DBRS Confirms Caixa Ecónomica Montepio Geral CPT Covered Bonds Ratings

DBRS Ratings Limited (DBRS) has today confirmed the “A” ratings of the Obrigações Hipotecárias (OH, the Portuguese mortgage Covered Bonds) which are outstanding under the Caixa Ecónomica Montepio Geral Covered Bonds (Obrigações Hipotecárias – Mortgages – CPT) programme (Montepio OH, or the Programme).

There are currently five series of OH with a nominal amount of EUR 2.3 billion outstanding under the Programme.

This rating action follows the execution of some amendments to the Programme’s terms and conditions (the Amendments), as approved by a bondholders’ meeting held on 22 February 2017, finalized to excluding the Breach of OC Percentage from the definition of Issuer Events (i.e., the events that trigger the pass-through provisions of the Programme).

Following the execution of the Amendments, the Breach of OC Percentage, which occurs if the OC level falls below the higher of (1) the minimum legislative level of OC (5.26%) and (2) the committed OC (currently 18%), no longer implies the change to a pass-through structure for the Programme. DBRS deems the Amendments as having a neutral impact on the rating of the covered bonds outstanding under the Programme.

The ratings reflect the following analytical considerations:

-- A Covered Bonds Attachment Point (CBAP) of BB. Caixa Ecónomica Montepio Geral (Montepio) is the Issuer and Reference Entity for the Programme. DBRS has not assigned a COR to the Issuer, and does not classify Portugal as a jurisdiction in which covered bonds are a particularly important funding instrument.
-- 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 of 18%. DBRS gives full credit to such commitment in accordance with its methodology. Such a level is not subject to a haircut, as DBRS has observed that it has been persistent for the past 24 months.

The transaction was modelled using the DBRS European Covered Bond Cash Flow Model. The main assumptions focused on the timing of defaults and recoveries of the 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 a two-notch uplift for high recovery prospects.

The total outstanding amount of OH is currently EUR 2.3 billion, while the aggregate balance of the cover pool (as of 31 December 2016) in the CP is EUR 2.73 billion, including EUR 2.72 billion of mortgages and EUR 6.4 million of cash, resulting in a total OC of 18.7%.

As of December 2016, the cover pool comprised 58,036 residential mortgage loans with a weighted-average current unindexed loan-to-value ratio of 53.2%. It is geographically concentrated in Lisbon (37%) and northern Portugal (28%). The pool is 10.6 years seasoned.

The vast majority of the loans in the cover pool (approximately 94%) are floating-rate, while all OH Series are floating-rate, indexed to 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 comply with DBRS’s “Derivative Criteria for European Structured Finance Transactions” methodology.

All CP assets and all OH are denominated in euros. As such, investors are not currently exposed to any foreign exchange risk.

DBRS has assessed the LSF related to the Programme as Adequate, 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.

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

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable is Rating European Covered Bonds.

In DBRS’s opinion, the change under consideration does not require the application of the entire principal methodology. Therefore, DBRS focused on a cash flow analysis.

A review of the transaction legal documents was limited to the terms and conditions of the Programme, affected by the Amendments. All the other documents have remained unchanged since the most recent rating action.

Other methodologies referenced in this transaction are listed at the end of this press release. These may be found on www.dbrs.com at: http://www.dbrs.com/about/methodologies.

For a more detailed discussion of the 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 data and information used for this rating include historical default performance data, loan-by-loan data and stratification tables on the cover pool provided by the Issuer.

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

DBRS did not rely upon third-party due diligence in order to conduct its analysis.

At the time of the initial rating, DBRS was not supplied with third-party assessments. However, this did not impact the rating analysis.

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

DBRS does not audit or independently verify the data or information it receives in connection with the rating process.

The last rating action on this transaction took place on 16 December 2016, when DBRS assigned the rating of “A” to Series 7 and 8.

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

For further information on DBRS historical 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.

Lead Analyst: Antonio Laudani, Vice President
Rating Committee Chair: Vito Natale, Senior Vice President
Initial Rating Date: 30 November 2011

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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
-- The Effect of Sovereign Risk on Securitisations in the Euro Area

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.