DBRS Ratings GmbH (DBRS Morningstar) confirmed its “A” ratings on 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 completion of a full review of the ratings.
At the same time, DBRS discontinued its rating on Series 9, which matured on 31 May 2022.
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 Cover Pool Credit Assessment (CPCA) of BB, which is the lowest CPCA in line with the LSF-Implied Likelihood (LSF-L).
-- A LSF-L of BBB (high).
-- A two-notch uplift for high recovery prospects.
-- A committed minimum overcollateralisation 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 A (Low) with a Stable trend by DBRS Morningstar, as of the date of this press release.
The transaction was analysed with the DBRS Morningstar 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, the OH ratings would be downgraded if the quality of the CP and the level of overcollateralisation (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 9.2 billion, while as of December 2022 the aggregate balance of mortgages in the CP was EUR 10.2 billion. This resulted in a total estimated OC of 15.4%. The Issuer has publicly committed to maintain an OC level of 14.0%.
As of 31 December 2022, the cover pool comprised 185,021 residential mortgage loans granted to individuals, with an average loan amount of EUR 57,364. The weighted-average (WA) current loan-to-value ratio was 50.6% with a seasoning of 111 months. The pool is located mainly in Lisbon (44.4%), Northern Portugal (28.8%) and Central Portugal (13.9%).
Of the loans in the portfolio, 82.8% pay a floating interest rate and 17.2% of the loans pay a fixed rate, while 100% of the covered bonds are floating rate.
The DBRS Morningstar-calculated weighted-average life of the mortgage assets is roughly 15.6 years, which is longer than the 1.7 years of WA life on the covered bonds, not accounting for any maturity extension. This generates an asset-liability mismatch that is mitigated by the Extended Maturity Date, which falls one year after the Maturity Date, and by the available OC.
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 “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.
ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no Environmental/ Social/ Governance factor(s) 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 (17 May 2022).
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/401817/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, loan-by-loan data on the CP as of 31 December 2022 and static performance data for delinquencies from 2003 to 2022 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 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 5 April 5 2022, when DBRS Morningstar confirmed its “A” ratings on Series 7.
The lead analyst responsibilities for this transaction have been transferred to Antonio Laudani.
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: Antonio Laudani, Vice President, Credit Ratings
Rating Committee Chair: Ketan Thaker, Managing Director
Initial Rating Date: 28 February 2012
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-- Rating and Monitoring Covered Bonds (22 April 2022), https://www.dbrsmorningstar.com/research/395642/rating-and-monitoring-covered-bonds.
-- Rating and Monitoring Covered Bonds Addendum: Market Value Spreads (22 April 2022), https://www.dbrsmorningstar.com/research/395643/rating-and-monitoring-covered-bonds-addendum-market-value-spreads.
-- Global Methodology for Rating Banks and Banking Organisations (23 June 2022), https://www.dbrsmorningstar.com/research/398692/global-methodology-for-rating-banks-and-banking-organisations.
-- Master European Residential Mortgage-Backed Securities Rating Methodology and Jurisdictional Addenda (28 November 2022) and European RMBS Credit Model v 22.214.171.124, https://www.dbrsmorningstar.com/research/405779/master-european-residential-mortgage-backed-securities-rating-methodology-and-jurisdictional-addenda.
-- Legal Criteria for European Structured Finance Transactions (22 July 2022), https://www.dbrsmorningstar.com/research/400166/legal-criteria-for-european-structured-finance-transactions.
-- Operational Risk Assessment for European Structured Finance Originators (15 September 2022), https://www.dbrsmorningstar.com/research/402773/operational-risk-assessment-for-european-structured-finance-originators.
-- Operational Risk Assessment for European Structured Finance Servicers (15 September 2022), https://www.dbrsmorningstar.com/research/402774/operational-risk-assessment-for-european-structured-finance-servicers.
-- Interest Rate Stresses for European Structured Finance Transactions (22 September 2022), https://www.dbrsmorningstar.com/research/402943/interest-rate-stresses-for-european-structured-finance-transactions.
-- Global Methodology for Rating Sovereign Governments (29 August 2022), https://www.dbrsmorningstar.com/research/401817/global-methodology-for-rating-sovereign-governments.
-- DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (17 May 2022), https://www.dbrsmorningstar.com/research/396929/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.