DBRS Assigns ‘A (low)’ Ratings to Bankia Cédulas Hipotecarias

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

The ratings are based on the following analytical considerations:
• DBRS Legal and Structuring Framework Assessment (“LSF”) of “Modest” associated with Bankia CH programme.
• DBRS Cover Pool Credit Assessment of A (low).
• Bankia’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.

The total outstanding amount of CH is EUR 40.53bn while the aggregate balance of the mortgages in the cover pool is EUR 77.16bn (as at 30 June 2014) resulting in a total over-collateralisation (OC) of 90%. The eligible cover pool stands at EUR 56.03bn, resulting in an eligible OC of 38% above the minimum mandatory level of 25%. Bankia has currently a remaining issuance capacity of roughly EUR 4.3bn (as at 30 September 2014).

The cover pool is formed by residential mortgage loans (80%) as well as commercial (16%), developers (3%) and land loans (1%). The cover pool is comprised of 732,356 loans with a weighted average current unindexed loan-to-value ratio (WACLTV) of roughly 62%. It is geographically diversified, with higher concentrations in Madrid (32%), Comunidad Valenciana (16%) and Cataluna (15%). The cover pool is 71 months seasoned.

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 (99% floating rate linked to different indexes and resets) and the interest paid by the CH (67% paying annual fixed coupon and 33% linked to floating rates with monthly and quarterly resets). This has been accounted for in DBRS cash flow modelling.

The weighted average life of the pool is approximately 27 years, while that of the covered bonds is 6.4 years. This generates an asset-liability mismatch that is partly mitigated by the available OC. All assets and liabilities are denominated in Euros.

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

DBRS has assessed the LSF related to Bankia 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.

DBRS has published a request for comments for its proposed revised “Rating European Covered Bonds” methodology, available on www.dbrs.com. Should the revised methodology be adopted in its current form, DBRS expects the ratings of Bankia CH may be subject to an upgrade of up to two notches.

Notes:
All figures are in Euros unless otherwise noted. Cover pool information are as at 30 June 2014, while CH information are as at 30 September 2014, 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 provided by Bankia 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 is the first DBRS rating on Bankia 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 one notch.

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: 23 September 2014
Initial Rating Committee Chair: Quincy Tang

DBRS Ratings Limited
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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