DBRS Ratings Limited (DBRS Morningstar) confirmed its AA (low) ratings on the 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). The confirmation follows the completion of a full review of the Programme.
There are 11 series of OH outstanding under the Programme totalling a nominal amount of EUR 8.80 billion.
The ratings are 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 of and 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 DBRS Morningstar 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 covered bonds (CBs) ratings 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.
As of 31 March 2020, the aggregated outstanding balance of the CP underlying the Issuer’s OH was EUR 10.36 billion. The total amount of liabilities outstanding is EUR 8.80 billion, yielding a current nominal OC ratio of 17.8%. The Issuer has publicly committed to maintain an OC level of 15.0%.
As at March 2020, the CP assets comprised 186,483 residential mortgage loans, with a weighted-average (WA) current unindexed loan-to-value ratio of 55.4%, a WA seasoning of 98 months, and a WA remaining time to maturity of 322 months. The CP is located mainly in Lisbon (37.5% by outstanding balance), Northern Portugal (31.0%), and Central Portugal (17.4%). All loans were originated for the purpose of acquiring first or second homes.
Approximately 99% of the loans in the CP 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, DBRS Morningstar’s analysis gave no credit to swaps and took into account the interest rate mismatch.
The DBRS Morningstar-calculated WA life of the mortgage assets is roughly 15 years based on a 0% prepayment rate, which is longer than the 4.8 years of WA life on the OH, not accounting for any maturity extension. This risk is mitigated by the extended maturity date, which falls one year after the maturity date, and by the OC in place.
All CP assets and CB are denominated in euros. As such, investors are not currently exposed to any foreign-exchange risk.
DBRS Morningstar has assessed the LSF related to the Programme as “Average” according to its rating methodology. For more information, please refer to DBRS Morningstar’s commentaries, “DBRS Assigns LSF Assessment to Portuguese Covered Bonds” and “Portuguese Covered Bonds: Legal and Structuring Framework Review,” both available at www.dbrsmorningstar.com.
For further information on the Programme, please refer to the rating report at www.dbrsmorningstar.com.
The Coronavirus Disease (COVID-19) and the resulting isolation measures have caused an economic contraction, leading to sharp increases in unemployment rates and income reductions for many borrowers. DBRS Morningstar anticipates that payment holidays and delinquencies may arise in the coming months for many CPs, some meaningfully. The ratings are based on additional analysis and adjustments to expected performance as a result of the global efforts to contain the spread of the coronavirus. In the CP analysis of this programme, DBRS Morningstar assumed a moderate decline in residential property prices.
On 16 April 2020, the DBRS Morningstar Sovereign group released a set of macroeconomic scenarios for the 2020-22 period in select economies. These scenarios were updated on 1 June 2020. For details, see the following commentaries: https://www.dbrsmorningstar.com/research/361867/global-macroeconomic-scenarios-june-update and https://www.dbrsmorningstar.com/research/359903/global-macroeconomic-scenarios-application-to-credit-ratings. The DBRS Morningstar analysis considered impacts consistent with the moderate scenario in the referenced reports.
On 24 April 2020, DBRS Morningstar published a commentary outlining how the coronavirus crisis is likely to affect the DBRS Morningstar-rated CBs in Europe. For more details please see https://www.dbrsmorningstar.com/research/359987/covid-19-the-impact-on-european-covered-bonds and https://www.dbrsmorningstar.com/research/362712/european-structured-finance-covid-19-credit-risk-exposure-roadmap.
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.
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.
All figures are in euros unless otherwise noted.
The principal methodology applicable to the ratings is: “Rating and Monitoring Covered Bonds“ (27 April 2020).
DBRS Morningstar 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 at: https://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 these ratings include investor reports and loan-by-loan data on the CP as at 31 March 2020, static delinquencies data on Totta’s mortgage book spanning from 2003 to Q1 2016, and dynamic arrears data on the vintages 2000 to Q1 2020, 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 ratings, 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 these ratings 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 27 March 2020, when DBRS Morningstar assigned a AA (low) rating to Series 25.
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: https://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: Ketan Thaker, Managing Director
Initial Rating Date: 27 February 2012
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The rating methodologies used in the analysis of this transaction can be found at: https://www.dbrsmorningstar.com/about/methodologies.
-- Rating and Monitoring Covered Bonds (27 April 2020),
-- Rating and Monitoring Covered Bonds Addendum: Market Value Spreads (27 April 2020),
-- Global Methodology for Rating Banks and Banking Organisations (8 June 2020),
-- 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 (14 July 2020) and European RMBS Credit Model v 220.127.116.11,
-- Operational Risk Assessment for European Structured Finance Originators (28 February 2020), https://www.dbrsmorningstar.com/research/357430/operational-risk-assessment-for-european-structured-finance-originators.
-- Operational Risk Assessment for European Structured Finance Servicers (28 February 2020), https://www.dbrsmorningstar.com/research/357429/operational-risk-assessment-for-european-structured-finance-servicers.
-- 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: https://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 amended on 27 July 2020 to fix methodology publication dates in the disclosures.