DBRS Ratings GmbH (DBRS Morningstar) assigned a rating of AAA to a new series of covered bonds issued by Banco Bilbao Vizcaya Argentaria S.A. (BBVA or the Issuer) under the BBVA Covered Bonds (Cédulas Hipotecarias or CH) programme (BBVA CH or the Programme). The new CH (Cedulas Hipotecarias – ES0413211972) is a EUR 2,500 million floating-rate security indexed to three-month Euribor + 0.13%, maturing in October 2023.
The rating is based on the following analytical considerations:
-- A Covered Bonds Attachment Point (CBAP) of AA (low), which is BBVA’s Long Term Critical Obligations Rating. BBVA is the Issuer and 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 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 86.3% to which DBRS Morningstar gives credit, which is the minimum level observed in the last 12 months adjusted by a scaling factor of 0.85.
The transaction was analysed with DBRS Morningstar´s 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 lead to a one-notch downgrade of the LSF-L, resulting in a one-notch downgrade of the covered bonds rating. 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 moved adversely; or (6) volatility in the financial markets caused the currently estimated market value spreads to increase.
There are currently EUR 32.7 billion of CH outstanding under the Programme, of which DBRS Morningstar publicly rates EUR 20.9 billion. As of June 2019, the aggregate balance of mortgages in the CP was EUR 65.8 billion, yielding a total estimated OC of 101.5%. During the same time period, the eligible CP stood at EUR 44.5 billion, resulting in an eligible OC of 36.2%.
As of June 2019, the CP comprised 944,469 mortgage loans, with a weighted-average (WA) current unindexed loan-to-value ratio of 68.4%. The pool is composed of 83.4% residential, 12.3% commercial, 3.8% developer and 0.5% land loans. Geographically, the pool is mainly distributed in Catalonia (37.1% by outstanding balance), as well as the Madrid region (14.9%) and Andalusia (13.6%). The pool is 108 months seasoned.
As is customary in the Spanish market, CH holders do not receive the benefit of any swap contract to hedge mismatches between the interest yielded by the CP (82.5% floating rate linked to different indexes and resets) and the interest due on the CH (45.4% paying fixed rate and 54.6% floating rate linked to different indexes and resets). One foreign-currency CH amounts to a nominal of NOK 1.1 billion, equivalent to roughly EUR 113.5 million at the spot rate as of 30 June 2019 (or 0.35% of the CH outstanding). Of the loans, 0.59% were originated in a currency other than euros. DBRS Morningstar considers this exposure to be negligible and mitigated by the available OC.
The DBRS Morningstar-calculated WA life of the assets is roughly 12 years while that of the covered bonds is 4.10 years. This generates an asset-liability mismatch that is mitigated by the available OC.
DBRS Morningstar 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 Morningstar’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.
All figures are in euros unless otherwise noted.
The principal applicable methodology applicable to the rating is “Rating and Monitoring Covered Bonds”.
In DBRS Morningstar’s opinion, the change(s) under consideration do not require the application of the entire principal methodology. Therefore, DBRS Morningstar focused on the cash flow analysis.
A review of the transaction legal documents was limited to the final terms of the new issuance. All other transaction 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 “Global Methodology for Rating Sovereign Governments” at: https://www.dbrs.com/research/350410/global-methodology-for-rating-sovereign-governments.
The sources of data and information used for this rating include CP stratification tables provided by the Issuer that allowed DBRS Morningstar to further assess the portfolio.
DBRS Morningstar did not rely upon third-party due diligence in order to conduct its analysis.
At the time of the initial rating, DBRS Morningstar was not supplied with third-party assessments. However, this did not impact the rating analysis.
DBRS Morningstar considers the information available to it for the purposes of providing this rating to be of satisfactory quality.
DBRS Morningstar does not audit the information it receives in connection with the rating process, and it does not and cannot independently verify that information in every instance.
The last rating action on this transaction took place on 26 July 2019, when DBRS Morningstar assigned a rating of AAA to a new series of covered bonds issued by BBVA under the Programme.
Information regarding DBRS Morningstar ratings, including definitions, policies and methodologies, is available on www.dbrs.com.
For further information on DBRS Morningstar 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: 20 February 2013
DBRS Ratings GmbH, Sucursal en España
Calle del Pinar, 5
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
-- Rating CLOs and CDOs of Large Corporate Credit
-- Rating CLOs Backed by Loans to European SMEs
-- Operational Risk Assessment for European Structured Finance Originators
-- Operational Risk Assessment for European Structured Finance Servicers
-- Global Methodology for Rating Sovereign Governments
A description of how DBRS Morningstar 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 email@example.com.