DBRS Confirms Ratings on BPE Cédulas Hipotecarias

DBRS Ratings Limited (DBRS) has today confirmed the ‘A’ rating of Banco Popular Español (BPE or “Issuer”) single Cédulas Hipotecarias (CH). The confirmation follows the completion of a full review of the rating.

The ratings are based on the following analytical considerations:
• The senior unsecured long term debt and deposit rating of BPE, which is rated ‘A’ (low) with Negative Trend by DBRS
• DBRS Legal and Structuring Framework assessment of “Modest”.
• DBRS Cover Pool Credit Assessment of BBB
• BPE’s capabilities with respect to origination of the cover assets and servicing of the cover pool

The transaction was modelled using the DBRS European Covered Bond Cash Flow Model. 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.

The total outstanding amount of CH is EUR 20.80bn while the aggregate balance of the mortgages in the cover pool is EUR 55.35bn (as at 28/Feb/2014) resulting in a total over-collateralisation (OC) of 166%. The eligible cover pool stands at EUR 27.69bn, resulting in an eligible OC of 33% above the minimum mandatory level of 25%. BPE has currently a remaining issuance capacity of roughly EUR 1.35bn.

The reduction on the volume of outstanding CB during the last 12 months, to EUR 27.7bn (Feb-14) from EUR 33.4bn (Feb-13), has increased BPE CH investor’s protection. The OC level has increased to 156% (Feb-14) from 126% (Feb-13); however, at the same time, the performance of the underlying assets has deteriorated. The volume of loans in arrears has built up representing 21.31% of the cover pool as at December 2013 (last information available). The up rise trend is mainly explained with the deterioration of the non-residential cover pool assets that represent 62% of the total cover pool. Given the volume of loans in the early arrears buckets, DBRS expects this trend to continue during 2014.

The cover pool is 38% residential, 35% commercial, 9% developers and 10% land and other type of loans. The cover pool is comprised of 313,794 mortgages with a weighted average current unindexed loan-to-value ratio (WACLTV) of 54.6%. It is geographically diversified, with higher concentrations in Madrid (23%), Andalusia (22.6%) and Catalonia (12.4%).The pool is 54 months seasoned.

The vast majority of the loans in the cover pool (88%) are floating rate, while 77% of the liabilities pay fixed coupon. As customary in Spanish CH, swaps are not for the benefit of CH holders. This has been accounted for in DBRS cash flow modelling.

The weighted average life of the assets is roughly 18 years, and that of the CH is roughly 5 years, producing a mismatch of approximately 13 years. This has been accounted for in DBRS cash flow modelling.

For further information on BPE CH please refer to the ratings report that can be found on www.dbrs.com

Notes:
All figures are in Euros unless otherwise noted.

The principal methodology applicable is: “Rating European Covered Bonds”. This can be found on www.dbrs.com at: http://www.dbrs.com/about/methodologies

Other methodologies and criteria referenced in this transaction are listed at the end of this press release.

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” on: http://www.dbrs.com/industries/bucket/id/10036/name/commentaries/.

The sources of information used for this rating include historical default performance data and cover pool stratification tables that allowed DBRS to further assess the portfolio. DBRS considers the information available to it for the purposes of providing this rating was of satisfactory quality.

DBRS does not audit the information it receives in connection with the rating process, and it does not and cannot independently verify that information in every instance.

The last rating action on this programme took place on 11 April 2013, when DBRS assigned ratings to BPE Cédulas Hipotecarias new issuance.

Information regarding DBRS ratings, including definitions, policies and methodologies are available on www.dbrs.com

All else equal, a downgrade of the Issuer rating by one notch would lead to a downgrade of the covered bonds by an equal number of notches.

For further information on DBRS historic default rates published by the European Securities and Markets Administration (“ESMA”) in a central repository, see:
http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml.

Ratings assigned by DBRS Ratings Limited are subject to EU regulations only.

Initial Lead Analyst: Vito Natale
Initial Rating Date: 24 April 2013
Initial Rating Committee Chair: Claire Mezzanotte

Lead Analyst: Vito Natale
Rating Committee Chair: Erin Stafford

DBRS Ratings Limited
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Mincing Lane
London
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United Kingdom

Registered in England and Wales: No. 7139960

The rating methodologies and criteria used in the analysis of this transaction can be found at: http://www.dbrs.com/about/methodologies

• Rating European Covered Bonds
• Global Methodology for Rating Banks & Banking Organisations
• Legal Criteria for European Structured Finance Transactions
• Master European Residential Mortgage-Backed Securities Rating Methodology
• Rating CLOs Baked by Loans to European Small and Medium-Sized Enterprises (SMEs)
• Master European Structured Finance Surveillance Methodology
• Operational Risk Assessment for European Structured Finance Servicers
• Unified Interest Rate Model Methodology for European Securitisations