DBRS Upgrades Ratings on Banco Popular Portugal Covered Bond Programme to BBB (high) from BBB

DBRS Ratings Limited (DBRS) has today upgraded the rating on the EUR 815,000,000 Obrigações Hipotecárias (OH or the Portuguese legislative covered bonds) issued under Banco Popular Portugal (BPP or the Issuer) Covered Bond programme to BBB (high) from BBB following the implementation of DBRS’s “Rating European Covered Bonds” methodology published on 17 December 2014 (the Methodology).

The rating action reflects a material update to the methodology DBRS uses to rate and monitor European covered bonds. The Methodology supersedes the previous methodology “Rating European Covered Bonds,” published 30 January 2014.

The rating upgrade of the OH issued under the BPP OH programme to BBB (high) from BBB is based on the following analytical considerations:
• A Covered Bonds Attachment Point (CBAP) of BBB, being the Senior Unsecured Long-Term Debt & Deposit Rating of BPP. BPP is the Issuer and Reference Entity for the programme.
• A Legal and Structuring Framework (LSF) Assessment of Modest assigned to BPP OH Programme.
• An LSF-Implied Likelihood (LSF-L) of BBB. In DBRS’s view, BPP OH’s LSF-L is limited by the CBAP because of insufficient historical performance data for DBRS to form a view on the timeliness of cash flows from the cover pool in case of an assumed default of BPP.
• One notch uplift for good recovery prospects. DBRS has formed a view on the availability and sufficiency of the cover pool to satisfy the claims of the OH holders in a post-issuer insolvency scenario.
• The minimum legislative OC of 5.26% envisaged for Portuguese OH.

Everything else equal, a downgrade of the Reference Entity rating by one notch would lead to a downgrade of the LSF-L by one notch, resulting in a downgrade of the covered bonds rating by one notch.

In addition, the ratings of the BPP OH would be downgraded if the quality and consistency of the cover pool were no longer sufficient to support one notch uplift for good recovery prospects.

As at 30 September 2014, the cover pool had a total outstanding balance of EUR 888,995,544. The available OC is 9.08%, which is above the minimum legal OC%.

For further information on BPP OH programme, please refer to the rating report that can be found on www.dbrs.com.

DBRS has assessed the LSF related to BPP OH as Modest according to its rating methodology. For more information, please refer to DBRS commentaries “DBRS Assigns LSF Assessment to Portuguese Covered Bonds” and “Portuguese Covered Bonds: Legal and Structuring Framework Review,” available at www.dbrs.com.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable is Rating European Covered Bonds (December 2014), which can be found at www.dbrs.com. 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 data related to the CP provided by BPP. DBRS considers that 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 23 September 2014 when DBRS confirmed the ratings on all outstanding covered bonds issued under the Programme following the annual review.

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

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: Keith Gorman
Initial Rating Date: 31 August 2012
Initial Rating Committee Chair: Claire Mezzanotte

Last Rating Date: 23 September 2014

Lead Analyst: Valentina Cicerone
Rating Committee Chair: Quincy Tang

DBRS Ratings Limited
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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 and Banking Organisations
• Legal Criteria for European Structured Finance Transactions
• Master European Residential Mortgage-Backed Securities Rating Methodology and Jurisdictional Addenda
• Master European Structured Finance Surveillance Methodology
• Operational Risk Assessment for European Structured Finance Servicers
• Unified Interest Rate Model for European Securitisations