Press Release

DBRS Assigns AAA Rating to Banco Bilbao Vizcaya Argentaria S.A. Covered Bonds New Issuance

Covered Bonds
September 21, 2018

DBRS Ratings Limited (DBRS) assigned a rating of AAA to cédula ES0413211931 issued by Banco Bilbao Vizcaya Argentaria, S.A. (BBVA or the Issuer) under the Banco Bilbao Vizcaya Argentaria S.A. Covered Bonds (Cédulas Hipotecarias - Mortgages) programme (BBVA CH or the Programme). The cédula is a EUR 2,000 million floating-rate security indexed to three-month Euribor + 0.13%, maturing in September 2022.

At the same time, DBRS confirmed the AAA ratings of the outstanding cédulas hipotecarias (CH, the Spanish mortgage covered bonds) publicly rated by DBRS.

There are 40 series of CH outstanding under the Programme, with a nominal amount of EUR 24.9 billion.

The ratings are based on the following analytical considerations:
-- A Covered Bonds Attachment Point (CBAP) of AA (low), which is the Long Term Critical Obligations Rating of BBVA. BBVA is the Issuer and Reference Entity for the programme.
-- A Legal and Structuring Framework (LSF) assessment of “Average” associated with BBVA CH programme.
-- A Cover Pool Credit Assessment (CPCA) of BBB (high), which is the lowest CPCA in line with the LSF-Implied Likelihood (LSF-L).
-- An LSF-L of AA.
-- A two-notch uplift for high recovery prospects.
-- A level of overcollateralisation (OC) of 157.7% that DBRS gives credit to, which is the minimum level observed in the last 12 months adjusted by a scaling factor of 0.85.

The transaction was analysed with 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).

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 ratings by one notch.

In addition, all else unchanged, the CH ratings would be downgraded if any of the following occurred: (1) the CPCA was downgraded below BBB (high); (2) the sovereign rating of the Kingdom of Spain was downgraded below A (low); (3) the LSF Assessment associated with the Programme was downgraded; (4) the quality of the CP and the level of OC were no longer sufficient to support a two-notch uplift for high recovery prospects; (5) the relative amortisation profile of the CH and CP were to move adversely; or (6) volatility in the financial markets were to cause the currently estimated market value spreads to increase.

The total outstanding amount of CH was EUR 24.9 billion (of which DBRS rates nine bonds publicly with an outstanding balance of EUR 12.4 billion) while the aggregate balance of the mortgages in the CP at 30 June 2018 was EUR 71.0 billion, resulting in a total OC of 186%. The eligible cover pool stood at EUR 45.2 billion, resulting in an eligible OC of 82%.

As of June 2018, the CP comprised 900,196 mortgage loans, with a weighted-average (WA) current unindexed loan-to-value ratio of 73.8% and is split between 86.4% residential, 7.4% commercial and 6.0% developers. Geographically, the pool is mainly distributed in Catalonia (37.7% by outstanding balance), as well as Madrid (15.1%) and Andalusia (13.5%). The pool is 105 months seasoned.

As is customary in the Spanish market, the CH holders do not receive the benefit of any swap contract to hedge the mismatches between the interest yield by the CP (91.0% floating rate linked to different indexes and resets) and the interest due on the CH (62.1% paying fixed and 37.9% floating rate linked to different indexes and resets). The only foreign-currency CH amounts to a nominal of NOK 1.1 billion, equivalent to roughly EUR 111.8 million at the spot rate as of 15 January 2018 (0.4% of the aggregate CH outstanding). In DBRS’s view, this exposure is mitigated by the OC available.

The DBRS-calculated weighted-average life of the assets is roughly 12 years while that of the covered bonds is 5.1 years. This generates an asset-liability mismatch that is mitigated by the available OC.

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 Legal and Structuring Framework Assessment to Spanish Mortgage Covered Bonds Programmes” and “Spanish Mortgage Covered Bonds: Legal and Structuring Framework Review”, both available at

For further information on the Programme, please refer to the rating report at

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(s) 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 cédula ES0413211931. 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 at:

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:

The sources of data and information used for these ratings include investor reports and CP stratification tables 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 16 February 2018, when DBRS confirmed the Banco Bilbao Vizcaya Argentaria S.A. Covered Bonds at AAA.

Information regarding DBRS ratings, including definitions, policies and methodologies, is available on

For further information on DBRS historical default rates published by the European Securities and Markets Authority (“ESMA”) in a central repository, see:

Ratings assigned by DBRS Ratings Limited are subject to EU and US regulations only.

Lead Analyst: Roger Bickert, Vice President
Rating Committee Chair: Quincy Tang, Managing Director
Initial Rating Date: 20 February 2013

DBRS Ratings Limited
20 Fenchurch Street, 31st Floor,
London EC3M 3BY
United Kingdom
Registered in England and Wales: No. 7139960

The rating methodologies used in the analysis of this transaction can be found at:

-- 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
-- European RMBS Insight Methodology
-- European RMBS Insight: Spanish Addendum
-- 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:

For more information on this credit or on this industry, visit or contact us at [email protected].