TEXT - Fitch affirms 2 Portuguese covered bonds

Fri Dec 7, 2012 9:49am EST

Related Topics

(The following statement was released by the rating agency)

Dec 7 - Fitch Ratings has affirmed Banco BPI's (BPI; 'BB+'/Negative) and Banco Comercial Portugues' (BCP; 'BB+'/Negative) Portuguese mortgage covered bonds ('obrigacoes hipotecarias'; OH) at 'BBB'/Negative and 'BBB-'/Negative, respectively. The review of the programmes is driven by Fitch's updated refinancing cost assumptions for Portugal following the publication of the agency's assumptions as regards liquidity gap risks in mortgage covered bond programmes (see 'Covered Bonds Rating Criteria - Mortgage Liquidity & Refinance Stress Addendum' dated 14 November 2012). The ratings are based on BPI's and BCP's Long-term (LT) Issuer Default Rating (IDR) of 'BB+', the Discontinuity Cap (D-Cap) of 0 (full discontinuity) and the over-collateralisation (OC) of 45% and 26.5% respectively, that Fitch takes into account in its analysis. The combination of the issuers' ratings and D-Caps equalizes their covered bond ratings on a probability of default (PD) basis with their IDRs (BPI; 'BB+' and BCP; 'BB+'). The uplift in the instrument ratings are determined solely considering recoveries given issuer's and OH's default. For BPI's covered bonds a two-notch uplift has been assigned based on the current publicly committed OC of 45% which ensures 100% recoveries on all outstanding bonds except the longest dated, which Fitch estimates to receive 71% recoveries in a 'BBB' stress scenario. The 'BBB' rating on BPI's covered bonds would be vulnerable to a downgrade if the issuer's IDR was downgraded or the programme OC dropped below Fitch's break-even OC level of 35%. For BCP's covered bond programme, the publicly committed OC of 26.5% supports a one-notch uplift above the issuer's IDR because it provides at least 51% recoveries on the longest dated bonds assumed to be in default in a 'BBB-' stress scenario. The 'BBB-' rating on BCPs covered bonds would be vulnerable to a downgrade if the issuer's IDR was downgraded or the programme OC dropped below Fitch's break-even OC level of 26.50%. The Fitch breakeven OC for the covered bond rating will be affected, among others, by 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. (Caryn Trokie, New York Ratings Unit)

FILED UNDER: