DBRS Assigns “A” Rating to Caixa Económica Montepio Geral Covered Bonds (Obrigações Hipotecárias - Mortgages - CPT) Series 6

DBRS Ratings Limited (DBRS) has assigned a rating of “A” to the Series 6 Obrigações Hipotecárias (OH, i.e., the Portuguese Legislative Covered Bonds) issued under the Caixa Económica Montepio Geral CPT Covered Bonds Programme (the Programme). The Series 6 is a EUR 300 million floating-rate OH, paying a margin of 80 basis points over 3-month Euribor and maturing in November 2023.

Concurrently, DBRS has confirmed the “A” rating on the other OH outstanding under the Programme. Following the issuance of the Series 6, there are four series of OH for a nominal amount of EUR 2.3 billion outstanding under the Programme.

The “A” ratings assigned to the Programme reflect the following analytical considerations:

-- A Covered Bonds Attachment Point (CBAP) of BB. Caixa Económica Montepio Geral (Montepio) is the Issuer and Reference Entity for the Programme.
-- A Legal and Structuring Framework (LSF) Assessment of Adequate associated with the Programme.
-- A Cover Pool Credit Assessment (CPCA) of A (low), being the lowest CPCA in line with the LSF-Implied Likelihood (LSF-L).
-- An LSF-L of BBB (high).
-- A two-notch uplift for high recovery prospects.
-- A committed minimum overcollateralisation (OC) of 18%. DBRS gives full credit to such a commitment in accordance with its methodology. Such a level is not subject to a haircut, as DBRS has observed it has been historically persistent for the past 24 months.

The transaction was modelled with the DBRS European Covered Bond Cash Flow Model. The main assumptions focused on the timing of defaults, the recoveries of assets and interest rate stresses.

Everything else being equal, a downgrade of the CBAP by one notch would lead to a downgrade of the LSF-L by one notch, resulting in a downgrade of the OH rating by one notch.

In addition, everything else being equal, the ratings of the Programme would be downgraded if any of the following occurs: (1) the CPCA were downgraded below A (low), (2) the LSF Assessment associated with the Programme were downgraded to Average or (3) the quality and consistency of the cover pool (CP) were no longer sufficient to support two notches’ uplift for high recovery prospects.

DBRS has assessed the LSF related to the Programme as Adequate, according to its rating methodology. For more information, please refer to DBRS commentary, “Portuguese Covered Bonds: Legal and Structuring Framework Review,” found at www.dbrs.com.

As at 30 September 2016, the CP had a total outstanding balance of EUR 2,725,406,926. The available OC is 18.5%, considering the issuance of Series 6, which is above the current Issuer commitment OC of 18%.

As at September 2016, the weighted-average current unindexed loan-to-value of the mortgages was 53.5%.

Fixed-rate mortgages in the CP accounted for 5.2% of notional amount, while floating-rate mortgages, indexed to different bases and reset at different times, represented 94.8% of the CP balance. The OH are indexed to a mix of one- and three-month Euribor. A CP swap entered into between the Issuer and The Royal Bank of Scotland plc partly hedges the basis risk. However, no credit was given to such a swap in DBRS’s analysis, as the swap documentation does not incorporate DBRS language.

All cover assets are denominated in euros, as are all covered bonds. As such, investors are not currently exposed to any foreign exchange risk.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable is “Rating European Covered Bonds” (July 2016). This can be found at http://www.dbrs.com/about/methodologies.

In DBRS’s opinion, the change(s) under consideration do not require the application of the entire principal methodology; therefore, an asset analysis was not conducted. A review of the transaction’s legal documents was limited to the documentation pertaining to the issuance of the Series 6 OH. All the other 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. This may be found at http://www.dbrs.com/about/methodologies.

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 found at http://www.dbrs.com/industries/bucket/id/10036/name/commentaries/.

The sources of information used for this rating include historical default performance data, loan-by-loan levels and stratification information on the CP provided by the Issuer.

DBRS considers the information available to it for the purposes of providing this rating to be of satisfactory quality.

DBRS does not rely upon third-party due diligence in order to conduct its analysis. DBRS was 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 4 October 2016, when DBRS downgraded to “A” the ratings of the Programme, following the downgrade of the Senior Long-Term Debt & Deposit rating of Montepio to BB from BB (high).

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

For further information on DBRS historical default rates published by the European Securities and Markets Authority 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: 30 November 2011
Initial Rating Committee Chair: Claire Mezzanotte

Lead Surveillance Analyst: Antonio Laudani, Vice President
Rating Committee Chair: Quincy Tang, Managing Director

DBRS Ratings Limited
20 Fenchurch Street, 31st Floor
London
EC3M 3BY
United Kingdom
Registered in England and Wales: No. 7139960

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)
-- Global Methodology for Rating Banks and Banking Organisations
-- Critical Obligations Rating Criteria
-- DBRS Criteria: Support Assessments for Banks and Banking Organisations
-- Legal Criteria for European Structured Finance Transactions
-- Derivative 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
-- Unified Interest Rate Model Methodology for European Securitisations
-- 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.