TEXT-Fitch affirms Achmea's covered bonds at 'AAA'
June 19 - Fitch Ratings has affirmed Achmea Hypotheekbank N.V.'s (Achmea, 'A-'/Stable/'F2') outstanding covered bonds at 'AAA' following a review of the programme. The outstanding covered bonds total EUR2.907bn and are guaranteed by Achmea Covered Bond Company B.V. (the CBC), a special purpose company established under Dutch Law. The rating of the covered bonds is based on Achmea's Long-term Issuer Default Rating (IDR) of 'A-' and Discontinuity Factor (D-Factor) of 17.6%, which enable the mortgage covered bonds to be rated as high as 'AA+' on a probability of default (PD) basis. The rating also reflects the quality of the collateral and the over-collateralisation (OC), which is sufficient to pass 'AA+' stress scenarios and provide for a one notch uplift for high recoveries under 'AAA' stresses, given default of the covered bonds. All else being equal, the covered bonds can remain at 'AAA' as long as Achmea's LT IDR is at least 'A-'. The D-Factor is driven mainly by the strong asset segregation of the cover pool, the 12 months extendible maturity of the covered bonds and three month interest reserve that protect against liquidity gaps following issuer insolvency. Fitch also analysed the contractual provisions for alternative management post-issuer insolvency and the swap counterparty arrangements in place. In a 'AAA' stress, expected recoveries given default of the covered bonds exceed 51%. Under Fitch's methodology, this enables Achmea to be rated 'AAA' when giving credit to recoveries. The asset percentage (AP) supporting the assigned ratings decreased to 75.0%, from 78.3%. The change in the AP supporting the rating is driven by Fitch's updated Dutch mortgage loss criteria (see 'Fitch Updates Dutch Residential Mortgage Loss & Cash Flow Assumptions ' dated 14 June 2012 at www.fitchratings.com) and the increasing level of asset and liability mismatch in the programme. The AP supporting the rating is higher than the highest observed AP over the past 12 months of 73.5%. As of 30 April 2012, the cover pool consisted of 47,944 loan parts made to 22,045 borrowers, with an aggregate outstanding balance of EUR3.940bn. The portfolio has a weighted-average (WA) original loan to foreclosure value of 82.1% and a WA current loan to market value of 78.8%. Of the cover pool, 57.7% are interest-only mortgages, 88.1% are fixed-rate and the pool is well-seasoned with a WA seasoning of 7.6 years. The portfolio is well-diversified over the Dutch regions. In a 'AAA' stress scenario, Fitch has calculated the pool's cumulative WA frequency of foreclosure to be 16.3% with a WA loss severity of 49.3%. Fitch modelled the cover pool and covered bonds in a wind-down situation, assuming the issuer is insolvent. Due to the shorter WA remaining time to maturity of the covered bonds versus that of the cover pool (1.5 years versus 15.2 years), liquidity has to be raised from the pool in order to pay the covered bonds on a timely basis. The agency assumes this will be done by selling parts of the portfolio at a stressed cost. The cover pool yields a mix of fixed and floating interest, while the covered bonds are issued at a fixed rate. Interest mismatches on the cover pool are hedged by Achmea, with Royal Bank of Scotland plc ('A'/Stable/'F1') acting as back-up swap provider. The interest and currency mismatches on the covered bonds are fully hedged by various external swap counterparties, which meet the minimum thresholds under Fitch's covered bond counterparty criteria. The level of AP supporting the rating will be affected by various factors including the profile of the cover assets relative to outstanding covered bonds, which can change over time, even in the absence of new issuances. Therefore it cannot be assumed to remain stable over time. Fitch has published an exposure draft outlining a number of enhancements to its criteria for rating covered bonds (see 'Fitch: Exposure Draft: Global Covered Bonds Rating Criteria' dated 30 May 2012 at www.fitchratings.com). If implemented as proposed, the criteria changes would not impact the rating of Achmea's covered bonds. Additional information is available on www.fitchratings.com. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings. Applicable criteria, 'Covered Bonds Rating Criteria', dated 30 May 2012, 'Covered Bonds Counterparty Criteria', dated 13 March 2012, 'EMEA Residential Mortgage Loss Criteria Addendum - Netherlands', dated 14 June 2012 and 'EMEA Residential Mortgage Loss Criteria', dated 7 June 2012 are available on www.fitchratings.com. Applicable Criteria and Related Research: Covered Bonds Rating Criteria Exposure Draft: Covered Bonds Counterparty Criteria EMEA Criteria Addendum - Netherlands - Mortgage Loss and Cash Flow Assumptions EMEA Residential Mortgage Loss Criteria
- Tweet this
- Share this
- Digg this