DBRS Rates Banco Espírito Santo, S.A. Covered Bonds Programme

DBRS, Inc. (DBRS) has today assigned a provisional rating of A (low) to the outstanding series issued under the Banco Espírito Santo, S.A. (BES) Covered Bonds Programme. All of the series issued under the Programme rank pari passu with each other and are rated A (low).

The ratings are based on the following factors:
1)The covered bonds are senior unsecured direct deposit obligations of BES, which is rated BBB (low) with a Negative trend by DBRS.
2)Portuguese Covered Bond Laws, which in the case of an issuer insolvency give the holders of the Covered Bonds recourse to the cover pool in priority to other creditors.
3)DBRS Legal and Structuring Framework Assessment of “Adequate”.
4)Issuer Commitment Overcollateralisation level of 15%.
5)BES’ capabilities with respect to origination of cover pool assets and servicing of the cover pool.
6)The financial strength of the swap counterparty to meet its obligations pursuant to the liability swaps.
7)The credit quality of the collateral and structural features of the Programme (Extendable Maturity, collateral eligibility criteria, and interest rate derivatives).

DBRS collateral credit analysis is performed on a loan-level basis and includes a probability of default and loss given default assessment, an originator- and servicer-specific historical performance review, a Portuguese housing market and property price trend evaluation, and finally a cash flow simulation based on various stresses to prepayments, timing of defaults and recoveries, and interest rates.

DBRS made appropriate adjustments to our model parameters based on the analysis of market value declines in DBRS and the historical performance data provided by the originator and servicer.

Note:
All figures are in Euros unless otherwise noted.

The applicable methodologies are Rating European Covered Bonds, Master European Residential Mortgage-Backed Securities Rating Methodology and Jurisdictional Addenda, Legal Criteria for European Structured Finance Transactions, Operational Risk Assessment for European RMBS Servicers, Swap Criteria for European Structured Finance Transactions and Unified Interest Rate Model for European Securitisations.

This is the first DBRS rating on this financial instrument.

For additional information on this rating, please refer to the linking document.

This credit rating has been issued outside the European Union (EU) and may be used for regulatory purposes by financial institutions in the EU.

Lead Analyst: Keith Gorman
Rating Committee Chair: Claire Mezzanotte
Initial Rating Date: 7 March 2012