TEXT-S&P rates BBVA's mortgage covered bonds 'A-'

Wed Nov 21, 2012 11:15am EST

OVERVIEW
     -- We are assigning our 'A-' rating to Banco Bilbao Vizcaya Argentaria 
S.A.'s (BBVA) mortgage covered bonds. The outlook is negative.
     -- The ratings incorporate the maximum possible uplift under our covered 
bond criteria, in line with BBVA's current overcollateralization levels. 
     -- The negative outlook reflects the fact that any negative rating action 
on the bank would, all else being equal, lead us to lower the covered bond 
ratings by the same number of notches.
    
     Nov 21 - tandard & Poor's Ratings Services today assigned its 'A-'
long-term credit rating to the mortgage covered bonds ("cedulas hipotecarias")
issued by Banco Bilbao Vizcaya Argentaria S.A. (BBVA; BBB-/Negative/A-3). The
outlook is negative (see list below).

The covered bonds are senior secured debt issued by BBVA. To assign the 
rating, we applied our 2009 covered bond criteria (see "Revised Methodology 
And Assumptions For Assessing Asset-Liability Mismatch Risk In Covered Bonds" 
published on Dec. 16, 2009).

Under our criteria for rating covered bonds, we evaluate the maximum potential 
rating on a covered bond program as the bank's issuer credit rating (ICR) plus 
the maximum number of notches of ratings uplift. The maximum number of notches 
of uplift results from our assessment and classification of the program's 
asset-liability mismatch (ALMM) risk and the program categorization.

When determining the program categorization, we consider primarily our view of 
the jurisdiction of a program and its ability to access external financing or 
monetize the cover pool. We then assign the covered bonds to one of three 
distinct categories. Under our criteria, to achieve the maximum potential 
number of notches of uplift, the available credit enhancement needs to be 
commensurate with the target credit enhancement.

Following our analysis, and given our view of the Spanish legal framework, we 
have categorized BBVA's mortgage covered bonds in category "1" and determined 
a "low" ALMM classification. Under our criteria, these combinations enable us 
to assign to the covered bonds a maximum potential ratings uplift of seven 
notches above our long-term ICR on BBVA.

Based on our criteria and the application of our credit and cash flow stresses 
from the latest information we received from the issuer, we have assessed that 
the overcollateralization available to support BBVA's cedulas hipotecarias is 
commensurate with a three notch ratings uplift above the 'BBB-' ICR on BBVA. 
Therefore, we have assigned our 'A-' long-term rating to BBVA's mortgage 
covered bonds. 

At the same time, we have assigned a negative outlook to the 'A-' rating on 
these covered bonds. This reflects the fact that, all other things remaining 
equal, any rating action on BBVA would automatically lead to a corresponding 
rating action on its covered bonds.

Our ratings on BBVA's mortgage covered bonds follow our analysis of the 
issuer's asset as of Aug. 31, 2012, and liability information to date.

We assess the cover pool's credit risk as per our "Criteria for Rating Spanish 
Residential Mortgage-Backed Securities," published on March 1, 2002, 
"Methodology And Assumptions: Update To The Cash Flow Criteria For European 
RMBS Transactions," published on Jan. 6, 2009, "Principles Of Credit Ratings," 
published on Feb. 16, 2011, and "Covered Bond Ratings Framework: Methodology 
And Assumptions," published June 26, 2012. 

We evaluate cash flows generated by the cover pool, and the cash flow required 
to service outstanding covered bonds under severe economic conditions. This 
evaluation aims to determine whether the assets in the cover pool are 
sufficient to meet the payments on the covered bonds in a timely manner.

Our cash flow analysis assesses the cover pool's performance by considering:
     -- Credit risk (as described in the paragraphs below);
     -- Interest rate and currency risk;
     -- ALMM risk resulting from cash flow mismatches between assets and 
liabilities in terms of maturity, and from market value mismatches if the 
program has to liquidate assets;
     -- Prepayment risk and servicing costs; and
     -- An appropriate stress-testing of these risks, using our cash flow 
model (Imake).
  

In our modeling, we use cash flow assumptions as per our general cash flow 
criteria ("Cash Flow Criteria for European RMBS Transactions," published on 
Nov. 20, 2003, and "Methodology And Assumptions: Update To The Cash Flow 
Criteria For European RMBS Transactions" published on Jan. 6, 2009), because 
we consider these also apply to covered bonds, due to the similar cash flow 
risk nature of residential mortgage-backed securities (RMBS) and covered bonds.

The ratings on the covered bonds reflect our expectation of timely payment of 
interest and ultimate repayment of principal by the final maturity date of the 
covered bonds.

As of Aug. 31, 2012, the key characteristics of the combined residential 
mortgage books of the three entities were:

Classification of ALMM mismatch                      Low
Program categorization                               1 
Maximum potential rating*                            AA- 
Maximum rating, given current 
  overcollateralization level                       A-
Current available credit enhancement (%)             53.24
Target credit enhancement commensurate with
  the highest credit rating (%)                      60.58


Note: we calculate the current credit enhancement as assets /liabilities. 
*Limited by "Nonsovereign Ratings That Exceed EMU Sovereign Ratings: 
Methodology And Assumptions."


LIABILITIES MATURITY PROFILE


Year         Percentage of covered
              bonds outstanding (%)

2013              12.96
2014              12.73
2015              7.10
2016              8.79
2017              10.13
2018              6.11
2019              3.75
2020              3.83
2021              2.85
2022              3.74
2023              7.48
2024              3.26
2025              3.74
2026              4.67
2027              3.74

TOTAL             100.00


Currently BBVA has outstanding mortgage covered bonds for EUR53.4 billion, with 
a weighted-average life of 6.52 years and the highest maturity concentration 
taking place in 2013 (15.80% of the outstanding notes). 


MORTGAGE BOOK CHARACTERISTICS

Residential Mortgage Loan Book

Principal balance (EUR)                     65,575,143,054
Total number of loans                              783,188
Average loan size (EUR)                             96,271
Weighted-average LTV ratio (%)                       58.80
Weighted-average seasoning (months)                  58.52
Weighted-average term to maturity (months)             258
Floating-rate loans (%)                              96.82
Weighted-average margin (bps)                          104
LTV--Loan-to-value.

Nonresidential Mortgage Loan Book

Principal balance (EUR)                     16,394,148,781
Total number of loans                               48,098
Average loan size (EUR)                            201,563
Weighted-average LTV ratio (%)                       43.74
Weighted-average seasoning (months)                  44.32
Weighted-average term to maturity (months)             120
Floating-rate loans (%)                              84.62
Weighted-average margin (bps)                          150
LTV--Loan-to-value.


The above characteristics are based on the information as provided by the 
issuer and the principal balances we incorporate  in our analysis. We include 
developers in the nonresidential analysis and give no credit to land. We 
consider the available credit enhancement to be 53.24%.


MORTGAGE LOAN BOOK GEOGRAPHIC DISTRIBUTION (%)

Andalucia           18.64
Aragon              1.87
Asturias            1.58
Balearic Islands    2.98
Basque Country      3.69
Canary Islands      5.52
Cantabria           0.93
Castilla-La Mancha  3.31
Castilla-Leon       3.83
Catalonia           18.37
Extremadura         1.62
Galicia             4.40
La Rioja            0.52
Madrid              17.51
Murcia              2.18
Navarra             0.65
Valencia            11.81
Others              0.62


Although BBVA operates throughout Spain, the highest concentrations are in 
Madrid, Andalucia, and Catalonia, which are regions with higher demographic 
density and where BBVA has been more active.

We assessed the likelihood that the borrowers would default on their mortgage 
payments (the foreclosure frequency), and the amount of loss on the subsequent 
sale of the property (the loss severity, expressed as a percentage of the 
outstanding loan). We determined the total mortgage balance that we assume 
will default, and the total amount of this defaulted balance that is not 
recovered for the entire residential book, by calculating the weighted-average 
foreclosure frequency (WAFF) and the weighted-average loss severity (WALS).

The product of the WAFF and WALS is the net loss that we assume may affect the 
portfolio in a 'AAA' scenario. At the 'AAA' level, the WAFF and WALS results 
were:

Weighted Average WAFF and Weighted Average WALS:
WAFF (%)                                       38.89
WALS (%)                                       41.67
Assumed net credit loss (WAFF x WALS) (%)      16.21


Our assessment indicated that this combination of factors, along with the 
appraisal of other risk factors, is commensurate with a 'A-' rating on BBVA's 
cedulas hipotecarias.



RELATED CRITERIA AND RESEARCH

     -- Covered Bond Ratings Framework: Methodology And Assumptions, June 26, 
2012
     -- Counterparty Risk Framework Methodology And Assumptions, May 31, 2012
     -- Covered Bonds Counterparty And Supporting Obligations Methodology And 
Assumptions, May 31, 2012
     -- Assessing Asset-Liability Mismatch Risk In Covered Bonds: Revised 
Methodology And Assumptions For Target Asset Spreads, April 24, 2012
     -- Nonsovereign Ratings That Exceed EMU Sovereign Ratings: Methodology 
And Assumptions, June 14, 2011
     -- Principles Of Credit Ratings, Feb. 16, 2011
     -- Methodology: Credit Stability Criteria, May 3, 2010
     -- Revised Methodology And Assumptions For Assessing Asset-Liability 
Mismatch Risk In Covered Bonds, Dec. 16, 2009 
     -- Use Of CreditWatch And Outlooks, Sept. 14, 2009
     -- Update To The Cash Flow Criteria For European RMBS Transactions, Jan. 
6, 2009
     -- Update to The Criteria For Rating Spanish Residential Mortgage Backed 
Securities, Jan. 6, 2009
     -- European Legal Criteria For Structured Finance Transactions, Aug. 28, 
2008
     -- Cash Flow Criteria For European RMBS Transactions, Nov. 20, 2003
     -- Criteria For Rating Spanish Residential Mortgage-Backed Securities, 
March 1, 2002


RATINGS LIST

                                         Rating
Program/            
Country: Covered bond type

RATINGS ASSIGNED; NEGATIVE OUTLOOK

Banco Bilbao Vizcaya Argentaria S.A.     A-/Negative

Spain: Mortgage Covered Bonds ("Cedulas Hipotecarias")
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