DBRS Assigns Ratings to Banco Popular Portugal Covered Bond Programme

DBRS, Inc. (DBRS) has today assigned a rating of BBB to the following outstanding series of the Banco Popular Portugal Covered Bond Programme (the Programme):

• €130,000,000 Series 1 maturing 20 December 2013
• €225,000,000 Series 2 maturing 30 June 2014
• €160,000,000 Series 3 maturing 30 December 2014
  All Covered Bonds issued under the Programme rank pari passu with each other and are rated BBB.

The rating is based on the following factors:

• The Covered Bonds are senior unsecured direct deposit obligations of Banco Popular Portgual, S.A. (BPP) which is rated BBB with Negative trend by DBRS.
• Portuguese Covered Bond laws which in case of issuer insolvency give the holders of the Covered Bonds recourse to the cover pool in priority of other creditors.
• DBRS Legal and Structuring Framework assessment of “Adequate”.
• Mandatory Overcollateralisation (OC) of 5.632%.
• Collateral eligibility criteria of the Programme.

As of 30 June 2012, the cover pool consisted of 8566 loans with a notional balance of €761,854,381 of which 8480 loans (79.75% of the notional balance) were residential mortgages and 86 loans (20.25% of the notional balance) were commercial mortgages. The nominal OC level was 47.9%. Given the high concentration and small number of commercial loans, DBRS requested loan level information to analyse the credit quality of the commercial loans in line with the European CMBS Methodology. Insufficient data was provided by the issuer to analyse the commercial loans. In addition, there was a lack of historical default data to analyse the residential loans in the cover pool as described in the Master European Residential Mortgages Backed Securities Rating Methodology. As a result, the credit quality of the cover pool was not analysed to assign a Cover Pool Credit Assessment.

Although holders of the Covered Bonds will benefit from the dual recourse with a claim against the issuer and a preferential claim to the cash flows from the cover pool in case of issuer insolvency, there is no uplift to the Covered Bond ratings from the rating of BPP at this time due to the lack of Cover Pool Credit Assessment.

Notes:
All figures are in Euros unless otherwise noted.

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

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”.

The sources of information used for this rating include a loan level collateral file of the cover pool provided by the issuer. DBRS considers the information available to it for the purposes of providing this rating was of satisfactory quality.

This is the first DBRS rating on this financial instrument.

This rating involves a Covered Bond for which historical data is limited. As a result DBRS did not assign a Cover Pool Credit Assessment to the cover pool.

For additional information on this rating, please see 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: 31 August 2012