DBRS Assigns A (high) Rating to Banco BPI Covered Bonds Programme, Maintains UR-Developing

DBRS Ratings Limited (DBRS) has today assigned a rating of A (high), Under Review with Developing Implications, to Series 15 under Banco BPI’s (BPI) Covered Bonds Programme. Series 15 is a EUR 200 million floating-rate security maturing in October 2022. At the same time, DBRS has confirmed its A (high), Under Review with Developing Implications, ratings of the other outstanding obrigações hipotecárias (OH, the Portuguese mortgage covered bonds).

The rating is based on the following analytical considerations:
-- A Covered Bonds Attachment Point (CBAP) reflective of BPI’s likelihood to meet its payments obligations on the OH. BPI is the Issuer and Reference Entity for the programme. DBRS is in the process of reviewing the CBAP for this Issuer and expects to conclude in the coming weeks.
-- A Legal and Structuring Framework (LSF) Assessment of Average assigned to BPI OH programme.
-- 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 (low).
-- A two-notch uplift for high recovery prospects.
-- A level of overcollateralisation (OC) of 32.5% that DBRS gives credit to, being the level of OC to which the issuer commits in the investor report.

The under review status on the covered bonds is a consequence of DBRS’s review of the implications of recent developments in European regulation and legislation regarding the Bank Recovery and Resolution Directive (BRRD). DBRS expects that the review of the covered bonds will be resolved in the coming weeks.

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

In addition, everything else being equal, the BPI OH ratings would be downgraded if any of the following occurred: (1) the CPCA were downgraded below “A”; (2) the sovereign of the Republic of Portugal were downgraded below BBB (low); (3) the quality and consistency of the cover pool (CP) were no longer sufficient to support a two-notch uplift for high recovery prospects; or (4) volatility in the financial markets caused the currently estimated market value spreads to increase.

At the same time as Series 15 being issued, Banco BPI is adding EUR 1.755 million of residential mortgages to the cover pool. After the issuance, BPI has EUR 4.375 billion OH, while the aggregate balance of the mortgage of the cover pool is EUR 7.455 billion, resulting in a total OC of 70.4%.

As at 30 June 2015, the cover pool outstanding balance was EUR 5.687 billion and comprised 112,912 residential mortgages with a weighted-average current unindexed loan-to-value ratio (LTV) of 54.5%, a weighted-average seasoning of 93 months and a weighted-average remaining time to maturity of 299 months. The pool is geographically diversified across the country and almost entirely originated for the purpose of acquiring first or second homes (98.8%).

BPI OH do not benefit from hedging agreements to cover the mismatch between the interest paid by the cover pool (95% floating rate linked to different indexes and resets), and the interest paid to the covered bond holders, linked to three months Euribor with quarterly resets. The weighted-average life of the assets is roughly eight years, whereas the current weighted-average life of the OH is roughly six years. This generates an asset-liability mismatch that is partly mitigated by the available OC.

For further information on Banco BPI OH, please refer to the rating report available on www.dbrs.com.

DBRS has assessed the LSF related to BPI’s OH as Average according to its rating methodology. For more information, please refer to DBRS’s “Portuguese Covered Bonds: Legal and Structuring Framework Review” commentary available at www.dbrs.com.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable is “Rating European Covered Bonds” (September 2015). 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 Banco BPI 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 place Banco BPI Covered Bonds 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: 1 April 2015
Initial Rating Committee Chair: Claire Mezzanotte

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.

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.