TEXT-Fitch affirms BRE Bank Hipoteczny covered bonds at 'A'
Nov 27 - Fitch Ratings has affirmed BRE Bank Hipoteczny SA's (BBH; 'A'/Stable/'F1') mortgage and public sector covered bonds' rating at 'A' with a Stable Outlook following a periodic review of the programmes. The ratings are based on BBH's Long-term Issuer Default Rating (IDR) of 'A' and the Discontinuity Cap (D-Cap) of 0 (full discontinuity). In terms of sensitivity of the covered bonds' rating, the 'A' ratings would be vulnerable to downgrade if BBH's IDR was downgraded by one or more notches. The D-Cap of 0 is driven by the full discontinuity risk assessment of the liquidity gap and systemic risk component reflecting the absence of any mandatory liquidity provision in the Polish covered bonds legislation. Combined with insufficient marketability of the predominantly commercial cover assets for the mortgage pool and exclusively loans as asset type in the public sector programme, the agency considers this risk as the weakest link for both programmes. The agency could not conduct recovery uplift analysis due to the lack of detailed information on the cover assets, in particular missing property information for the mortgage cover pool and missing debtor information for the public sector pool. For the first time, Fitch has assigned risk assessments for the D-cap components cover pool- specific alternative management and privileged derivatives. The asset segregation and systemic alternative management components will be assessed by the end of January when Fitch will have had sufficient time to review the legal opinion that it received this month. The cover pool-specific alternative management for the mortgage pool (high) is driven by the lack of data delivered by the issuer, especially at the property level. The majority of the mortgage programme consists of commercial loans. Fitch considers commercial assets more difficult to service than residential loans. For the public sector pool, this assessment (moderate) is also driven by the missing data but also by the asset type composition of the cover pool. Fitch considers the servicing of loans more difficult than the servicing of bonds. The issuer publicly commits to maintain a nominal OC of 10% for the mortgage and 6% for the public sector covered bonds. As of 30 September 2012 the mortgage covered bonds amounted to PLN1.7bn and were secured by a cover pool of PLN2.5bn assets. The mortgage cover pool consists predominantly of commercial mortgage loans (99%), the remainder are residential loans. All covered bonds are denominated in Polish zloty whereas only 39% of the cover assets are denominated in Polish zloty and the majority of 56% is EUR-denominated which leads to relatively high currency mismatches. The remaining assets are USD-denominated. Interest rate mismatches are minor as more than 99% of assets have floating interest rates compared to 100% of the covered bonds. As of 30 September 2012, the public sector covered bonds amounted to PLN0.45bn and were secured by a cover pool of PLN0.57bn assets. Of the cover assets, 33.4% are loans granted to Polish local government institutions and the remaining 66.6% loans are granted to other public entities guaranteed by local government institutions. Since all cover assets and covered bonds are denominated in Polish zloty and bear a floating interest rate, there is no currency risk and only minor interest rate risk for the public sector covered bonds. Long-term IDR: 'A'/Stable Mortgage Covered Bond Rating: 'A'/Stable D-Cap: 0 (full discontinuity) Asset segregation: N/A Liquidity gap and systemic risk: full discontinuity Cover pool-specific alternative management: high Systemic alternative management: N/A Privileged derivatives: very low Long-term IDR: 'A'/Stable Public Sector Covered Bond Rating: 'A'/Stable D-Cap: 0 (full discontinuity) Asset segregation: N/A Liquidity gap and systemic risk: full discontinuity Cover pool-specific alternative management: moderate Systemic alternative management: N/A Privileged derivatives: very low Additional information is available at 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 10 September 2012, 'Covered Bonds Rating Criteria - Public Sector Spread Assumption Addendum, dated 28 November 2011 Applicable Criteria and Related Research: Covered Bonds Rating Criteria - Amended Covered Bonds Rating Criteria - Public Sector Liquidity & Spread Assumption Addendum
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