DBRS Confirms Ratings on Liberbank Cédulas Hipotecarias

DBRS Ratings Limited (DBRS) has today confirmed the A (high) ratings on the Cédulas Hipotecarias (CH, the Spanish mortgage covered bonds) issued under Liberbank, S.A. (Liberbank or the Issuer) Covered Bond Programme. The confirmation follows the completion of the annual review.

The ratings are based on the following analytical considerations:
-- A Covered Bonds Attachment Point (CBAP) of BBB, being the Issuer and Senior Debt & Deposit Rating of Liberbank. Liberbank is the Issuer and Reference Entity for the Programme.
-- A Legal and Structuring Framework (LSF) Assessment of Average assigned to Liberbank CH.
-- A Cover Pool Credit Assessment (CPCA) of BBB (low), being the lowest CPCA in line with the covered bonds rating.
-- An LSF-Implied Likelihood (LSF-L) of A (low).
-- Two notches uplift for high recovery prospects.
-- A level of overcollateralization (OC) which DBRS gives credit to of 126%, being the minimum observed OC level during the past 12 months, adjusted by a scaling factor of 0.90.

The transaction was modeled with the DBRS European Covered Bond Cash Flow Model. 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.

Everything else equal, a downgrade of the issuer rating by one notch would lead to a downgrade of the LSF-L by one notch, resulting in a downgrade of the covered bonds rating by one notch.

In addition, everything else being equal, the ratings of Liberbank CH would be downgraded if any of the following occurs: (i) the CPCA were downgraded below BBB (low); (ii) the sovereign rating of the Kingdom of Spain were downgraded below A (low); (iii) the LSF Assessment associated with the programme were downgraded; (iv) the quality and consistency of the cover pool were no longer sufficient to support two notches uplift for high recovery prospects; or (v) volatility in the financial markets caused the currently estimated market value spreads to be increased.

As at 31 December 2014, the total outstanding amount of CH is €4.2 billion, while the aggregate balance of the mortgages in the cover pool is €11 billion, resulting in a total overcollateralisation (OC) of 160%.

As of December 2014, the cover pool comprises 155,166 mortgage loans with a WALTV of 54.65%, with an 83% residential versus 17% non-residential split. The pool is 7.15 years seasoned. The vast majority of the loans in the cover pool (99%) are floating rate, while 65% of the liabilities pay fixed coupon. As is customary in Spanish CH, swaps are not for the benefit of the CH holders. The mismatch between the principal bullet payments of the CH and the amortisation profile of the assets is approximately seven years.

For further information on Liberbank CH, please refer to the ratings report that can be found on www.dbrs.com.

DBRS has assessed the LSF related to Liberbank CH as Average according to its rating methodology. For more information, please refer to DBRS commentaries DBRS Assigns LSF Assessment to Spanish Covered Bonds and Spanish Covered Bonds: Legal and Structuring Framework Review, both available at www.dbrs.com.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable is: Rating European Covered Bonds (December 2014). This can be found 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 at http://www.dbrs.com/industries/bucket/id/10036/name/commentaries/.

The sources of information used for this rating include historical default performance data and cover pool stratification tables provided by Liberbank 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.

The last rating action on this programme took place on 17 December 2014, when DBRS upgraded the ratings on Liberbank CH following the implementation of DBRS’s Rating European Covered Bonds methodology.

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

For further information on DBRS historic default rates published by the European Securities and Markets Administration 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: Valentina Cicerone
Initial Rating Date: 11 March 2014
Initial Rating Committee Chair: Quincy Tang

Lead Analyst: Valentina Cicerone
Rating Committee Chair: Mary Jane Potthoff

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 and Jurisdictional Addenda
Rating CLOs Backed by Loans to European Small and Medium-Sized Enterprises (SMEs)
Master European Structured Finance Surveillance Methodology
Operational Risk Assessment for European Structured Finance Servicers
Unified Interest Rate Model Methodology for European Securitisations