DBRS Confirms Ratings on Banco BPI Covered Bonds Programme, Removes UR-Developing

DBRS Ratings Limited (DBRS) has today confirmed its A (high) ratings on the obrigações hipotecárias (OH, the Portuguese mortgage covered bonds) issued under the Banco BPI S.A.’s (BPI) Covered Bonds Programme (the Programme). The ratings have been removed from Under Review with Developing Implications status. The Programme was established in 2008 under the Portuguese covered bond law to issue up to EUR 7 billion of OH.

The rating is based on the following analytical considerations:
-- A Covered Bonds Attachment Point (CBAP) reflective of BPI’s likelihood that the source of payments will switch from the Reference Entity to the Cover Pool. BPI is the Issuer and Reference Entity for the programme.
-- A Legal and Structuring Framework (LSF) Assessment of Average associated with 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 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.

In October, when BPI issued Series 15, Banco BPI added EUR 1.755 million of residential mortgages to the cover pool. 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%.

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.

In DBRS’s opinion, the change under consideration does not require the application of the entire principal methodology. Therefore, an asset and cash flow analysis was not conducted. A review of the transaction’s legal documents was not conducted as the documents have remained unchanged since the most recent rating action.

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 7 October 2015, when DBRS assigned a rating to Series 15, confirmed all outstanding Series and maintained the Under Review with Developing Implications status.

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: Quincy Tang

DBRS Ratings Limited
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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 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.