DBRS Assigns “A” Rating to Caixa Geral de Depositos Covered Bonds Programme, Series 17

DBRS Ratings Limited (DBRS) has today assigned a rating of “A” to Series 17, issued under the Caixa Geral de Depositos (CGD or the Issuer) Covered Bonds Programme (the Programme). DBRS has also confirmed the “A” ratings on all outstanding series of the Issuer. Series 17 is a EUR 1 billion fixed-rate security maturing in January 2022. Following the issuance of Series 17, there is EUR 7,901,450,000 of Obrigações Hipotecárias (OH or the Portuguese legislative covered bonds) issued under the Programme.

The ratings are based on the following analytical considerations:
--A Covered Bonds Attachment Point of BBB (low), being the Senior Long-Term Debt and Deposit Rating of CGD. CGD is the Issuer and Reference Entity for the Programme.
--A Legal and Structuring Framework (LSF) assessment of Average assigned to the CGD OH Programme.
--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 BBB (high).
--Two notches uplift for high recovery prospects.
--A level of overcollateralisation (OC) to which DBRS gives credit of 38.5%, the level of OC to which the Issuer commits in the investor report. Such a level is not subject to haircut as DBRS has observed it to have been historically persistent for the past 24 months.

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

In addition, everything else equal, the ratings of the CGD OH would be downgraded if any of the following occurs: (i) the CPCA were downgraded below BBB (low); (ii) the sovereign rating of the Republic of Portugal were downgraded below BBB (low); (iii) the LSF assessment for the Programme were downgraded to Modest; (iv) the quality and consistency of the cover pool were no longer sufficient to support two notches uplift for high recovery prospects; or (vi) volatility in the financial markets caused the currently estimated market value spreads to increase.

As at 30 December 2014, the cover pool had a total outstanding balance of EUR 11,636,722,503 as well as EUR 108.7 million of sovereign bonds issued by the Republic of France (rated AAA with a Negative trend by DBRS). The available OC is 47.27%, which is above the current Issuer commitment OC of 38.50%.

The weighted-average (WA) life of the loans in the cover pool is roughly 16 years, while the WA life of the covered bonds is around four years when accounting for the expected maturity date. This generates an asset-liability mismatch of approximately 12 years. Such a mismatch is mitigated in part by the OC and in part by a 12-month extendable maturity feature by which, should the Issuer default on its payment on the covered bonds at the respective expected maturity date, the covered bonds maturities are automatically extended on a monthly basis up to 12 months. 99.97% of the cover pool notional pays a floating rate, indexed to Euribor, while 62.3% of the covered bonds issued are fixed rate. No swaps are in place to cover this mismatch. This has been accounted for in DBRS’s cash flow modelling. All the loans in the cover pool and all covered bonds are denominated in euros; hence, the covered bondholders are currently not exposed to any foreign exchange risk.

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

DBRS has assessed the LSF related to CGD OH as Average 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,” both 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 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” 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 loan by loan level information on the cover pool 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.

This rating concerns a newly issued financial instrument issued under an existing programme rated by DBRS.

The last rating action on this Programme took place on 17 December 2014, when DBRS confirmed the rating of A from following the implementation of DBRS’s Rating European Covered Bonds methodology published on 17 December 2014.

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: 10 September 2012
Initial Rating Committee Chair: Claire Mezzanotte

Last Rating Date: 17 December 2014

Lead Analyst: Valentina Cicerone
Rating Committee Chair: Quincy Tang

DBRS Ratings Limited
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Mincing Lane
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 (December 2014)
--Global Methodology for Rating Banks and Banking Organisations (June 2014)
--Legal Criteria for European Structured Finance Transactions (December 2014)
--Master European Residential Mortgage-Backed Securities Rating Methodology and Jurisdictional Addenda (January 2015)
--Master European Structured Finance Surveillance Methodology (December 2014)
--Operational Risk Assessment for European Structured Finance Servicers (January 2015)
--Unified Interest Rate Model Methodology for European Securitisations (January 2013)