DBRS Ratings GmbH (DBRS Morningstar) assigned a rating of AA (low) to the Series 27 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 27 is a EUR 750 million fixed-rate bond, paying a coupon of 0.639%. The expected maturity date is 4 March 2029 and the final (extended) maturity date falls in March 2030.
Concurrently, DBRS Morningstar discontinued its rating on Series 14, which matured on 4 March 2022.
All covered bonds (CBs) issued under the Programme rank pari passu with each other and DBRS Morningstar currently rates them AA (low).
Following the issuance of Series 27 there are 10 series of OH outstanding under the Programme, totalling a nominal amount of EUR 8.60 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.
-- The sovereign rating of the Republic of Portugal, rated BBB (high) with a Positive trend by DBRS Morningstar, as of the date of this press release.
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 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.
The 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.
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 9 December 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/389454/baseline-macroeconomic-scenarios-for-rated-sovereigns-december-2021-update 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 rating 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.
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.
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 this rating include investor reports 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 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 16 July 2021, when DBRS Morningstar confirmed the AA (low) ratings on the outstanding OH and discontinued its rating on Series 16, which had matured.
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. 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.
This rating is 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: 27 February 2012
DBRS Ratings GmbH, Sucursal en España
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28046 Madrid, Spain
Tel. +34 (91) 903 6500
DBRS Ratings GmbH
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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: https://www.dbrsmorningstar.com/about/methodologies.
-- Rating and Monitoring Covered Bonds (10 June 2021),
-- Rating and Monitoring Covered Bonds Addendum: Market Value Spreads (10 June 2021)
-- Global Methodology for Rating Banks and Banking Organisations (19 July 2021),
-- Legal Criteria for European Structured Finance Transactions (29 July 2021),
-- Derivative Criteria for European Structured Finance Transactions (20 September 2021),
-- Interest Rate Stresses for European Structured Finance Transactions (24 September 2021),
-- Master European Residential Mortgage-Backed Securities Rating Methodology and Jurisdictional Addenda (29 November 2021) and European RMBS Credit Model v 22.214.171.124, https://www.dbrsmorningstar.com/research/388848/master-european-residential-mortgage-backed-securities-rating-methodology-and-jurisdictional-addenda.
-- Operational Risk Assessment for European Structured Finance Originators (16 September 2021),
-- Operational Risk Assessment for European Structured Finance Servicers (16 September 2021),
-- Global Methodology for Rating Sovereign Governments (9 July 2021),
-- DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (3 February 2021),
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 firstname.lastname@example.org.