DBRS Confirms AAA Ratings on Bankia S.A. Cédulas Hipotecarias

DBRS Ratings GmbH (DBRS) confirmed its AAA ratings on the Cédulas Hipotecarias (CH or Spanish Covered Bonds) that are outstanding under the Bankia S.A. Covered Bonds (Cédulas Hipotecarias - Mortgages) programme (Bankia CH or the Programme). This rating action follows the completion of a full review of the ratings. At the same time, DBRS discontinued its rating on Cedulas Hipotecarias - ES0414950693, which matured on 28 June 2019.

The ratings are based on the following analytical considerations:
-- A Covered Bonds Attachment Point (CBAP) of “A”, which is Bankia´s Long-Term Critical Obligations Rating. Bankia is the Issuer and the Reference Entity (RE) for the Programme.
-- A legal and structuring framework (LSF) assessment of “Average” associated with the Programme.
-- A Cover Pool Credit Assessment (CPCA) of AAA, 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 132.3% to which DBRS gives credit, which is the minimum observed OC level over 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 CP.

Everything else being equal, a one-notch downgrade of the CBAP would lead to a two-notch downgrade of the LSF-L, resulting in a two-notch downgrade of the covered bonds ratings. In addition, all else unchanged, the CH ratings would be downgraded if any of the following were to occur: (1) the CPCA were downgraded below AAA; (2) the sovereign rating of the Kingdom of Spain were 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 moved 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 under the programme is currently EUR 24.71 billion, of which DBRS rates EUR 17.54 billion, while as of June 2019 the aggregate balance of mortgages in the CP was EUR 69.78 billion. This resulted in a total estimated OC of 182.4%. As of June 2019, the eligible CP stood at EUR 54,61 billion, resulting in an eligible OC of 121%.

Spanish covered bonds are backed by the entire mortgage book of the bank, except mortgage loans pledged to securitisations and bonos hipotecarios. As of June 2019, the CP comprised 862,946 mortgage loans with a weighted-average (WA) current unindexed loan-to-value ratio of 58.0%, split as follows: 87.6% residential, 10.5% commercial, 1.6% developers and 0.3% land loans. It is geographically diversified, with the largest concentrations in Madrid (26.7%), the Community of Valencia (15.9%) and Andalusia (13.8%). Approximately 0.2% of the pool assets were originated in a currency other than euros. The weighted average seasoning of the pool is 111 months.

As is customary in the Spanish market, CH holders do not receive the benefit of any swap contract to hedge the mismatches between the interest yield by the CP (92.5% floating rate linked to different indexes and resets) and the interest due on the CH (62.4% paying fixed rate and 37.6% floating rate linked to different indexes and resets). All CH are issued in euros while 0.2% of the loans originated in a currency other than euros. DBRS considers this exposure to be negligible and mitigated by the available OC.

The DBRS-calculated WA life of the assets is approximately 11 years while that of the covered bonds is approximately six 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 and Monitoring Covered Bonds” 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 www.dbrs.com.

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

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the ratings is “Rating and Monitoring Covered Bonds”.

DBRS has applied the principal methodology consistently and conducted a review of the transaction in accordance with the surveillance section of the principal methodology.

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: https://www.dbrs.com/research/333487/rating-sovereign-governments.

The sources of data and information used for these ratings include CP stratification tables and historical default data provided by the Issuer that allowed DBRS to further assess the portfolio.

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

At the time of the initial ratings, 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 21 September 2018, when DBRS confirmed its ratings on the outstanding DBRS-rated Bankia CH.

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 GmbH, Sucursal en España are subject to EU and US regulations only.

Lead Analyst: Covadonga Aybar, Vice President
Rating Committee Chair: Gareth Levington, Managing Director
Initial Rating Date: 24 September 2014

DBRS Ratings GmbH, Sucursal en España
Calle del Pinar, 5
28006 Madrid
Spain

DBRS Ratings GmbH
Neue Mainzer Straße 75
60311 Frankfurt am Main Deutschland

Geschäftsführer: Detlef Scholz
Amtsgericht Frankfurt am Main, HRB 110259

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

-- Rating and Monitoring Covered Bonds
-- Rating and Monitoring 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: 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.