DBRS Assigns Rating to Banco Popular Español Cédulas Hipotecarias New Issuance

DBRS Ratings Limited (DBRS) has today assigned a rating of AA to a new covered bond, Cédulas Hipotecarias - ES0413790397, issued by Banco Popular Español (BPE or the Issuer). The new issuance is a EUR 1 billion fixed-rate security maturing in April 2025. At the same time, DBRS has confirmed the AA ratings of the other outstanding Cédulas Hipotecarias (CH or Spanish mortgage covered bonds).

The ratings are based on the following analytical considerations:
-- A Covered Bonds Attachment Point, being the Senior and Unsecured Long-Term Debt and Deposit Rating of BPE. BPE is the Issuer and Reference Entity for the programme.
-- A Legal and Structuring Framework (LSF) Assessment of “Average” assigned to BPE CH.
-- A Cover Pool Credit Assessment (CPCA) of “A,” being the lowest CPCA in line with the covered bonds rating.
-- A LSF-Implied Likelihood (LSF-L) of A (high).
-- Two notches uplift for high recovery prospects.
-- A level of overcollateralisation (OC) of 128% that DBRS gives credit to, being the minimum observed OC level during the past 12 months adjusted by a scaling factor of 0.85.

The transaction was modelled using 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 being 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 two notches.

In addition, everything else being equal, the ratings of the CH would be downgraded if any of the following occurred: (1) the CPCA were downgraded below “A,” (2) the sovereign rating of the Kingdom of Spain were downgraded below A (low), (3) the LSF assessment associated with the programme were downgraded, (4) the quality and consistency of the cover pool were no longer sufficient to support two notches uplift for high recovery prospects or (5) volatility in the financial markets caused the currently estimated market value spreads to increase.

Following the issuance, the total outstanding amount of CH is EUR 19.3 billion, while the aggregate balance of the mortgages in the cover pool is EUR 52.06 billion (as of February 2015), resulting in a total OC of 169%. Currently, BPE has a remaining issuance capacity of roughly EUR 1 billion.

For further information on BPE CH, please refer to the ratings report available on www.dbrs.com.

DBRS has assessed the LSF related to BPE as Average according to its rating methodology. For more information, please refer to the DBRS Commentary “Spanish Mortgage Covered Bonds: Legal and Structuring Framework Review” and “DBRS Assigns Legal and Structuring Framework Assessment to Spanish Mortgage Covered Bonds Programmes,” 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 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’s “The Effect of Sovereign Risk on Securitisations in the Euro Area” commentary 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 BPE 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 programme took place on 17 December 2014, when DBRS upgraded the ratings on BPE Cédulas Hipotecarias to AA.

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: Vito Natale
Initial Rating Date: 24 Abril 2013
Initial Rating Committee Chair: Claire Mezzanotte

Lead Analyst: Covadonga Aybar
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
-- 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

A description of how DBRS methodologies are collectively applied can be found at: http://www.dbrs.com/research/278375