Morningstar DBRS Reviews Its Legal and Structuring Framework Assessment for Portuguese Covered Bonds

DBRS Ratings GmbH (Morningstar DBRS) reviewed its Legal and Structuring Framework (LSF) Assessment for Portuguese Covered Bonds (CB) and changed it to "Very Strong" from "Strong", reflecting the upgrade on the credit rating of the Republic of Portugal to A (high) with a Stable trend from "A" with a Positive trend on 17 January 2025.

The "Very Strong" LSF Assessment associated with each of the Portuguese CB programmes reflects Morningstar DBRS' view of:

(1) The Portuguese law (Decree-Law 31/2022, as subsequently modified) giving CB holders a preferential right on the cash flows derived from the mortgage credits and loans in the cover pool, as well as those cash flows deriving from the liquidity buffer, and substitute assets and derivative instruments in the cover pool, if any;

(2) The appointment of a special administrator to manage the CB programme in case of issuer's insolvency or resolution. The Special Administrator has wide powers, including the usage of the liquidity reserve; the ability to obtain financing from third parties; the ability to pledge the cover pool assets; the ability to assign, transfer, or sell the assets; and the ability to urge the extension of maturities, among others.

(3) The designation of an independent party to monitor the cover pool (cover pool monitor) who is approved by and reports to the Comissão do Mercado de Valores Mobiliários.

(4) The dynamic liquidity buffer to cover temporary liquidity constraints, which the cover pool shall include at all times. This buffer shall cover the net liquidity outflow of the CB programme over the following 180 days.

(5) The Domicile Sovereign being a jurisdiction, rated A (high) with a Stable trend, for which CBs are a particularly important financing tool.

The change in the LSF assessment affects the following CB programmes:

-- Banco BPI S.A. Covered Bonds (Obrigações Cobertas - Mortgages)
-- Santander Totta S.A. Covered Bonds (Obrigações Cobertas - Mortgages)

Morningstar DBRS has also considered positively that the CBs of these programmes benefit from a maturity extension.

For more information, please see "Portuguese Covered Bonds: Legal and Structuring Framework Review" and refer to "DBRS Morningstar's Assessment of European Jurisdictions for which Covered Bonds are Considered Systemically Important."

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS
Social (S) Factors
For Santander Totta S.A. Covered Bonds (Obrigações Cobertas - Mortgages), the following Social factor had a significant effect on the credit analysis: passed-through social credit considerations. Banco Santander SA's (Santander) Group's Intrinsic Assessment is one notch above the Kingdom of Spain's sovereign credit ratings to reflect the Group's international diversification. As such, credit rating actions on Spain are likely to have an impact on Santander's credit ratings, which in turn will have an impact on Santander Totta S.A.'s credit ratings, which in turn will have an impact on its covered bond programme. ESG factors that have a significant or relevant effect on the credit analysis of Spain are discussed separately at https://dbrs.morningstar.com/issuers/15664.

For Santander Totta S.A. Covered Bonds (Obrigações Cobertas - Mortgages), there were no Environmental/Governance factors that had a significant or relevant effect on the credit analysis.
Credit rating actions on Santander are likely to have an impact on Santander Totta S.A. Covered Bonds' credit rating. ESG factors that have a significant or relevant effect on the credit analysis of Santander are discussed separately at https://dbrs.morningstar.com/research/440147.

For Banco BPI S.A. Covered Bonds (Obrigações Cobertas - Mortgages), there were no Environmental/Social/Governance factors that had a significant or relevant effect on the credit analysis.

A description of how Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings (16 May 2025) at https://dbrs.morningstar.com/research/454196.

Notes:
All figures are in euros unless otherwise noted.

For more information on this credit or on this industry, visit https://dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.

DBRS Ratings GmbH
Neue Mainzer Straße 75
60311 Frankfurt am Main Deutschland
Tel. +49 (69) 8088 3500
Geschäftsführer: Detlef Scholz, Marta Zurita Bermejo
Amtsgericht Frankfurt am Main, HRB 110259