DBRS Assigns “A” Rating to Banco Comercial Português Covered Bond Programme, Series 9

DBRS Ratings Limited (DBRS) has today assigned an “A” rating to the Series 9 Obrigações Hipotecárias (OH; the Portuguese legislative Covered Bonds) issued under the Banco Comercial Português (BCP or the Issuer) EUR 12,500,000,000 Covered Bonds programme (the Programme). Series 9 is a EUR 1,000,000,000 fixed-rate bond, paying a coupon of 0.75% and maturing on 31 May 2022.

The ratings on all other series outstanding under the Programme have been confirmed at “A”. Following the issuance of Series 9 and partial cancellation of Series 5, there are six series of OH outstanding under the Programme for a total nominal amount of EUR 9.7 billion.

The ratings are based on the following analytical considerations:
-- A Covered Bonds Attachment Point of BBB, being the Long-Term Critical Obligations Rating of BCP. BCP 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 BB, being the lowest CPCA in line with the LSF-Implied Likelihood (LSF-L).
-- An LSF-L of BBB (high).
-- A two-notch uplift for high recovery prospects.
-- A committed minimum overcollateralisation (OC) of 14%. DBRS gives full credit to such commitment in accordance with its principal methodology. Such a level is not subject to haircut as DBRS considers it to be persistent based on historically observed levels.

The transaction was modelled with the DBRS European Covered Bond Cash Flow Model. The main assumptions focused on the timing of defaults and recoveries of the assets and interest rate stresses to calculate liquidation values on the cover pool (CP).

Everything else being equal, a downgrade of the CBAP 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 one notch. In addition, everything else equal, the BCP OH ratings would be downgraded if the following occurred: (1) the sovereign rating of the Republic of Portugal were downgraded below BBB (low), (2) the quality and consistency of the cover pool were no longer sufficient to support a two-notch uplift for high recovery prospects, (3) the relative amortisation profile of the OH and CP moved adversely or (4) volatility in the financial markets caused the currently estimated market value spreads to increase.

The aggregated outstanding balance of the cover pool (as of 31 March 2017) backing BCP’s OH was EUR 11.1 billion while the total amount of liabilities outstanding is EUR 9.7 billion, yielding a current OC ratio of 14.5%. The Issuer has publicly committed to maintain an OC level of 14.0%.

As of 31 March 2017, the mortgage CP comprised 232,633 residential mortgages granted to individuals, with an average loan amount of EUR 47,757. The weighted-average (WA) current loan-to-value of the mortgages was 56.2% with a seasoning of 9.6 years. The CP is located mainly in Lisbon (40.7% by outstanding balance), Northern Portugal (31.3%) and Central Portugal (16.0%).

Of the loans in the portfolio, 90.8% pay a floating interest rate, indexed to Euribor, and 9.2% of the loans pay a fixed rate, while 25.8% of the covered bonds are fixed rate.

As of today, the DBRS-calculated WA life of the CP was roughly 15 years based on a 0% prepayment rate, which is longer than the 2.6 years’ WA life on the OH, not accounting for any extension of maturity. This risk is partly mitigated by the available OC and 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 until 12 months after expected maturity.

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

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

For further information on the Programme, please refer to the rating report at www.dbrs.com.

On 13 March 2023, DBRS Morningstar amended the above press release to correct the Initial Rating Date.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the rating is “Rating European Covered Bonds”. This can be found at www.dbrs.com at http://www.dbrs.com/about/methodologies.

In DBRS’s opinion, the changes under consideration do not require the application of the entire principal methodology. Therefore, DBRS focused on the Cash Flow analysis. A review of the transaction legal documents was limited to the documentation pertaining to the issuance of Series 9. All the other documents have remained unchanged since the most recent rating action.

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

For a more detailed discussion of the sovereign risk impact on Structured Finance ratings, please refer to DBRS commentary “The Effect of Sovereign Risk on Securitisations in the Euro Area” on: http://www.dbrs.com/industries/bucket/id/10036/name/commentaries/

The sources of data and information used for these ratings include investor reports provided by BCP. DBRS considers the data and information available to it for the purposes of providing these ratings to be of satisfactory quality.

DBRS did not rely upon third-party due diligence in order to conduct its analysis.

At the time of the initial rating DBRS was not supplied with third-party assessments. However, this did not impact the rating analysis.

DBRS does not audit or independently verify the data or information it receives in connection with the rating process.

The last rating action on this transaction took place on 10 March 2017 when DBRS confirmed the “A” ratings on the OH outstanding under the Programme.

The lead analyst responsibilities for this transaction have been transferred to Roger Bickert.

Information regarding DBRS ratings, including definitions, policies and methodologies, is available on www.dbrs.com.

For further information on DBRS historical default rates published by the European Securities and Markets Authority (“ESMA”) 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.

Lead Analyst: Roger Bickert, Vice President
Rating Committee Chair: Vito Natale, Senior Vice President
Initial Rating Date: 28 February 2012

DBRS Ratings Limited
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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

-- Rating European Covered Bonds
-- Rating European Covered Bonds Addendum: Market Value Spreads Range (Midpoints)
-- Global Methodology for Rating Banks and Banking Organisations
-- Critical Obligations Rating Criteria
-- Legal Criteria for European Structured Finance Transactions
-- Derivative Criteria for European Structured Finance Transactions
-- Master European Residential Mortgage-Backed Securities Rating Methodology and Jurisdictional Addenda
-- Operational Risk Assessment for European Structured Finance Originators
-- Operational Risk Assessment for European Structured Finance Servicers
-- Unified Interest Rate Model for European Securitisations
-- The Effect of Sovereign Risk on Securitisations in the Euro Area

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