DBRS Upgrades Santander Totta S.A. Obrigações Hipotecárias (BPP Programme) to A (high) from “A”

DBRS Ratings Limited (DBRS) upgraded the ratings of the Obrigações Hipotecárias (OH, i.e. the Portuguese mortgage Covered Bonds) which are outstanding under the Santander Totta S.A. Covered Bonds (Obrigações Hipotecárias – Mortgages – BPP Programme) (BPP OH or the Programme) to A (high) from “A”.

Concurrently, DBRS withdrew its rating from Series 5 (PTBNCZOE0025), redeemed on 30 December 2017.

There are currently two series of OH outstanding under the Programme, with a nominal amount of EUR 525 million.

This rating action follows the upgrade of the Issuer’s ratings to “A” from A (low), which occurred on 12 April 2018.

The ratings reflect the following analytical considerations:

-- A Covered Bonds Attachment Point (CBAP) of “A”. Banco Santander Totta S.A. (Totta) is the Reference Entity (RE) for the Programme. DBRS has not assigned a Critical Obligations Rating to the RE, and does not classify Portugal as a jurisdiction in which covered bonds are a particularly important funding instrument.
-- A Legal and Structuring Framework (LSF) Assessment of “Modest” associated with the Programme.
-- An LSF-L of “A”.
-- A one-notch uplift for good recovery prospects.
-- A level of overcollateralisation (OC) to which DBRS gives credit of 11.2%, being the minimum observed OC level during the past 12 months adjusted by a scaling factor of 0.90.

The Programme cash flows were analysed using the DBRS European Covered Bond Cash Flow tool. 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 (CP).

While the Cover Pool Credit Assessment (CPCA) did not materially affect the ratings of the OH, DBRS determined a CPCA of BB.

Everything else being equal, a one-notch downgrade of the CBAP would lead to a one-notch downgrade of the LSF-L, resulting in a one-notch downgrade of the covered bonds rating. In addition, the ratings of the OH would be downgraded if the quality of the CP and the level of OC were no longer sufficient to support a one-notch uplift for good recovery prospects.

The total outstanding amount of OH is currently EUR 525 million, while the aggregate balance of the mortgages in the CP is EUR 943 million (as of 31 December 2017), resulting in a total OC of 79.7%.

As of December 2017, the CP comprised 11,786 mortgage loans with a weighted-average current unindexed loan-to-value ratio of 55.1%, with an 88% residential and 12% commercial loans split. It is geographically concentrated in Lisbon (54%) and northern Portugal (24%). The pool is 94 months seasoned.

The vast majority (96%) of the loans in the CP are floating rate while all OH Series are floating rate, indexed to one-month Euribor.

No swap agreements are in place in the Programme.

The weighted-average life of the assets is approximately 14.9 years while that of the covered bonds is 0.4 years. The resulting asset-liability maturity mismatch is mitigated by the 12-month maturity extension in case of an Issuer event of default and by the OC.

All CP assets and all 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 Modest, 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 that is available on www.dbrs.com.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the rating is: “Rating European Covered Bonds”.

In DBRS’s opinion, the change under consideration does not require the application of the entire principal methodology. Therefore, DBRS focused on a cash flow analysis.

A review of the transaction legal documents was not conducted as the legal 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 “Appendix C: The Impact of Sovereign Ratings on Other DBRS Credit Ratings” of the “Rating Sovereign Governments” methodology at: http://dbrs.com/research/319564/rating-sovereign-governments.pdf.

The sources of data and information used for these ratings include historical performance data, loan-by-loan data and stratification information on the cover pool provided by the Issuer.

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 considers the data and information available to it for the purposes of providing these ratings to be of satisfactory quality.

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 18 December 2017, when DBRS upgraded to “A” from A (low) the ratings of the CB Series outstanding under the Programme.

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 and US regulations only.

Lead Analyst: Antonio Laudani, Vice President
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: 31 August 2012

DBRS Ratings Limited
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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
-- Global Methodology for Rating Banks and Banking Organisations
-- Legal Criteria for European Structured Finance Transactions
-- Interest Rate Stresses 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
-- Rating CLOs and CDOs of Large Corporate Credit
-- Rating CLOs Backed by Loans to European SMEs
-- Rating Sovereign Governments

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.

For more information on this credit or on this industry, visit www.dbrs.com or contact us at info@dbrs.com.