DBRS Maintains Banco de Investimento Imobiliário Covered Bonds Programme Under Review with Developing Implications

DBRS Ratings Limited (DBRS) has today maintained its A (low) rating of the EUR 895,000,000 outstanding series of Obrigações Hipotecárias (OH, the Portuguese legislative covered bonds) issued under Banco de Investimento Imobiliário (BII, the Issuer) covered bond programme Under Review with Developing Implications following the completion of an annual review.

The A (low) rating of the OH issued under BII OH programme Under Review with Developing Implications is due to the Banco Comercial Português (BCP) rating of BBB (low) being Under Review with Negative Implications. BCP is the Reference Entity for BII OH Programme, as BCP is liable for BII obligations. BCP liability is irrevocable, unconditional and shall survive the end of the group relationship and shall last until satisfaction of all entitlements of the issuer's creditors.

The implementation of the new methodology “Rating European Covered Bonds” (December 2014) could potentially lead to an upgrade of the OH issued under BII programme from A (low) currently to ‘A’ if the rating of the Reference Entity were to be confirmed, based on the following analytical considerations:
-- A Covered Bonds Attachment Point (CBAP) of BBB (low) Under Review with Negative Implications, being the Senior Long Term Debt & Deposit Rating of BCP
-- A Legal and Structuring Framework (LSF) Assessment of “Average” assigned to BII 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), which DBRS gives credit to of 12.5%. Such level is not subject to haircut, as DBRS has observed it has been persistent for the past 24 months

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 current covered bonds rating by one notch.

The Reference Entity’s rating is Under Review with Negative Implications. The review of the covered bonds will be resolved only once the conditions that led to the assignment of review of the Reference Entity’s rating are resolved.

This programme contemplates a pass-through mechanism with a long Extended Maturity Date. The covered bonds documentation envisages a Maturity Date in January 2017 and an Extended Maturity Date in January 2037. If the issuer fails to redeem the covered bonds on the Maturity Date, the covered bonds will be redeemed, pro rata and pari passu, on any Interest Payment Date until the Extended Maturity Date. Cash flows are applied on a pass-through basis until the Extended Maturity Date. According to the unstressed amortisation profile of the assets, not considering any prepayments, approximately 24% of the cover pool is expected to be outstanding by the Extended Maturity Date.

As at 31 December 2014, the cover pool had a total outstanding balance of EUR 1,046,971,518. The available OC is of 16.98%, which is above the current Issuer commitment OC of 12.5%.

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

DBRS has assessed the LSF related to BII 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 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 spread values to calculate liquidation values on the cover pool.

The principal methodology applicable is: “Rating European Covered Bonds” (December 2014). This can be found on www.dbrs.com. As a deviation from its Rating European Covered Bonds methodology, DBRS has assumed several prepayment scenarios ranging between 0% and 20% PPR.

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/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 provided by BII 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 transaction took place on 17 December 2014 when DBRS placed the A (low) rating Under Review with Developing Implications upon the implementation of the methodology “Rating European Covered Bonds” (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 (ESMA) 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: 28 February 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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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