Press Release

DBRS Confirms Banco Pastor Cédulas Hipotecarias at AAA and Discontinues the Rating

Covered Bonds
October 01, 2018

DBRS Ratings Limited (DBRS) confirmed its AAA rating on the Cédula Hipotecaria (CH, i.e. the Spanish mortgage Covered Bonds), which is outstanding under the Banco Pastor S.A. Covered Bonds (Cédulas Hipotecarias - Mortgages) programme (Banco Pastor CH or the Programme).

Subsequently, DBRS discontinued and withdrew its rating on the CH outstanding under the Programme, because of the integration of the Programme’s assets and liabilities in Banco Santander S.A. CH programme, effective from 28 September 2018.

The one series of CH outstanding under the Programme had a nominal amount of EUR 1 billion.

The rating reflected the following analytical considerations:

-- A Covered Bonds Attachment Point (CBAP) of AA (low), being the Long-Term COR of Banco Pastor. Banco Pastor was the Issuer and Reference Entity for the Programme. DBRS classifies Spain as a jurisdiction in which covered bonds are a particularly important funding instrument and deemed the cover pool (CP) to be strategic for the Issuer’s core activity.
-- A Legal and Structuring Framework (LSF) Assessment of Average associated with the Programme.
-- A Cover Pool Credit Assessment (CPCA) of BBB (high), being 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 87.8% to which DBRS gave credit, being the minimum observed OC level during the past 12 months adjusted by a scaling factor of 0.85.

The transaction was 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).

Everything else being equal, a one-notch downgrade of the CBAP would have led to a one-notch downgrade of the LSF-L, resulting in a one-notch downgrade of the covered bond ratings.

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

The total outstanding amount of CH was EUR 1.0 billion, while the aggregate balance of the mortgages in the CP (as of 30 June 2018) was EUR 2.0 billion, resulting in a total OC of 103.6%. The eligible CP stood at EUR 1.5 billion, resulting in an eligible OC of 46.1%.

As of June 2018, the CP comprised 24,353 mortgage loans with a weighted-average current unindexed loan-to-value ratio of 53.5%, split as follows: 65.8% residential, 25.4% commercial, 4.4% land, 2.0% developers and 2.4% other loans. It was geographically concentrated in Galicia. The pool was 87 months seasoned.

The vast majority of the loans in the CP (93.9%) were floating rate, while the only CH Series issued by Banco Pastor was floating rate, indexed to 12-month Euribor.

As is usual in Spanish CH, swaps are not for the benefit of the CH holders. This had been accounted for in the DBRS cash flow modelling.

The weighted-average life of the assets was approximately ten years, similar to that of the covered bonds. There was still a residual asset-liability maturity mismatch, which was mitigated by the available OC.

All liabilities were denominated in euros, while 0.1% of the pool assets were originated in a different currency. This residual exposure was mitigated by the OC available and accounted for in the Pass-OC.

DBRS assessed the LSF related to the Programme as Average according to its rating methodology. For more information, please refer to the DBRS commentaries, “Spanish Mortgage Covered Bonds: Legal and Structuring Framework Review” and “DBRS Assigns Legal and Structuring Framework Assessment to Spanish Mortgage Covered Bonds Programmes,” which are available at

For further information on the Programme, please refer to the rating report that is available on

All figures are in euros unless otherwise noted.

The principal methodology applicable is “Rating European Covered Bonds.”

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 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 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 this rating include stratification tables 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 this rating 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 22 June 2018, when DBRS confirmed its AAA rating on the outstanding Banco Pastor CH, following the completion of a full review of the rating.

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 U.S. regulations only.

Lead Analyst: Antonio Laudani, Vice President
Rating Committee Chair: Gareth Levington, Managing Director
Initial Rating Date: 29 July 2014

DBRS Ratings Limited
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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
-- 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 Backed by Loans to European SMEs
-- Rating CLOs and CDOs of Large Corporate Credit
-- Interest Rate Stresses for European Structured Finance Transactions
-- 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].