DBRS Ratings GmbH (DBRS Morningstar) confirmed its AA rating on Series 14 issued under Caixa Geral de Depósitos, S.A.’s (CGD or the Issuer) Obrigações Hipotecárias (OH; the Portuguese legislative covered bonds) covered bond programme (the Programme).
The confirmation follows the amendment of Series 14. According to the restated terms, the maturity of Series 14 has been updated to 30 April 2026 from 30 July 2022, with the extended maturity date also extended to 30 July 2027.
At the same time, DBRS Morningstar discontinued its ratings on Series 17, which matured in January 2022, and Series 4, which matured in June 2022.
As of the date of this press release, the total amount of bonds outstanding under the Programme was EUR 3 billion spread across two series, both retained.
The ratings are based on the following analytical considerations:
-- A Covered Bonds Attachment Point (CBAP) of A (low), which is CGD’s Long Term Critical Obligations Rating. CGD is the Issuer and the Reference Entity (RE) for the Programme. DBRS Morningstar does not consider OH to be a systemically important financing tool in Portugal; however, DBRS Morningstar considers the assets in the Programme to be strategic to the RE’s core activity.
-- A Legal and Structuring Framework (LSF) Assessment of “Adequate” associated with the Programme.
-- A Cover Pool Credit Assessment (CPCA) of BBB, which is the lowest CPCA in line with the assigned LSF-Implied Likelihood (LSF-L).
-- An LSF-L of A (high).
-- A two-notch uplift for high recovery prospects.
-- A level of overcollateralisation (OC) of 28% to which DBRS Morningstar gives credit, which is the level of OC the Issuer commits to maintain as stated in its quarterly investor reports. This level is not subject to haircut, as DBRS Morningstar observed that it has been stable for the past 24 months.
-- The sovereign rating on 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, recoveries of the assets and interest rate stresses, as well as market value spreads to calculate liquidation values on the cover pool (CP).
Everything else equal, a one-notch downgrade of the CBAP would lead to a two-notch downgrade of the covered bonds rating. In addition, the ratings of the OH would be downgraded if any of the following occurred: (1) the sovereign rating on the Republic of Portugal was downgraded below BBB (high); (2) the CPCA was downgraded below BBB; (3) the quality of the CP and the level of OC were no longer sufficient to support a two-notch uplift for high recovery prospects; (4) the relative amortisation profile of OH and CP moved adversely; (5) the LSF Assessment associated with the Programme was downgraded to Average or below; or (6) volatility in the financial markets caused the currently estimated market value spreads to increase.
As of March 2022, the total CP balance was roughly EUR 5.45 billion, including EUR 5.44 billion of mortgages and EUR 14.5 million of eligible securities and cash. There are currently EUR 3 billion of covered bonds outstanding under CGD OH, giving an estimated total OC of 81.8%.
As of March 2022, the mortgage CP comprised 132,128 residential mortgages granted to individuals with an average loan amount of EUR 41,160. The weighted-average (WA) unindexed loan-to-value ratio of the mortgages was 47.4% with a WA seasoning of 164.7 months. The CP was mainly distributed in Lisbon (37.3% by outstanding balance), northern Portugal (24.2%), and central Portugal (21.1%).
The majority of the loans in the CP (99.3%) pay a floating interest rate indexed to Euribor while all outstanding covered bonds pay a floating-rate coupon linked to three-month Euribor.
The CP assets and the OH are all denominated in euros. As such, investors are not currently exposed to any foreign-exchange risk.
As of the date of this press release, the DBRS Morningstar-calculated the CP’s WA life at 12.3 years based on a 0% prepayment rate, which is longer than the WA life of 5.1 years on the OH when considering the expected maturity. This risk is mitigated by the OC available; a liquidity cushion available to cover three months of interest payments on the bonds; and a 12-month extendable maturity feature by which, is the Issuer defaults on its payment on the covered bonds at the respective expected maturity date, the covered bond maturities are automatically extended on a monthly basis up to 12 months.
DBRS Morningstar assessed the LSF related to CGD OH as “Adequate” according to its rating methodology. For more information, please refer to the DBRS Morningstar commentaries, “DBRS Assigns LSF Assessment to Portuguese Covered Bonds” and “Portuguese Covered Bonds: Legal and Structuring Framework Review”, both available at www.dbrsmorningstar.com.
ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factors that had a significant or relevant effect on the credit analysis.
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/396929/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings.
All figures are in euros unless otherwise noted.
The principal methodology applicable to the ratings is “Rating and Monitoring Covered Bonds” (22 April 2022).
Other methodologies and criteria referenced in this transaction are listed at the end of this press release. These may be found at: https://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 limited to the documentation pertaining to the Series 14. All the other 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 stratification tables on the CP as of March 2022 provided by the Issuer that allowed DBRS Morningstar to further assess the portfolio.
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 7 January 2022, when DBRS Morningstar confirmed its ratings on the CGH OH at AA 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: 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: Antonio Laudani, Vice President
Rating Committee Chair: Ketan Thaker, Managing Director
Initial Rating Date: 10 September 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 (22 April 2022),
-- Rating and Monitoring Covered Bonds Addendum: Market Value Spreads (22 April 2022),
-- Global Methodology for Rating Banks and Banking Organisations (23 June 2022),
-- Legal Criteria for European Structured Finance Transactions (22 July 2022),
-- Interest Rate Stresses for European Structured Finance Transactions (24 September 2021),
-- Master European Residential Mortgage-Backed Securities Rating Methodology and Jurisdictional Addenda (8 July 2022) and European RMBS Credit Model v 184.108.40.206,
-- 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 (17 May 2022),
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.