DBRS Confirms Rating on Banco Pastor Cédulas Hipotecarias and Maintains UR-Developing

DBRS Ratings Limited (DBRS) has today confirmed its AA, Under Review with Developing Implications, rating on the outstanding Cédulas Hipotecarias (CH or the Spanish mortgage covered bonds) issued by Banco Pastor S.A.U. (Banco Pastor). The confirmation follows the completion of a full review of the rating.

The ratings are based on the following analytical considerations:
-- A Covered Bonds Attachment Point of A (low) Under Review Negative, being the Senior Unsecured Long-Term Debt and Deposit Rating of Banco Pastor. Banco Pastor is the Issuer and Reference Entity for the programme.
-- A legal and structuring framework (LSF) assessment of Average assigned to Banco Pastor 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).
-- A two notch uplift for high recovery prospects.
-- A level of overcollateralisation (OC) of 162% that DBRS gives credit to, being the minimum observed OC level during the past 12 months adjusted by a scaling factor of 0.90x.

DBRS is reviewing the implications of recent developments in European regulation and legislation regarding the Bank Recovery and Resolution Directive. The review on the covered bonds will be resolved only once the review on the issuer rating is resolved and the Request for Comments for the “Rating European Covered Bonds” methodology is finalised.

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 two notches, resulting in a downgrade of the covered bonds rating by one notch.

In addition, everything else equal, Banco Pastor CH ratings 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 was downgraded; (4) the quality and consistency of the cover pool (CP) were no longer sufficient to support a two notch uplift for high recovery prospects; or (5) volatility in the financial markets caused the currently estimated market value spreads to increase.

As of May 2015, the total outstanding amount of CH is EUR 1 billion, while the aggregate balance of the mortgages in the cover pool is EUR 2.903 billion, resulting in a total OC of 190.4%.

As of March 2015, the cover pool comprises 26,717 mortgage loans with a weighted-average current unindexed loan-to-value ratio of 53%, with a 50% residential, 26% commercial, 13% developers, 9% land and 3% another type of loans split. It is geographically concentrated in Galicia, as a result of Banco Popular Español’s strategy to maximise the strength of the Banco Pastor brand in the Galicia region. The pool is 65 months seasoned.

The vast majority of the loans in the cover pool (approximately 90%) are floating rate, while the only CH issued by Banco Pastor pay 12 months Euribor. As customary in Spanish CH, swaps are not for the benefit of the CH holders. This has been accounted for in the DBRS cash flow modelling. The weighted-average life of the assets is roughly 13 years, while that of the CH is 10 years. This generates an asset-liability mismatch that is partly mitigated by the available OC.

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

DBRS has assessed the LSF related to Banco Pastor CH 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). This 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/.

DBRS is undertaking a review and will remove the rating from this status as soon as it is appropriate.

The sources of information used for this rating include historical default performance data and cover pool stratification tables provided by Grupo Banco Popular 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 rely upon third-party due diligence in order to conduct its analysis; DBRS was not supplied with third-party assessments. However, this did not impact the rating analysis.

The last rating action on this programme took place on 26 May 2015, when DBRS placed Banco Pastor’s CH ratings Under Review with Developing implications.

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: Covadonga Aybar
Initial Rating Date: 29 July 2014
Initial Rating Committee Chair: Quincy Tang

Lead Analyst: Covadonga Aybar
Rating Committee Chair: Diana Turner

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
-- Rating CLOs Backed by Loans to Small and Medium-Sized European 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