DBRS Ratings GmbH (DBRS Morningstar) confirmed its “A” rating on Series 7 of the Obrigações Hipotecárias (OH; the Portuguese legislative Covered Bonds) issued under the Banco Comercial Português (BCP or the Issuer) Covered Bonds programme (the Programme). The confirmation follows the amendment of the series.
According to the restated terms, the expected maturity of Series 7 was updated to 22 April 2027, and the extended maturity date was updated to 22 April 2028. These amendments have no impact on the ratings of the covered bonds outstanding under the Programme.
The rating is based on the following analytical considerations:
-- A Covered Bonds Attachment Point (CBAP) of BBB (high), which is the Long Term Critical Obligations Rating of BCP. BCP is the Issuer and Reference Entity (RE) for the Programme.
-- A Legal and Structuring Framework (LSF) Assessment of “Average” associated with the Programme.
-- A LSF-L of BBB (high).
-- A two-notch uplift for high recovery prospects.
-- A committed minimum overcollateralisation (OC) of 14.0%. DBRS Morningstar gives full credit to such commitment in accordance with its methodology. Such a level is not subject to 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 with 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 two notches would lead to a one-notch downgrade of the LSF-L, resulting in a one-notch downgrade of the covered bonds rating. In addition, all else unchanged, DBRS Morningstar would downgrade the OH ratings 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 total outstanding amount of OH under the Programme is currently EUR 10.2 billion, while as of December 2021, the aggregate balance of mortgages in the CP was EUR 11.9 billion. This resulted in a total estimated OC of 16.6%. The Issuer has publicly committed to maintaining an OC level of 14.0%.
As of 31 December 2021, the CP comprised 201,577 residential mortgage loans granted to individuals, with an average loan amount of EUR 59,018. The weighted-average (WA) current loan-to-value ratio was 51.9% with a seasoning of 104 months. The pool is located mainly in Lisbon (44.1%), northern Portugal (29.1%), and central Portugal (14.0%).
Of the loans in the portfolio, 82.7% pay a floating interest rate and 17.3% pay a fixed rate; while 9.8% of the covered bonds are fixed rate.
The DBRS Morningstar-calculated WA life of the mortgage assets is roughly 14.5 years, which is longer than the WA life of 2.4 years on the covered bonds, not accounting for any maturity extension. This generates an asset-liability mismatch that is mitigated by the available OC and the extended maturity date, which falls one year after the maturity date.
All CP assets and covered bonds 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 “Average” according to its “Rating and Monitoring Covered Bonds” 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.
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.
On 13 March 2023, DBRS Morningstar amended the above press release to correct the Initial Rating Date.
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: https://www.dbrsmorningstar.com/methodology/.
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 limited to the documentation about the amendment of Series 7. All other transaction 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” methodology 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, loan-by-loan data on the CP, and historical performance data 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 the information it receives in connection with the rating process, and it does not and cannot independently verify that information in every instance.
The last rating action on this transaction took place on 4 March 2022, when DBRS Morningstar confirmed its “A” ratings on BCP´s outstanding OH following a full review of the Programme.
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.
These ratings are endorsed by DBRS Ratings Limited for use in the United Kingdom.
Lead Analyst: Tomás Rodríguez-Vigil, Vice President
Rating Committee Chair: Ketan Thaker, Managing Director
Initial Rating Date: 28 February 2012
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Tel. +49 (69) 8088 3500
Geschäftsführer: Detlef Scholz
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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 (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),
-- Master European Residential Mortgage-Backed Securities Rating Methodology and Jurisdictional Addenda (29 November 2021) and European RMBS Credit Model v 126.96.36.199,
-- Legal Criteria for European Structured Finance Transactions (29 July 2021), https://www.dbrsmorningstar.com/research/382171/legal-criteria-for-european-structured-finance-transactions.
-- 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.
-- 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.
-- 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), 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: 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.