DBRS Assigns ‘A’ Ratings to Banco Pastor Cédulas Hipotecarias

DBRS Rating Limited (DBRS) has today assigned the rating of ‘A’ to Banco Pastor (“issuer”) Cédulas Hipotecarias (“CH” or Spanish mortgage covered bonds).

The ratings are based on the following analytical considerations:
• The senior unsecured long-term debt and deposit rating of A (low)
• DBRS Legal and Structuring Framework Assessment (“LSF”) of “Modest” associated with the programme.
• Cover Pool Credit Assessment of A.
• Banco Pastor’s capabilities with respect to origination of the cover assets and servicing of the cover pool

The transaction was modeled in 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 spread values to calculate liquidation values on the cover pool.

Banco Pastor SA is a wholly owned subsidiary of Banco Popular Español (BPE) created in 2013. Banco Pastor issued its first Cédula Hipotecaria (CH) on 17th July 2014. The issuance is a EUR1bn floating rate security maturing in 2028. The CH is backed by EUR3,03bn (31/May/2014) mortgages resulting in a nominal over-collateralisation (OC) of 203%.

The cover pool is formed by residential mortgage loans (49%) as well as commercial (25%), developers (11%), land (9%) and other type of loans (6%). The cover pool is 54 months seasoned with a weighted average current unindexed loan-to-value ratio (WACLTV) of 52.73%. It is geographically concentrated in Galicia, as a result of BPE strategy to maximise the strength of Banco Pastor brand in the Galicia region. This has been accounted for in DBRS expected loss analysis.

As customary in the Spanish market, the CH holders do not receive the benefit of any swap contract to hedge the mismatches between the interest paid by the cover pool (91% floating rate linked to different indexes and resets) and the interest paid by the CH (indexed to 12mEuribor with annual reset). This has been accounted for in DBRS cash flow modelling.

The weighted average life of the pool is 21 years, while that of the covered bonds is 14 years. This generates an asset-liability mismatch that is mitigated by the available OC.

For further information on Banco Pastor CH please refer to the ratings report that will shortly be available on www.dbrs.com.

DBRS has assessed the LSF related to Banco Pastor CH as “Modest” according to its rating methodology. This is in line with DBRS LSF assessment for other Spanish CH programmes. For more information, please refer to “DBRS Commentary on Spanish Cédulas Hipotecarias Legal and Structuring Framework”, available 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 stratification tables provided by Grupo Banco Popular 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.

This rating concerns a newly issued financial instrument. This is the first DBRS rating on Banco Pastor Cédulas Hipotecarias.

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: Covadonga Aybar
Initial Rating Date: 29 July 2014
Initial Rating Committee Chair: Quincy Tang

DBRS Ratings Limited
1 Minster Court, 10th Floor
Mincing Lane
London
EC3R 7AA
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 Backed by Loans to European Small and Medium-Sized Enterprises (SME)
• Master European Structured Finance Surveillance Methodology
• Operational Risk Assessment for European Structured Finance Servicers
• Unified Interest Rate Model Methodology for European Securitisations