DBRS Ratings GmbH (DBRS Morningstar) confirmed its AA ratings on the notes issued under the Deutsche Bank AG (DB AG or the Issuer) Conditional Pass-Through Structured Covered Bonds Programme (the Programme) guaranteed by SCB Alpspitze UG. The confirmations follow the completion of a full review of the Programme.
There are two series of covered bonds (CBs) outstanding under the Programme totalling a nominal amount of EUR 2.31 billion.
The ratings are based on the following analytical considerations:
-- A Covered Bonds Attachment Point (CBAP) of “A”, one notch below the Long Term Critical Obligations Rating (COR) of DB AG. DB AG is the Reference Entity (RE) for the Programme. Deviating from the “Rating and Monitoring Covered Bonds” methodology, DBRS Morningstar assigned a CBAP that is one notch below the COR even if the Programme can be seen as strategic to funding the RE’s primary activity. For more information, please refer to the rating report at www.dbrsmorningstar.com.
-- A Legal and Structuring Framework (LSF) Assessment of “Very Strong” associated with the Programme.
-- A Cover Pool Credit Assessment (CPCA) of BBB, which is the lowest CPCA in line with the LSF-Implied Likelihood (LSF-L).
-- An LSF-L of AA (low).
-- A one-notch uplift for good 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, and interest rate stresses.
Everything else 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 ratings by one notch. In addition, all else unchanged, the CB ratings would be downgraded if any of the following occurred: (1) the CPCA was downgraded below BBB; (2) the LSF Assessment associated with the Programme was downgraded to “Average” or below; or (3) the quality of the cover pool (CP) and the level of OC were no longer sufficient to support a one-notch uplift for good recovery prospects.
As of 30 September 2021, the aggregated outstanding balance of the CP underlying the Issuer’s CB was EUR 3.52 billion. The total amount of liabilities outstanding is EUR 2.31 billion, yielding a current nominal OC ratio of 52.3%. The Issuer has publicly committed to maintain an OC level of 15.0%.
As at September 2021, the CP assets comprised 43,356 residential mortgage loans, with a weighted-average (WA) current unindexed loan-to-value ratio of 69.0%, a WA seasoning of 73 months, and a WA remaining time to maturity of 203 months. The CP is located mainly in the German regions of North Rhine-Westphalia (32.0% by outstanding balance), Baden-Wuerttemberg (10.2%), and Lower Saxony (7.9%). Almost all (roughly 98%) of the retail pool yields a fixed coupon and 91% is fully amortising.
The DBRS Morningstar-calculated WA life of the mortgage assets is roughly 10 years based on a 0% prepayment rate, which is longer than the two years of WA life on the CB, not accounting for any maturity extension. This risk is mitigated by the conditional pass-through nature of the CB.
All CP assets and CB are denominated in euros. As such, investors are not currently exposed to any foreign-exchange risk.
DBRS Morningstar assessed the LSF related to the Programme as “Very Strong” according to its rating methodology. For more information, please refer to the DB AG structured CB rating report 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 immediate economic contraction, leading in some cases to increases in unemployment rates and income reductions for many borrowers. DBRS Morningstar anticipates that delinquencies may continue to increase in the coming months for many cover pools. The ratings are based on additional analysis to expected performance as a result of the global efforts to contain the spread of the coronavirus. For this programme, DBRS Morningstar incorporated an increase in default probability of self-employed borrowers.
The DBRS Morningstar Sovereign group releases baseline macroeconomic scenarios for rated sovereigns. These scenarios were last updated on 8 September 2021. The DBRS Morningstar analysis considered impacts consistent with the baseline scenario in the below referenced report. For details see the following commentaries: https://www.dbrsmorningstar.com/research/384150/baseline-macroeconomic-scenarios-for-rated-sovereigns and https://www.dbrsmorningstar.com/research/384482/baseline-macroeconomic-scenarios-application-to-credit-ratings.
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/373262.
All figures are in euros unless otherwise noted.
The principal methodology applicable to the ratings is: Rating and Monitoring Covered Bonds (10 June 2021).
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.
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.
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 Morningstar Credit Ratings” of the “Global Methodology for Rating Sovereign Governments” at: https://www.dbrsmorningstar.com/research/381451/global-methodology-for-rating-sovereign-governments.
The DBRS Morningstar Sovereign group releases baseline macroeconomic scenarios for rated sovereigns. DBRS Morningstar analysis considered impacts consistent with the baseline scenarios as set forth in the following report: https://www.dbrsmorningstar.com/research/384482/baseline-macroeconomic-scenarios-application-to-credit-ratings.
The sources of data and information used for these ratings include investor reports and loan-by-loan data on the CP as at 30 September 2021 as well as dynamic delinquencies (90+ days) by vintage of origination, spanning from 2010 to H2 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 20 November 2020, when DBRS Morningstar confirmed its AA ratings on the series outstanding under the Programme.
The lead analyst responsibilities for this transaction have been transferred to Tomás Rodriguez-Vigil Junco.
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. DBRS Morningstar understands further information on DBRS Morningstar historical default rates may be published by the Financial Conduct Authority (FCA) on its webpage: https://www.fca.org.uk/firms/credit-rating-agencies.
These ratings are endorsed by DBRS Ratings Limited for use in the United Kingdom.
Lead Analyst: Tomás Rodriguez-Vigil Junco, Vice President
Rating Committee Chair: Ketan Thaker, Managing Director
Initial Rating Date: 1 November 2019
DBRS Ratings GmbH, Sucursal en España
Paseo de la Castellana 81
Plantas 26 & 27
28046 Madrid, Spain
Tel. +34 (91) 903 6500
DBRS Ratings GmbH
Neue Mainzer Straße 75
60311 Frankfurt am Main Deutschland
Tel. +49 (69) 8088 3500
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.dbrsmorningstar.com/about/methodologies.
-- Rating and Monitoring Covered Bonds (10 June 2021), https://www.dbrsmorningstar.com/research/379983/rating-and-monitoring-covered-bonds.
-- Rating and Monitoring Covered Bonds Addendum: Market Value Spreads (10 June 2021), https://www.dbrsmorningstar.com/research/379985/rating-and-monitoring-covered-bonds-addendum-market-value-spreads.
-- Global Methodology for Rating Banks and Banking Organisations (19 July 2021), https://www.dbrsmorningstar.com/research/381742/global-methodology-for-rating-banks-and-banking-organisations.
-- Legal Criteria for European Structured Finance Transactions (29 July 2021), https://www.dbrsmorningstar.com/research/382171/legal-criteria-for-european-structured-finance-transactions.
-- Interest Rate Stresses for European Structured Finance Transactions (24 September 2021), https://www.dbrsmorningstar.com/research/384920/interest-rate-stresses-for-european-structured-finance-transactions.
-- Master European Residential Mortgage-Backed Securities Rating Methodology and Jurisdictional Addenda (17 September 2021) and European RMBS Credit Model v 184.108.40.206, https://www.dbrsmorningstar.com/research/384582/master-european-residential-mortgage-backed-securities-rating-methodology-and-jurisdictional-addenda.
-- Operational Risk Assessment for European Structured Finance Originators (16 September 2021), https://www.dbrsmorningstar.com/research/384512/operational-risk-assessment-for-european-structured-finance-originators.
-- Operational Risk Assessment for European Structured Finance Servicers (16 September 2021), https://www.dbrsmorningstar.com/research/384513/operational-risk-assessment-for-european-structured-finance-servicers.
-- Global Methodology for Rating Sovereign Governments (9 July 2021), https://www.dbrsmorningstar.com/research/381451/global-methodology-for-rating-sovereign-governments.
-- DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (3 February 2021), https://www.dbrsmorningstar.com/research/373262/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings.
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.