve in a dedicated ledger of the Transaction Account. The DBRS private ratings of Citibank NA, London Branch comply with the threshold for the Transaction Bank, given the rating assigned to the GCB, as described in DBRS’s “Legal Criteria for European Structured Finance Transactions” and “Rating and Monitoring Covered Bonds” methodologies.
The total outstanding amount of GCB is currently EUR 4.5 billion. As of June 2019, the aggregate balance residential mortgage loans in the CP was EUR 5.9 billion, resulting in a total OC of 30.4%. As at June 2019, the CP comprised 133,444 residential mortgage loans originated by Piraeus.
The weighted-average current loan-to-value of the mortgages is 53.9% with an average seasoning of 122 months. The assets securing the loans in the CP are located predominantly in the regions of Attica (38.9%), Thessaloniki (11.2%) and Macedonia (10.1%).
The CP comprises 99.6% floating-rate mortgage loans, indexed to different plain vanilla bases, which reset at different dates. This compares with 100% of the liabilities paying a floating rate linked mostly to three-month Euribor plus a spread. The resulting interest and basis risks are not hedged.
DBRS analysed the CP using its European RMBS Insight Model and “European RMBS Insight: Greek Addendum” methodology.
By outstanding amount, 11.4% of the loans were identified as “restructured” and DBRS has assumed a 100% default probability for those loans. The loan-level repossession data received by DBRS indicated that the distressed sale discount (DSD) was around 32.0% and the time to recovery was roughly three years. Based on this data, for its B rating scenario, DBRS assumed a 32.0% DSD and a five-year recovery lag timing. Furthermore, in line with Greek law, which allows up to 35.0% of recovery proceeds to be used for any tax liability and repay unsecured creditors, DBRS applied a 35.0% haircut to recovery proceeds in its analysis.
All CP assets and GCB are denominated in euros. As such, investors are not currently exposed to any foreign-exchange risk.
The “Very Strong” LSF Assessment associated with the Programme reflects DBRS’s view of the following considerations:
(1) The Greek CB legal framework giving CB holders first-priority right on the CP, in combination with a residual commingling risk that DBRS considers mitigated by giving limited credit to the amounts standing to the credit of the collection account held with Piraeus and the daily sweep.
(2) The contractually sanctioned six-month liquidity coverage rule that ensures that, at any time, a dedicated ledger of the Transaction Account (held with Citibank or an eligible institution) is credited with sufficient cash to cover six months of interest and senior costs.
(3) The conditional pass-through nature of the structure whereby the series that have not been repaid on their expected maturity date become pass-through with (a) the maturity extended to a date that, in DBRS’s stressed simulations, allows all loans in the CP to amortise fully and related recoveries to be collected and (b) proceeds from the CP allocated pro rata and pari passu to the series of GCB which are pass-through.
(4) The role of the Central Bank of Greece in the supervision of the Greek CBs.
For more information, please refer to the DBRS commentary, “Greek Covered Bonds: Legal and Structuring Framework Review” on 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 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 transaction took place on 31 August 2018, when DBRS finalised its BBB (low) ratings of the GCB.
The lead analyst responsibilities for this transaction have been transferred to Alessandra Maggiora.
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: Alessandra Maggiora, Assistant Vice President
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: 27 August 2018
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
-- European RMBS Insight Methodology
-- European RMBS Insight: Greek Addendum
-- 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
-- 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 firstname.lastname@example.org.