DBRS Ratings Limited (DBRS Morningstar) assigned a AA (low) rating to the Series 25 Obrigações Hipotecárias (OH; the Portuguese legislative covered bonds) issued under the Banco Santander Totta S.A. (Totta or the Issuer) EUR 12.5 billion OH Programme (the Programme).
Series 25 is a EUR 750 million fixed-rate bond, paying a coupon of 0.505%. The expected maturity date is 27 March 2025 and the final (extended) maturity date falls in March 2026.
All covered bonds (CBs) issued under the Programme rank pari passu with each other and are currently rated AA (low) by DBRS Morningstar.
The rating is based on the following analytical considerations:
-- A Covered Bonds Attachment Point (CBAP) of “A”, which is the Long-Term Issuer Rating of Totta. Totta is the Issuer and the Reference Entity for the Programme.
-- A Legal and Structuring Framework (LSF) Assessment of “Average” associated with the Programme.
-- An LSF-Implied Likelihood (LSF-L) of “A”.
-- A two-notch uplift for high recovery prospects.
-- A committed minimum overcollateralisation (OC) of 15%. DBRS Morningstar gives full credit to such commitment in accordance with its principal methodology. Such level is not subject to a haircut, as DBRS Morningstar considers it to be persistent based on historically observed levels.
DBRS Morningstar analysed the transaction using its 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 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 CB rating by one notch. In addition, all else unchanged, the OH ratings would be downgraded if the quality of the CP and the level of OC were no longer sufficient to support a two-notch uplift for high recovery prospects.
A vast majority of the loans in the CP (approximately 99%) are floating rate, indexed to different bases and reset at different times, while all OH series are fixed rate. The interest rate mismatch is mitigated by intra-group swap agreements; however, the swap documentation is not consistent with DBRS Morningstar’s “Derivative Criteria for European Structured Finance Transactions” methodology. As such, no credit was given to swaps in DBRS Morningstar’s analysis, and the interest rate mismatch has been taken into account in DBRS Morningstar’s analysis.
For further information on the Programme, please refer to the rating report at www.dbrsmorningstar.com.
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework and its methodologies can be found at: https://www.dbrsmorningstar.com/research/357792.
For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.
For more information regarding structured finance rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/358308.
All figures are in euros unless otherwise noted.
The principal methodology applicable to the rating is: “Rating and Monitoring Covered Bonds” (28 June 2019).
In DBRS Morningstar’s opinion, the changes under consideration do not require the application of the entire principal methodology. Therefore, DBRS Morningstar 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 at: http://www.dbrsmorningstar.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 “Global Methodology for Rating Sovereign Governments” at: https://www.dbrsmorningstar.com/research/350410/global-methodology-for-rating-sovereign-governments.
The sources of data and information used for the rating include investor reports and stratification tables provided by the Issuer.
DBRS Morningstar did not rely upon third-party due diligence in order to conduct its analysis.
At the time of the initial rating DBRS Morningstar was not supplied with third-party assessments. However, this did not impact the rating analysis.
DBRS Morningstar considers the data and information available to it for the purposes of providing this rating to be of satisfactory quality.
DBRS Morningstar 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 19 July 2019, when DBRS Morningstar confirmed the AA (low) rating on the outstanding OH.
Information regarding DBRS Morningstar ratings, including definitions, policies, and methodologies, is available on www.dbrsmorningstar.com.
For further information on DBRS Morningstar 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 U.S. regulations only.
Lead Analyst: Roger Bickert, Vice President
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: 27 February 2012
DBRS Ratings Limited
20 Fenchurch Street, 31st Floor,
London EC3M 3BY United Kingdom
Tel. +44 (0) 20 7855 6600
Registered and incorporated under the laws of England and Wales: Company No. 7139960
The rating methodologies used in the analysis of this transaction are listed below and can be found at: http://www.dbrsmorningstar.com/about/methodologies.
-- Rating and Monitoring Covered Bonds (28 June 2019)
-- Rating and Monitoring Covered Bonds Addendum: Market Value Spreads (28 June 2019)
-- Global Methodology for Rating Banks and Banking Organisations (11 June 2019)
-- Legal Criteria for European Structured Finance Transactions (11 September 2019)
-- Derivative Criteria for European Structured Finance Transactions (26 September 2019)
-- Interest Rate Stresses for European Structured Finance Transactions (10 October 2019)
-- Master European Residential Mortgage-Backed Securities Rating Methodology and Jurisdictional Addenda (10 December 2019) and European RMBS Credit Model v 126.96.36.199
-- Operational Risk Assessment for European Structured Finance Originators (28 February 2020)
-- Operational Risk Assessment for European Structured Finance Servicers (28 February 2020)
-- Global Methodology for Rating Sovereign Governments (17 September 2019)
A description of how DBRS Morningstar analyses structured finance transactions and how the methodologies are collectively applied can be found at: http://www.dbrsmorningstar.com/research/278375.
For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at email@example.com.
This press release was modified on 30 March 2020 to remove the DBRS Diversity Model v188.8.131.52 from the list of models used.
This press release was modified on 8 April 2020 to clarify that the European RMBS Credit Model v 184.108.40.206 is associated with the "Master European Residential Mortgage-Backed Securities Rating Methodology and Jurisdictional Addenda".