Press Release

DBRS Morningstar Upgrades Ratings on Caixa Geral Depósitos S.A. Covered Bonds (Obrigações Hipotecárias - Mortgages) to AA

Covered Bonds
October 15, 2019

DBRS Ratings GmbH (DBRS Morningstar) upgraded the ratings of the Obrigações Hipotecárias (OH; the Portuguese legislative covered bonds (CB)) issued under Caixa Geral de Depósitos, S.A.’s (CGD or the Issuer) covered bond programme (the Programme) to AA from AA (low).

The rating action reflects the upgrade of the ratings of the Republic of Portugal to BBB (high) from BBB. This allowed DBRS Morningstar to raise CGD OH’s Legal and Structuring Framework (LSF) Assessment to “Adequate” from “Average”.

According to DBRS Morningstar’s “Rating and Monitoring Covered Bonds Methodology”, CB Programmes backed substantially by prime residential mortgages, with the possibility of extending the maturity of the bonds by 12 months and with liquidity coverage mechanisms in place can benefit from an LSF Assessment up to “Average” in countries rated BBB (low) or below, and up to “Adequate” in countries rated at least BBB (high). CGD OH meets the requirements to have its LSF Assessment raised to “Adequate” from “Average”.

As of today, the total amount of bonds outstanding under the Programme was EUR 5.25 billion spread across five series, EUR 3.0 billion of which is retained.

The ratings are based on the following analytical considerations:
-- A CBAP of A (low), which is the Long-Term COR of CGD. CGD is the Issuer and the Reference Entity (RE) for the Programme. DBRS Morningstar does not consider OH a systemically important financing tool in Portugal; however, DBRS Morningstar considers the assets in the Programme to be strategic to the core activity of the RE.
-- A Legal and Structuring Framework (LSF) Assessment of “Adequate” associated with the Programme.
-- A Cover Pool Credit Assessment (CPCA) of BBB, which is the lowest CPCA in line with the assigned LSF-Implied Likelihood (LSF-L).
-- An LSF-L of A (high).
-- A two-notch uplift for high recovery prospects.
-- A level of overcollateralisation (OC) of 28% to which DBRS Morningstar gives credit, which is the level of OC the Issuer commits to maintain as stated in its quarterly Investor Reports. Such level is not subject to haircut, as DBRS Morningstar has observed that it has been persistent for the past 24 months.

The transaction was analysed with DBRS Morningstar’s European Covered Bond Cash Flow Tool. The main assumptions focused on the timing of defaults, recoveries of the assets and interest rate stresses as well as 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 covered bonds rating by two notches. In addition, the ratings of the OH would be downgraded if any of the following occurred: (1) the sovereign rating of the Republic of Portugal was downgraded below BBB (high); (2) the CPCA were downgraded below BBB, (3) the quality of the CP and the level of OC were no longer sufficient to support a two-notch uplift for high recovery prospects, (4) the relative amortisation profile of OH and CP moved adversely, (5) the LSF Assessment associated with the Programme was downgraded or (6) volatility in the financial markets caused the currently estimated market value spreads to increase.

As of June 2019, the total CP balance was EUR 7.99 billion, including EUR 7.86 billion of morstgages and EUR 122.85 million of eligible securities and cash. As of today, there were EUR 5.25 billion of covered bonds outstanding under CGD OH, giving an estimated total OC of 52%.

As of June 2019, the mortgage CP comprised 180,443 residential mortgages granted to individuals with an average loan amount of EUR 43,577. The weighted-average unindexed loan-to-value of the mortgages was 51.22% with a seasoning of 135.6 months. The CP was mainly distributed between Lisbon (37.15% by outstanding balance); Northern Portugal (24.51%); and Central Portugal (21.07%).

Of the loans in the CP, 99.3% pay a floating interest rate indexed to Euribor, while 38.1% of the covered bonds are fixed rate. No swaps are in place to mitigate such a mismatch, and this has been accounted for in DBRS Morningstar’s analysis.

All CP assets are denominated in euros, as are the OH. As such, investors are not currently exposed to any foreign exchange risk.

As of today, the DBRS Morningstar-calculated weighted-average life of the CP was 10.5 years based on a 0% prepayment rate, which is longer than the 4.0 years weighted-average life on the OH when considering the expected maturity. This risk is partly mitigated by the OC available, partly by a liquidity cushion available to cover three months of interest payments on the bonds and partly by a 12-month extendable maturity feature by which, should the Issuer default on its payment on the covered bonds at the respective expected maturity date, the covered bond maturities are automatically extended on a monthly basis up to 12 months.

DBRS Morningstar has assessed the LSF related to CGD OH as “Adequate” according to its rating methodology. For more information, please refer to the DBRS Morningstar commentaries “DBRS Assigns LSF Assessment to Portuguese Covered Bonds” and “Portuguese Covered Bonds: Legal and Structuring Framework Review,” both available at

All figures are in euros unless otherwise noted.

The principal methodology applicable to the ratings is: “Rating and Monitoring Covered Bonds.” This can be found at

In DBRS Morningstar’s opinion, the changes 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 not conducted as the documents have remained unchanged since the most recent rating action.

Other methodologies and criteria 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 “Global Methodology for Rating Sovereign Governments” methodology at:

The sources of data and information used for these ratings include dynamic performance data, stratification tables and loan-by-loan-level information on the CP 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 data and information available to it for the purposes of providing these ratings to be of satisfactory quality.

DBRS Morningstar 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 6 June 2019, when DBRS Morningstar upgraded the ratings of CGH OH to AA (low) from A (high) following the upgrade of the ratings of the Issuer.

The lead analyst responsibilities for this transaction have been transferred to Antonio Laudani.

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

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

Ratings assigned by DBRS Ratings GmbH, Sucursal en España are subject to EU and US regulations only.

Lead Analyst: Antonio Laudani, Vice President
Rating Committee Chair: Gareth Levington, Managing Director
Initial Rating Date: 10 September 2012

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

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

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

-- 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
-- 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
-- Interest Rate Stresses for European Structured Finance Transactions
-- 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:

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