DBRS Finalises Rating on Banco Espírito Santo, S.A. Covered Bonds Programme

DBRS, Inc. (DBRS) has today assigned a final rating of ‘A’ (low) - Under Review with Negative Implications 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) - Under Review with Negative Implications.

The rating is Under Review with Negative Implications as a result of the 22 May 2012 DBRS placement of the Republic of Portugal’s long-term foreign and local currency debt ratings Under Review with Negative Implications (see the related press release regarding the sovereign actions in the “Related Research”section).

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) - Under Review with Negative Implications by DBRS.
2) Portuguese Covered Bonds 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) DBRS Cover Pool Credit Assessment of BBB (low).
5) Issuer Commitment Overcollateralisation level of 15%.
6) BES’ capabilities with respect to origination of cover pool assets and servicing of the cover pool.
7) The financial strength of the swap counterparty to meet its obligations pursuant to the liability swaps.
8) The credit quality of the collateral and structural features of the Programme (Extendable Maturity, collateral eligibility criteria, and interest rate derivatives).

The final rating is assigned following the signing of the Novation Agreement on 20 April 2012 where Credit Agricole Corporate and Investment Bank replaced BES as swap counterparty.

On 27 April 2012, BES redeemed €300 million of the Series 4 Covered Bonds and added mortgage credits to the cover pool to increase the nominal overcollateralisation level to 25%.

Note:
All figures are in Euros unless otherwise noted.

The principal methodologies applicable are:
• Rating European Covered Bonds
• Master European Residential Mortgage-Backed Securities Rating Methodology
• Legal Criteria for European Structured Finance Transactions
• Operational Risk Assessment for European RMBS Servicers
• Unified Interest Rate Model Methodology for European Securitisations
• Swap Criteria For European Structured Finance Transactions

These can be found on dbrs.com under Methodologies. For a more detailed discussion of sovereign risk impact on Structured Finance ratings, please refer to DBRS commentary “The Effect of Sovereign Risk on Securitisations in the Euro Area”.

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.

This rating is endorsed by DBRS Ratings Limited for use in the European Union.

Lead Analyst: Keith Gorman
Rating Committee Chair: Claire Mezzanotte
Initial Rating Date: 7 March 2012
Current Rating Date: 19 June 2012