DBRS Confirms “A” Ratings on Caixa Geral de Depósitos Covered Bonds, Removes Under Review with Developing Implications

DBRS Ratings Limited (DBRS) has today confirmed and removed the Under Review with Developing Implications status from its “A” ratings on the Obrigações Hipotecárias (OH or the Portuguese legislative covered bonds) issued under the Caixa Geral de Depósitos (CGD or the Issuer) Covered Bond Programme. There are EUR 7,001,450,000 OH outstanding under the Programme, EUR 1.5 billion of which is retained.

Concurrently, DBRS has discontinued the rating of Series 2, repaid in full on 30 September 2015.

This confirmation follows the completion of a full review, with analysis of the cover pool assets that are backing the Programme as of 30 September 2015.

The “A” ratings assigned to Caixa Geral de Depósitos OH reflect the following analytical considerations:

-- A Covered Bonds Attachment Point (CBAP) of BBB (low). CGD is the Issuer and the Reference Entity for the Programme.
-- A Legal and Structuring Framework (LSF) Assessment of Average associated with the Programme.
-- A Cover Pool Credit Assessment (CPCA) of BBB (low), being the lowest CPCA in line with the final covered bond rating.
-- An LSF-Implied Likelihood (LSF-L) of BBB (high).
-- A two-notch uplift for high recovery prospects.
--A level of overcollateralisation (OC) of 38.5% that DBRS gives credit to, being the level of OC to which the Issuer commits in the investor report. Such a level is not subject to haircut, as DBRS has observed that it has been persistent for the past24 months.

The transaction was modelled with DBRS’s European Covered Bond Cash Flow Model. The main assumptions focused on the timing of defaults and recoveries of the assets and interest rate stresses as well as market value spreads to calculate liquidation values on the CP.

Everything else being equal, a downgrade of the CBAP by one notch would lead to a downgrade of the covered bonds rating by two notches. In addition, the ratings of the OH would be downgraded if any of the following occurred: (1) the quality and consistency of the cover pool were no longer sufficient to support a two-notch uplift for high recovery prospects, (2) the LSF Assessment associated with the Programme were downgraded or (3) the sovereign rating of the Republic of Portugal were downgraded below BBB (low).

DBRS has assessed the LSF related to CGD 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.

As of the end of September 2015, the cover pool (CP) included EUR 10.8 billion of first- and second-ranking residential mortgage loans and EUR 189,9 million of Eligible Securities, for a total CP amount of EUR 10.95 billion. The current available OC is 56.4%, which is above the committed OC of 38.5%. Eligible securities consisted of circa EUR 107 million of French sovereign bonds and circa 82 million of Portuguese sovereign bonds as of the cut-off date.

The mortgage CP comprised 246,272 residential mortgages granted to individuals with an average loan amount of EUR 43,695.The weighted-average current loan-to-value of the mortgages was 51.8% with a seasoning of 9.7 years. The CP was mainly distributed between Lisbon (33.4% by outstanding balance), Northern Portugal (27.2%) and Central Portugal (22.1%).

100% of the loans pays a floating interest rate, indexed to Euribor, while 70.4% of the covered bonds are fixed rate. No swaps are in place to mitigate such mismatch, and this has been accounted for in DBRS modelling.

All CP assets are denominated in euros, as are the OH. As such, investors are not currently exposed to any foreign exchange risk.

As of the cut-off date, the weighted-average life of the cover pool was 13.6 years based on a 0% pre-payment rate, which is longer than the 3.9 years weighted-average life on the OH when taking into account the expected maturity. This risk is partly mitigated by the OC available and partly by a 12-month extendable maturity feature by which, should the Issuer default on its payment on the Covered Bonds at the respective expected maturity date, the covered bond maturities are automatically extended on a monthly basis up to 12 months.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable is: “Rating European Covered Bonds.” This can be found on www.dbrs.com at: http://www.dbrs.com/about/methodologies. DBRS has applied the principal methodology consistently and conducted a review of the transaction in accordance with the principal methodology. A review of the transaction legal documents was not conducted as the documents have remained unchanged since the most recent rating action.

Other methodologies and criteria referenced in this transaction are listed at the end of this press release. This may be found on www.dbrs.com at: http://www.dbrs.com/about/methodologies.

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 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 the Issuer 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.

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 26 May 2015, when DBRS placed 15 European Covered Bond Programmes Under Review with Developing Implications. The lead and back-up responsibilities for this transaction have been transferred to Vito Natale and Alessandra Maggiora, respectively.

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: Keith Gorman
Initial Rating Date: 10 September 2012
Initial Rating Committee Chair: Claire Mezzanotte

Lead Surveillance Analyst: Vito Natale
Rating Committee Chair: Diana Turner

DBRS Ratings Limited
1 Minster Court, 10th Floor Mincing Lane, London EC3R 7AA
United Kingdom
Registered in England and Wales: No. 7139960

The rating methodologies used in the analysis of this transaction can be found at: http://www.dbrs.com/about/methodologies

-- Legal Criteria for European Structured Finance Transactions
-- Derivative Criteria for European Structured Finance Transactions
-- Operational Risk Assessment for European Structured Finance Originators
-- Operational Risk Assessment for European Structured Finance Servicers
-- Master European Residential Mortgage-Backed Securities Rating Methodology and Jurisdictional Addenda
-- Unified Interest Rate Model for European Securitisations
-- Rating European Covered Bonds
-- Global Methodology for Rating Banks and Banking Organisations

A description of how DBRS analyses structured finance transactions and how the methodologies are collectively applied can be found at: http://www.dbrs.com/research/278375