DBRS Assigns New Rating to Banco Sabadell Cedulas Hipotecarias New Covered Bond

DBRS Ratings Limited (DBRS) has today assigned a new rating of “A” to a new covered bond, Cedulas Hipotecarias IV/2014 (ES0413860398), issued by Banco de Sabadell, S.A. (the Issuer). The new issuance is a €1.25 billion fixed-rate security maturing in November 2021. At the same time, DBRS has confirmed the “A” rating on the outstanding Cedulas Hipotecarias (CH or the Spanish mortgage covered bonds). Two of the Spanish mortgage covered bonds, CH - ES0413860299 and CH - ES0414400079, have been discontinued due to full repayment.

The ratings are based on the following analytical considerations:
-- The senior unsecured long debt and deposit rating of the Issuer of A (low) with Negative trend.
-- The credit quality of the collateral and the substantial support of the cover pool in the event of an Issuer default.
-- The Issuer’s capabilities with respect to origination of the cover pool assets and servicing of the cover pool.

According to the DBRS “Rating European Covered Bonds” methodology, the rating of the covered bonds, although linked to that of the Issuer, can be one notch above the Issuer’s rating in instances where DBRS Legal and Structuring Framework matrices cannot be applied or their application would otherwise result in the covered bonds being rated at the same level as the Issuer. DBRS has formed a view on the availability and sufficiency of the cover pool to satisfy the claims of the CH holders in a post-Issuer insolvency scenario. As a result, the covered bonds can be assigned a rating of “A.”

Following the new issuance, the total outstanding amount of CH is €21.38 billion, while the aggregate balance of mortgages in the cover pool is €60.89 billion (as of September 2014), resulting in an overcollateralisation of 184.8%. The Issuer currently has a remaining issuance capacity of roughly €10.3 billion

As of September 2014, the cover pool is comprised of 511,669 mortgage loans with a weighted-average current unindexed loan-to-value ratio of 57.8%, with a 51.86% residential versus 48.14% non-residential split. It is geographically diverse, with higher concentrations in the Catalonia region (31.7% of the cover pool) and Community of Valencia (20% of the cover pool). The pool is 71 months seasoned.

The vast majority of the loans in the cover pool (95.2%) are floating rate, while 62% of the liabilities pay fixed coupon. As is customary in Spanish CH, swaps are not for the benefit of the CH holder. The weighted-average life of the assets is roughly 10.2 years, and that of the CH is roughly 2.6 years after the issuance, producing a mismatch of approximately eight years.

For further information on Banco Sabadell Cedulas Hipotecarias please refer to the 8 April 2014 rating 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/research/239786/the-effect-of-sovereign-risk-on-securitisations-in-the-euro-area.pdf.

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 2 September 2014, when DBRS confirmed ratings on Banco Sabadell Cedulas Hipotecarias.

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

All else equal, a downgrade of the Issuer’s rating would lead to a downgrade of the CH by an equal number of notches.

For further information on DBRS historic default rates published by the European Securities and Markets Administration 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: 3 September 2013
Initial Rating Committee Chair: Erin Stafford

Lead Analyst: Vito Natale
Rating Committee Chair: Quincy Tang

The lead and back-up responsibilities for this transaction have been transferred to Vito Natale and Valentina Cicerone respectively.

DBRS Ratings Limited
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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
• Legal Criteria for European Structured Finance Transactions
• Master European Residential Mortgage-Backed Securities Rating Methodology and Jurisdictional Addenda
• Rating CLOs Backed 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 for European Securitisations