DBRS Assigns BBB (high) Ratings to Abanca Corporación Bancaria Cédulas Hipotecarias

DBRS Rating Limited (DBRS) has today assigned the rating of BBB (high) to Abanca Corporación Bancaria S.A. (Abanca or the Issuer) Cédulas Hipotecarias (CH, the Spanish mortgage covered bonds).

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

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

As at 30 September 2014, the total outstanding amount of CH is €6.7 billion, while the aggregate balance of the mortgages in the cover pool is €15.8 billion, resulting in a total overcollateralisation (OC) of 136%. The eligible cover pool stands at €10.9 billion, resulting in an eligible OC of 62% above the minimum mandatory level of 25%. Abanca has currently a remaining issuance capacity of roughly EUR 2 billion (as at 30 September 2014). DBRS expects an increase on the available OC in the programme, as year-end figures will include Banco Echevarría assets.

As at 30 September 2014, the cover pool amounts to €15.8 billion split by outstanding as follows: 78% loans to residential borrowers; 13% to commercial borrowers; 3% to developers; 1% backed by land; and 5% to other types of loans. The cover pool is mainly residential, as a great proportion of mortgages were transferred to the SAREB. The cover pool comprises 187,932 mortgages with a weighted-average current unindexed loan-to-value ratio (WACLTV) of 55.6% and 49% on the residential and commercial assets, respectively. It is geographically concentrated in Galicia, Abanca’s home region, while 3.93% of the cover pool assets are located in Portugal. The pool is 77 months seasoned, and the reference rate of the underlying loans is primarily floating (98.9%).

As is 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 (98.9% floating rate linked to different indexes and resets) and the interest due on the CH (68% paying annual fixed coupons). This has been accounted for in the DBRS cash flow modelling.

The weighted-average life of the pool is approximately 12 years, while that of the covered bonds is four 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 Abanca CH, please refer to the ratings report that will shortly be available on www.dbrs.com.

DBRS has assessed the LSF related to Abanca CH as “Modest” according to its rating methodology. This is in line with the 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 at www.dbrs.com.

DBRS has published a request for comments for its proposed revised Rating European Covered Bonds methodology, which is available at www.dbrs.com. Should the revised methodology be adopted in its current form, DBRS expects the ratings of Abanca CH may be subject to an upgrade.

Notes:
All figures are in euros unless otherwise noted. Cover pool information is as at 30 September 2014, while CH information is as at 8 December 2014, unless otherwise noted.

The principal methodology applicable is: Rating European Covered Bonds (January 2014). This can be found 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 at 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 Abanca 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 Abanca 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 two 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: 10 December 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 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 Methodology for European Securitisations