DBRS Confirms Ratings on Caixa Geral de Depósitos Covered Bonds Programme

DBRS Rating Limited (DBRS) has today confirmed the rating of ‘A’ on all outstanding series of obrigações hipotecárias (the Portuguese legislative covered bonds) issued under Caixa Geral de Depositos Covered Bonds Programme. The confirmation follows the completion of the annual review process. There are EUR 7.5bn of covered bonds outstanding under the programme.

The ratings are based on the following analytical considerations:
• The senior long debt and deposit rating of Caixa Geral de Depósitos (CGD, or the “Issuer”) of BBB (low) with Negative Trend.
• The Legal and Structuring Framework assessment of “Adequate” associated with the programme
• The cover pool credit assessment of ‘A’ and an Issuer voluntary Over-collateralisation (OC) level of 35%.
• CGD’s capabilities with respect to origination of the cover pool assets and servicing of the cover pool.

The back-up analyst responsibilities for this transaction have been transferred to Valentina Cicerone.

As of the end of September 2013, the cover pool was composed of 239,072 residential mortgage loans for a total outstanding balance of EUR 10.175bn, as well as EUR 114mln of sovereign bonds issued by the Republic of France (AAA/Stable). The available OC is of 38%.

All the loans in the cover pool are prime residential mortgage loans, with a weighted average (WA) current indexed loan-to-value ratio of 52.66% and a WA seasoning of 103 months. The pool is geographically diversified across the country and largely originated for the purpose of acquiring first or second homes (86.5% by outstanding). DBRS has increased the probability of default of loans originated for ‘other’ purposes. In a ‘A’ rating scenario DBRS has determined an expected loss of 2.4%.

The WA life of the loans in the cover pool is roughly 14 years, while the WA life of the covered bonds is around five years when accounting for the expected maturity date. This generates an asset-liability mismatch of approximately nine years.

Such mismatch is mitigated in part by the OC and in part 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 bonds maturities are automatically extended on a monthly basis up to 12 months.

All the loans in the cover pool are floating rate, indexed to Euribor while 43% of the covered bonds issued are fixed rate. No swaps are in place to cover this mismatch. This has been accounted for in DBRS cash flow modeling.

All the loans in the cover pool and all covered bonds are denominated in Euros. Hence the covered bondholders are currently not exposed to any foreign exchange risk.

Notes:
All figures are in Euros unless otherwise noted.

The principal methodology applicable is: “Rating European Covered Bonds”. This can be found on www.dbrs.com at: http://www.dbrs.com/about/methodologies

Other methodologies and criteria referenced in this transaction are listed at the end of this press release.

For a more detailed discussion of sovereign risk impact on Structured Finance ratings, please refer to DBRS commentary “The Effect of Sovereign Risk on Securitisations in the Euro Area” on: http://www.dbrs.com/industries/bucket/id/10036/name/commentaries/.

The sources of information used for this rating include historical default performance data and loan by loan level information on the cover pool that allowed DBRS to further assess the portfolio. DBRS considers the information available to it for the purposes of providing this rating was of satisfactory quality.

DBRS 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.

This is the first rating action since assignment of the ratings on the Series 15 on 18 January 2013.

Information regarding DBRS ratings, including definitions, policies and methodologies are available on www.dbrs.com

All else equal, a downgrade of the Issuer rating by one notch would lead to a downgrade of the covered bonds by two notches.

For further information on DBRS historic default rates published by the European Securities and Markets Administration (“ESMA”) in a central repository, see:
http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml.

Ratings assigned by DBRS Ratings Limited are subject to EU regulations only.

Initial Lead Analyst: Keith Gorman
Initial Rating Date: 10 September 2012
Initial Rating Committee Chair: Claire Mezzanotte

Last Rating Date: January 18, 2013
Lead Analyst: Vito Natale
Rating Committee Chair: Quincy Tang

DBRS Ratings Limited
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United Kingdom

Registered in England and Wales: No. 7139960

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

• Rating European Covered Bonds
• Global Methodology for Rating Banks & Banking Organisations
• Legal Criteria for European Structured Finance Transactions
• Master European Residential Mortgage-Backed Securities Rating Methodology
• Master European Structured Finance Surveillance Methodology
• Operational Risk Assessment for European Structured Finance Servicers
• Unified Interest Rate Model Methodology for European Securitisations