DBRS Ratings GmbH (DBRS Morningstar) confirmed its BBB (low) ratings on the Greek Covered Bonds (GCB or the Greek legislative covered bonds) issued under the EUR 10,000,000,000 Piraeus Bank SA Global Covered Bonds Programme (the Programme). The rating confirmation follows the completion of a full review of the Programme.
The implementation of the Common RMBS methodology applicable to Greek residential mortgage loans has a positive impact on the analysis of the credit risk of the Piraeus CB cover pool. However, the confirmation of the ratings is based on the high sensitivity of the Pass-Overcollateralisation level, which is the level of overcollateralization (OC) ensuring timely principal and interest payments on the CBs given stresses that are associated with a rating level, to deterioration in the cover pool default probability. Thus, a small increase in the amount of loans in arrears in the cover pool amid this difficult macroeconomic environment will lead to a significant increase in the Pass-OC level.
There are five series currently outstanding under the Programme, totalling a nominal amount of EUR 3 billion.
DBRS Morningstar based its ratings on the following analytical considerations:
-- A Covered Bonds Attachment Point (CBAP) of BB (low), which is the Long Term Critical Obligations Rating of Piraeus Bank (Piraeus). Piraeus is the Issuer and Reference Entity for the Programme. DBRS Morningstar does not currently classify Greece as a jurisdiction for which covered bonds (CB) are a particularly important financing tool. Piraeus is subject to the European Union’s Bank Recovery and Resolution Directive. The CP is composed of residential mortgage loans. DBRS Morningstar considers it likely that this form of lending would be part of the activity of a going-concern entity possibly resulting from the resolution of the RE.
-- A Legal and Structuring Framework (LSF) Assessment of “Very Strong” associated with the Programme.
-- A Cover Pool Credit Assessment (CPCA) of B, being the lowest CPCA in line with the LSF-Implied Likelihood (LSF-L).
-- An LSF-L of BB (high).
-- A one-notch uplift for good recovery prospects.
-- A level of OC of 28.8% to which DBRS Morningstar gives credit, being the minimum observed OC level during the past 12 months adjusted by a scaling factor of 0.93. The Issuer contractually commits to maintain a minimum 25% OC level in the nominal value test.
-- The sovereign rating of the Republic of Greece, rated BB (high) with a Stable 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 and its Common RMBS tool. The main assumptions focused on the timing of defaults and recoveries of the assets and interest rate stresses. In accordance with DBRS Morningstar’s “Rating and Monitoring Covered Bonds” methodology, DBRS Morningstar did not consider any forced asset liquidation for this transaction, given the conditional pass-through structure, and DBRS Morningstar has assumed several prepayment scenarios.
Everything else being equal, a one-notch downgrade of the CBAP would lead to a one-notch downgrade of the LSF-L, resulting in a one-notch downgrade of the CB rating.
In addition, everything else being equal, DBRS Morningstar would downgrade the ratings if any of the following occurred: (1) the CPCA is downgraded below B; (2) the LSF Assessment associated with the Programme is downgraded; or (3) the quality of the CP and the level of OC are no longer sufficient to support a one-notch uplift for good recovery prospects.
Citibank N.A./London Branch (Citibank London) acts as the Transaction Bank and holds the Commingling Reserve in a dedicated ledger of the Transaction Account. The DBRS Morningstar private ratings on Citibank London comply with the threshold for the Account Bank, given the rating assigned to Piraeus CB, as described in DBRS Morningstar’s “Legal Criteria for European Structured Finance Transactions” and “Rating and Monitoring Covered Bonds” methodologies.
The total outstanding amount of bonds outstanding under Piraeus CB is currently EUR 3 billion while the aggregate balance of loans (as at June 2022) in the CP was EUR 3.9 billion of first-lien residential mortgage loans, resulting in a total OC of 31.0%.
As at June 2022, the CP comprised 97,313 residential mortgage loans originated by Piraeus. The weighted-average (WA) current loan-to-value ratio of the mortgages was 47.8% and the WA seasoning was 158.8 months. The assets securing the loans in the CP are located predominantly in the regions of Attica (41% by outstanding loan amount), Thessaloniki (11.8%), and Macedonia (9.1%).
The CP comprises 99.7% floating-rate mortgage loans, indexed to different plain vanilla bases, which reset at different dates. This compares with 100% of the liabilities paying a floating rate linked mostly to three-month Euribor plus a spread. The resulting interest and basis risks are not hedged.
All CP assets and Piraeus CB are denominated in euros. As such, investors are not currently exposed to any foreign-exchange risk.
The “Very Strong” LSF Assessment associated with the Programme reflects DBRS Morningstar’s view of
(1) The Greek CB legal framework giving CB holders first priority right on the CP, in combination with a residual commingling risk that DBRS Morningstar considers mitigated by giving limited credit to the amounts standing to the credit of the collection account held with Piraeus and the daily sweep;
(2) The contractually sanctioned six-month liquidity coverage rule, which ensures that, at any time, a dedicated ledger of the Transaction Account (held with Citibank London or an eligible institution) is credited with sufficient cash to cover six months of interest and senior costs;
(3) The conditional pass-through nature of the structure whereby the series that have not been repaid on their expected maturity date become pass-through with (A) the maturity extended to a date that, in DBRS Morningstar’s stressed simulations, allows all loans in the CP to amortise fully and related recoveries to be collected and (B) proceeds from the CP allocated pro rata and pari passu to the series of CB that are pass-through; and
(4) The role of the Central Bank of Greece in the supervision of the Greek CBs.
For more information, please refer to the DBRS Morningstar commentary “Greek Covered Bonds: Legal and Structuring Framework Review” on 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.
On 9 October 2023, DBRS Morningstar amended the above press release to consider the absence of third-party assessment at the time of the initial 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 referenced in this transaction are listed at the end of this press release. These may be found at: https://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 of June 2022, as well as repossession data as of December 2021 provided by the Issuer. DBRS Morningstar considers the data and information available to it for the purposes of providing these ratings to be of satisfactory quality.
DBRS Morningstar did not rely upon third-party due diligence in order to conduct its analysis.
DBRS Morningstar was not supplied with third-party assessments. However, this did not impact the rating analysis.
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 August 2021, when DBRS Morningstar confirmed its BBB (low) ratings on Piraeus CB.
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.
This rating is endorsed by DBRS Ratings Limited for use in the United Kingdom.
Lead Analyst: Tomas Rodriguez Vigil, Vice President
Rating Committee Chair: David Lautier, Senior Vice President
Initial Rating Date: 27 August 2018
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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 (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),
-- Common RMBS Rating Methodology (25 March 2022),
-- Operational Risk Assessment for European Structured Finance Originators (16 September 2021),
-- Operational Risk Assessment for European Structured Finance Servicers (16 September 2021),
-- Interest Rate Stresses for European Structured Finance Transactions (24 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 (17 May 2022),
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.