DBRS Upgrades Ratings on Liberbank Cédulas Hipotecarias to A (high) from A (low)

DBRS Rating Limited (DBRS) has today upgraded the rating on Liberbank (the Issuer) Cédulas Hipotecarias (CH, the Spanish mortgage covered bonds) to A (high) from A (low) 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 Liberbank CH to A (high) from A (low) is based on the following analytical considerations:
• A Covered Bonds Attachment Point of BBB, being the Issuer and Senior Debt & Deposit Rating of Liberbank. Liberbank is the Issuer and Reference Entity for the Programme.
• A Legal and Structuring Framework (LSF) Assessment of Average assigned to Liberbank CH.
• A Cover Pool Credit Assessment (CPCA) of BBB (low), being the lowest CPCA in line with the covered bonds rating.
• An LSF-Implied Likelihood (LSF-L) of A (low).
• Two notches uplift for high recovery prospects.
• A level of overcollateralisation (OC) to which DBRS gives credit of 126%, being the minimum observed OC level during the past 12 months adjusted by a scaling factor of 0.90.

The transaction was modelled 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 value spreads to calculate liquidation values on the cover pool.

Everything else equal, a downgrade of the issuer 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 Liberbank CH would be downgraded if any of the following occurs: (i) the CPCA were downgraded below BBB (low); (ii) the sovereign rating of the Kingdom of Spain were downgraded below A (low); (iii) the LSF Assessment associated with the programme were downgraded; (iv) the quality and consistency of the cover pool were no longer sufficient to support two notches uplift for high recovery prospects; or (v) volatility in the financial markets caused the currently estimated market value spreads to increase.

As at 30 September 2014, the total outstanding amount of CH is EUR 4.2 billion, while the aggregate balance of the mortgages in the cover pool is EUR 11.2 billion, resulting in a total OC of 164%.

For further information on Liberbank CH, please refer to the rating report that can be found at www.dbrs.com.

DBRS has assessed the LSF related to Liberbank CH as Average according to its rating methodology. For more information, please refer to DBRS commentaries “DBRS Assigns LSF Assessment to Spanish Covered Bonds” and “Spanish 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 historical default performance data and cover pool stratification tables provided by Liberbank that allowed DBRS to further assess the portfolio. 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 11 March 2014 when DBRS assigned ratings to Liberbank CH.

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: Valentina Cicerone
Initial Rating Date: 11 March 2014
Initial Rating Committee Chair: Quincy Tang

Lead Analyst: Valentina Cicerone
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 and 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 for European Securitisations