DBRS Confirms Banco Popular Portugal S.A. Obrigações Hipotecárias at A (low)

DBRS Ratings Limited (DBRS) confirmed at A (low) the ratings of the Obrigações Hipotecárias (OH, i.e. the Portuguese mortgage Covered Bonds) which are outstanding under the Banco Popular Portugal S.A. Covered Bonds (Obrigações Hipotecárias - Mortgages) programme (BPP OH or the Programme). This rating action follows the completion of a full review of the ratings.

There are currently three series of OH outstanding under the Programme, with a nominal amount of EUR 815 million.

The ratings reflect the following analytical considerations:

-- A Covered Bonds Attachment Point (CBAP) of BBB (high). BPP is the Issuer and Reference Entity for the Programme. DBRS has not assigned a Critical Obligations Rating 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 Modest associated with the Programme.
-- An LSF-L of BBB (high).
-- A one-notch uplift for good recovery prospects.
-- A level of overcollateralisation (OC) to which DBRS gives credit of 9.0%, being the minimum observed OC level during the past 12 months adjusted by a scaling factor of 0.90.

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, interest rate stresses and market value spreads to calculate liquidation values on the cover pool (CP).

While the Cover Pool Credit Assessment (CPCA) did not materially affect the rating of the OH, DBRS determined a CPCA of BB. As a result, everything else being equal, a two-notch downgrade of the CBAP would lead to a one-notch downgrade of the LSF-L, resulting in a one-notch downgrade of the covered bonds rating. In addition, the ratings of the OH would be downgraded if the quality of the CP and the level of OC were no longer sufficient to support a one-notch uplift for good recovery prospects.

The total outstanding amount of OH is currently EUR 815 million, while the aggregate balance of the mortgages in the CP is EUR 929 million (as of 30 June 2017), resulting in a total OC of 14.0%.

As of June 2017, the CP comprised 11,583 mortgage loans with a weighted-average current unindexed loan-to-value ratio of 54.9%, with an 88% residential and 12% commercial loans split. It is geographically concentrated in Lisbon (54%) and northern Portugal (23%). The pool is 91 months seasoned.

The vast majority of the loans in the CP (approximately 96%) are floating rate while all OH Series are floating rate, indexed to one-month Euribor.

No swap agreements are in place in the Programme.

The weighted-average life of the assets is approximately 14.9 years while that of the covered bonds is 0.7 years. This generates an asset-liability mismatch that is partly mitigated by the 12-month maturity extension of the OH and by the available OC.

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 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.

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 to the rating is: Rating European Covered Bonds.

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 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 the 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 these ratings include historical performance data, loan-by-loan data and stratification information on the cover pool 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 these ratings 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 9 June 2017, when DBRS upgraded to A (low) from BBB (low) its ratings to the OH outstanding under the Programme.

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 and US regulations only.

Lead Analyst: Antonio Laudani, Vice President
Rating Committee Chair: Gareth Levington, Managing Director
Initial Rating Date: 31 August 2012

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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)
-- Global Methodology for Rating 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
-- 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
-- Rating CLOs and CDOs of Large Corporate Credit
-- Rating CLOs Backed by Loans to European Small and Medium-Sized Enterprises (SMEs)
-- 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.