Morningstar DBRS Assigns AAA Credit Ratings to Banco Bilbao Vizcaya Argentaria S.A. Covered Bonds New Issuances

DBRS Ratings GmbH (Morningstar DBRS) assigned AAA credit ratings to two new series of Cédulas Hipotecarias (CH, Spanish mortgage covered bonds) issued under the Banco Bilbao Vizcaya Argentaria (BBVA) S.A. Covered Bonds programme (BBVA CH or the Programme).

The new CHs are:
-- Cedulas Hipotecarias - ES0413211B09, issued for EUR 1.5 billion, paying a floating-rate coupon of 0.50% above 3-Month Euribor, maturing on 6 June 2031;
-- Cedulas Hipotecarias - ES0413211A91, issued for EUR 2.0 billion, paying a floating-rate coupon of 0.45% above 3-Month Euribor, maturing on 6 June 2030.

Concurrently, Morningstar DBRS discontinued its credit ratings on the Cedulas Hipotecarias - ES0413211071, which matured on 25 February 2025, and on the Cedulas Hipotecarias - ES0413211A18, which was early redeemed on 29 April 2025.

All covered bonds (CBs) issued under the Programme rank pari passu with each other and Morningstar DBRS currently rates them AAA.

The credit ratings are based on the following analytical considerations:
-- A Covered Bonds Attachment Point (CBAP) of AA, which is BBVA's Long Term Critical Obligations Rating. BBVA is the Issuer and Reference Entity (RE) for the Programme.
-- A Legal and Structuring Framework (LSF) Assessment of "Very Strong" associated with the Programme.
-- A Cover Pool Credit Assessment (CPCA) of "A", which is the lowest CPCA in line with the LSF-Implied Likelihood (LSF-L).
-- An LSF-L of AAA.
-- A level of overcollateralisation (OC) of 116.3% to which Morningstar DBRS gives credit, which is the minimum level observed in the last 12 months adjusted by a scaling factor of 0.85.
-- The sovereign rating of the Kingdom of Spain (the Sovereign), rated A (high) with a Stable trend by Morningstar DBRS, as of the date of this press release.

Morningstar DBRS analysed the transaction with its European Covered Bond Cash Flow tool. 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 CP.

Everything else being equal, a one-notch downgrade of the CBAP would lead to a one-notch downgrade of the LSF-L, resulting in a one-notch downgrade of the CB ratings.
In addition, all else unchanged, the CH ratings would be downgraded if any of the following occurred: (1) the CPCA was downgraded below "A"; (2) the sovereign rating of the Kingdom of Spain was downgraded below BBB (low); (3) the LSF assessment associated with the Programme was downgraded to "Average" or below; (4) the relative amortisation profile of the CH and CP moved adversely; or (5) volatility in the financial markets caused the currently estimated market value spreads to increase.

This analysis does not consider the potential recovery uplift of up to two notches from the LSF-L that Morningstar DBRS may apply subject to the level of OC.

The total outstanding amount of CH under the Programme is currently EUR 16.1 billion of which Morningstar DBRS publicly rates EUR 14.3 billion.

As of end March 2025, the assets in the CP amounted to EUR 46.9 billion. This resulted in a total OC of 191.5%.

Spanish CBs are backed by a specific portfolio of assets selected by the Issuer. As of 31 March 2025, the CP comprised 606,620 mortgage loans, with a weighted-average (WA) current indexed loan-to-value ratio of 50.1%. The pool is composed of residential loans (86.3%), commercial loans (12.0%), developers (1.5%), and land (0.1%). The remaining part of the portfolio (0.1%) corresponds to liquid assets to cover the net liquidity outflow of the CB programme over the next 180 days.

The CP is geographically diversified, with higher concentrations in Catalonia (31.5%), Madrid (18.0%) and Andalucia (15.0%). The pool is 8.1 years seasoned.

As is customary in the Spanish market, CH do not benefit from hedging agreements to cover the mismatch between the interest paid by the cover pool (60.4% floating rate linked to different indexes and resets) and the interest paid to the covered bondholders (77.7% floating rate linked to different indexes and resets). This risk is mitigated by the OC available and has been accounted for in Morningstar DBRS´s cash flow analysis.

There is one foreign-currency CH amounting to a nominal of NOK 1.1 billion, equivalent to EUR 96.6 million at the spot rate as of 31 March 2025 (0.6% of the CH outstanding). Of the loans, around 0.4% were originated in a currency other than euros. Morningstar DBRS considers this exposure to be negligible and to be mitigated by the available OC.

The WA life of the assets is 10.0 years while that of the covered bonds, s of the date of this press release, is 2.8 years. This maturity mismatch is mitigated by the available OC.

Morningstar DBRS has assessed the LSF related to the Programme as "Very Strong" according to its "Global Methodology for Rating and Monitoring Covered Bonds". For more information, please refer to Morningstar DBRS's "Spanish Mortgage Covered Bonds: Legal and Structuring Framework Review", "The Updated Law on Spanish Covered Bonds: Well Aligned with the European Directive", and "Morningstar DBRS Reviews Its Legal and Structuring Framework Assessment for Spanish Covered Bonds" (4 June 2025) commentaries, which can be found on https://dbrs.morningstar.com/.

Morningstar DBRS' credit ratings on Cedulas Hipotecarias - ES0413211B09 and Cedulas Hipotecarias - ES0413211A91 address the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents. The associated financial obligations are the related interest payment amounts and the related principal amount.

Morningstar DBRS' long-term credit ratings provide opinions on risk of default. Morningstar DBRS considers risk of default to be the risk that an issuer will fail to satisfy the financial obligations in accordance with the terms under which a long-term obligation has been issued.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS
Credit rating actions on the Issuer are likely to have an impact on this credit rating.
ESG factors that have a significant or relevant effect on the credit analysis of the issuer are discussed separately at https://dbrs.morningstar.com/research/448522.

ESG Considerations had a relevant effect on this credit analysis: the Social factors affect this Programme as the Social factors for the Sovereign and the Issuer are passed through to the rated CBs issued under this Programme, given that the CBAP would be affected by changes of the credit ratings of the Sovereign and the Issuer driven by these factors. However, this change wouldn't affect the credit ratings of the rated CBs issued under this Programme.

There were no Environmental nor Governance factors that had a significant or relevant effect on the credit analysis.
A description of how Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the "Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings" at https://dbrs.morningstar.com/research/454196.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the credit ratings is "Global Methodology for Rating and Monitoring Covered Bonds" (25 March 2025), https://dbrs.morningstar.com/research/450542.Other methodologies referenced in this transaction are listed at the end of this press release.

In Morningstar DBRS' opinion, the changes under consideration do not require the application of the entire principal methodology. Therefore, Morningstar DBRS focused on the cash flow analysis.
A review of the transaction legal documents was limited to the documentation pertaining to the issuance of Cedulas Hipotecarias - ES0413211B09 and Cedulas Hipotecarias - ES0413211A91. All the other documents have remained unchanged since the most recent credit rating action.For a more detailed discussion of the sovereign risk impact on Structured Finance credit ratings, please refer to "Appendix C: The Impact of Sovereign Credit Ratings on Other Morningstar DBRS Credit Ratings" of the "Global Methodology for Rating Sovereign Governments" at: https://dbrs.morningstar.com/research/436000.

The sources of data and information used for this credit rating include CP stratification tables as of 30 September 2024, provided by the Issuer.

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

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

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

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

These credit ratings concern newly issued financial instruments. This is the first Morningstar DBRS credit rating on these financial instruments.

The last credit rating action on this transaction took place on 7 February 2025, when Morningstar DBRS confirmed its AAA credit ratings of the CBs outstanding under the Programme.

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

For further information on Morningstar DBRS historical default rates published by the European Securities and Markets Authority (ESMA) in a central repository, see: https://registers.esma.europa.eu/cerep-publication. For further information on Morningstar DBRS historical default rates published by the Financial Conduct Authority (FCA) in a central repository, see https://data.fca.org.uk/#/ceres/craStats.

These credit ratings are endorsed by DBRS Ratings Limited for use in the United Kingdom.

Lead Analyst: Antonio Laudani, Vice President, Credit Ratings
Rating Committee Chair: Ketan Thaker, Managing Director
Initial Rating Date: 20 February 2013

DBRS Ratings GmbH, Sucursal en España
Paseo de la Castellana 81, Plantas 26 & 27
28046 Madrid, Spain
Tel. +34 (91) 903 6500

DBRS Ratings GmbH
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60311 Frankfurt am Main Deutschland
Tel. +49 (69) 8088 3500
Geschäftsführung: Detlef Scholz, Marta Zurita Bermejo
Amtsgericht Frankfurt am Main, HRB 110259

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

-- Global Methodology for Rating and Monitoring Covered Bonds (25 March 2025),
https://dbrs.morningstar.com/research/450542
-- Global Methodology for Rating Banks and Banking Organisations (23 May 2025),
https://dbrs.morningstar.com/research/454637
-- European RMBS Insight Methodology (8 May 2025) and European RMBS Insight model v 10.1.0.1, https://dbrs.morningstar.com/research/453613
-- Legal and Derivative Criteria for European Structured Finance Transactions (19 November 2024), https://dbrs.morningstar.com/research/443196
-- Interest Rate Stresses for European Structured Finance Transactions (24 September 2024), https://dbrs.morningstar.com/research/439913
-- Operational Risk Assessment for European Structured Finance Originators and Servicers (18 September 2024),
https://dbrs.morningstar.com/research/439571
-- Rating CLOs Backed by Loans to European SMEs (5 June 2025) and SME Diversity Model v. 2.7.1.5, https://dbrs.morningstar.com/research/455697
-- Global Methodology for Rating CLOs and Corporate CDOs (19 November 2024),
https://dbrs.morningstar.com/research/443207
-- Global Methodology for Rating Sovereign Governments (15 July 2024),
https://dbrs.morningstar.com/research/436000
-- Currency Stresses for Global Structured Finance Transactions (19 November 2024), https://dbrs.morningstar.com/research/443202.
-- Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings (16 May 2025),
https://dbrs.morningstar.com/research/454196

A description of how Morningstar DBRS analyses structured finance transactions and how the methodologies are collectively applied can be found at: https://dbrs.morningstar.com/research/439604.

For more information on this credit or on this industry, visit dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.