DBRS Confirms Ratings on Banco Popular Portugal S.A. Covered Bonds (Obrigações Hipotecárias – Mortgages) at BBB

DBRS Ratings Limited (DBRS) has today confirmed the ratings on the outstanding series of the Obrigações Hipotecárias (OH, the Portuguese legislative covered bonds (CBs)) issued under Banco Popular Portugal (BPP or the Issuer) Covered Bond Programme (the Programme) at BBB. The rating action follows the completion of a full review cycle.

The rating is based on the following analytical considerations:

-- A Covered Bonds Attachment Point (CBAP) of BBB (low). BPP is the Issuer and Reference Entity for the Programme.
-- A Legal and Structuring Framework (LSF) Assessment of Modest associated with the Programme.
-- An LSF-Implied Likelihood (LSF-L) of BBB (low). In DBRS’s view, the Programme’s LSF-L is limited by the CBAP due to insufficient historical performance data for DBRS to form a view on the timeliness of cash flows deriving from the Cover Pool (CP) in case of an assumed default of BPP.
-- A one-notch uplift for good recovery prospects.
-- A level of overcollateralisation (OC) to which DBRS gives credit of 6.9%, being the minimum observed OC level during the past 12 months adjusted by a scaling factor of 0.93.

The transaction was modelled using the DBRS European Covered Bond Cash Flow Model. The main assumptions focused on the timing of defaults, recoveries of the assets, interest rate stresses and market value spreads to calculate liquidation values on the CP.

Everything else being equal, a downgrade of the CBAP by one notch would lead to a downgrade of the covered bonds rating by one notch. In addition, the ratings of the OH would be downgraded if the quality and consistency of the cover pool were no longer sufficient to support a one-notch uplift for good recovery prospects.

The total outstanding amount of securities under the Programme is EUR 815 million, while the aggregate balance of the CP is EUR 883 million (as of June 2016), resulting in a total OC of 8.3%, above the legislative minimum OC. All the outstanding OH pay a floating-rate coupon. No swap agreements are in place in the Programme.

As of the end of June 2016, the CP comprised EUR 751 million residential mortgages (85% of the total pool) and EUR 132 million commercial mortgages (15%). The weighted-average (WA) current unindexed loan-to-value (LTV) of the mortgages was 54.8%. The WA seasoning was 7.1 years and the WA remaining term was 24.6 years.

Fixed-rate mortgages in the CP accounted for 3.7% of the balance, while floating-rate mortgages represented 96.3% of the CP balance. All CP assets and all OH are denominated in euros. As such, investors are not currently exposed to any foreign exchange risk.

For further information on the BPP OH Programme, please refer to the rating report available on www.dbrs.com.

DBRS has assessed the LSF related to the BPP OH Programme as Modest, according to its rating methodology. For more information, please refer to DBRS’s commentaries, “DBRS Assigns LSF Assessment to Portuguese Covered Bonds” and “Portuguese 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. This can be found at http://www.dbrs.com/about/methodologies.

DBRS has applied the principal methodology consistently and conducted a review of the transaction in accordance with the principal methodology. 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.

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

The sources of information used for these ratings include stratification data on the CP provided by the Issuer. DBRS considers the information available to it for the purposes of providing this rating was of satisfactory quality.

DBRS does not rely upon third-party due diligence in order to conduct its analysis; DBRS was not supplied with third-party assessments; however, this did not impact the rating analysis.

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 transaction took place on 10 March 2016, when DBRS downgraded the BPP OH Programme to BBB, removing the UR-Neg. status.

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 Authority (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: 31 August 2012
Initial Rating Committee Chair: Claire Mezzanotte

Lead Surveillance Analyst: Antonio Laudani, Vice President
Rating Committee Chair: Christian Aufsatz, Senior Vice President

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

-- Rating European Covered Bonds
-- Rating European Covered Bonds Addendum: Market Value Spreads Range (Midpoints)
-- Critical Obligations Rating Criteria
-- Global Methodology for Rating Banks and Banking Organisations
-- DBRS Criteria: Support Assessments for Banks and Banking Organisations
-- Legal Criteria for European Structured Finance Transactions
-- Derivative Criteria for European Structured Finance Transactions
-- Unified Interest Rate Model for European Securitisations
-- Operational Risk Assessment for European Structured Finance Originators
-- Operational Risk Assessment for European Structured Finance Servicers
-- Rating CLOs and CDOs of Large Corporate Credit
-- Rating CLOs Backed by Loans to European SMEs
-- The Effect of Sovereign Risk on Securitisations in the Euro Area
-- Sovereign Ratings Provide a Benchmark for other DBRS Credit Ratings

A description of how DBRS analyses structured finance transactions and how the methodologies are collectively applied can be found at: http://www.dbrs.com/research/278375.