DBRS Confirms Caixa Económica Montepio Geral Covered Bonds (Obrigações Hipotecárias - Mortgages - CPT) at “A”

DBRS Ratings Limited (DBRS) has today confirmed its “A” ratings on the outstanding Obrigações Hipotecárias (OH; the Portuguese legislative Covered Bonds) issued under the Caixa Económica Montepio Geral (Montepio or the Issuer) CPT Covered Bonds programme (the Programme). The confirmation follows the completion of a full review of the Programme.

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

The ratings are based on the following analytical considerations:
-- A Covered Bonds Attachment Point (CBAP) of BB, being the Senior Unsecured Long-Term Debt & Deposit rating of Montepio. 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 commitment in accordance with its principal methodology. Such a level is not subject to haircut as DBRS considers it to be persistent based on historically observed levels.

The transaction was modelled with 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 CB rating by one notch. In addition, everything else being equal, the ratings of the Programme would be downgraded if any of the following occurred: (1) the CPCA was downgraded below A (low); (2) the LSF Assessment associated with the Programme was downgraded; or (3) the quality of the cover pool (CP) and the level of OC were no longer sufficient to support a two-notch uplift for high recovery prospects.

The aggregated outstanding balance of the cover pool (as of 31 March 2017) backing Montepio’s OH was EUR 2.73 billion, including EUR 2.72 billion of mortgages and EUR 6.4 million of cash. The total amount of liabilities outstanding is EUR 2.3 billion, yielding a current OC ratio of 18.7%. The Issuer has publicly committed to maintain an OC level of 18.0%.

As of March 2017, the cover pool comprised 58,755 residential mortgage loans with a weighted-average (WA) current unindexed loan-to-value ratio of 52.8%. It is geographically concentrated in Lisbon (37%) and northern Portugal (28%). The pool is 10.8 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 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.

As of today, the DBRS-calculated WA life of the CP was roughly 13 years based on a 0% prepayment rate, which is longer than the 6.3 year WA life on the OH, not accounting for any extension of maturity. This is mitigated by the conditional pass-through (CPT) nature of the OH. All CP assets and 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,” “Portuguese Covered Bonds: Legal and Structuring Framework Review” and “DBRS Upgrades Caixa Económica Montepio Geral Covered Bonds to A (high) Upon Restructuring in CPT, Removes UR-D,” which are available at www.dbrs.com.

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

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the rating is “Rating European Covered Bonds”. This can be found at www.dbrs.com 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 surveillance section of the principal methodology.

A review of the transaction legal documents was not conducted as the legal 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 investor reports, loan-by-loan data on the CP and historical default performance data provided by the Issuer.

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 22 May 2017, when DBRS assigned an “A” rating to Series 9.

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: Roger Bickert, Vice President
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: 1 December 2011

DBRS Ratings Limited
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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
-- 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

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