Fitch Affirms Aareal Bank's Mortgage Pfandbriefe at 'AAA'; Outlook Stable

Tue May 7, 2013 10:54am EDT

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(The following statement was released by the rating agency) LONDON, May 07 (Fitch) Fitch Ratings has affirmed Aareal Bank's (ARB,'A-'/Stable/'F1') outstanding mortgage covered bonds at 'AAA' with a Stable Outlook. The affirmation follows the conclusion of Fitch's periodic review of the credit risk of the cover pool and the cash flow mismatches between the programme's assets and liabilities. KEY RATING DRIVERS The rating is based on ARB's Long-term Issuer Default Rating (IDR) of 'A-', the unchanged Discontinuity Cap (D-Cap) of 4 (Moderate Risk) and the overcollateralisation (OC) that Fitch takes into account in its analysis, which is currently 22.3%. This compares to the breakeven OC of the programme which remains at 21.5%. RATING SENSITVITIES In terms of sensitivity of the covered bonds' rating, the 'AAA' rating would be vulnerable to downgrade if any of the following occurred: (i) the IDR was downgraded by one notch to 'BBB+' or lower; or (ii) the D-Cap fell by one or more categories to 3 (moderate high risk) or lower; or (iii) the OC that Fitch considers in its analysis dropped below Fitch's 'AAA' breakeven level of 21.5%. In its analysis the agency takes into account the lowest reported OC of the past 12 months, which is currently 22.3%. This level of OC supports a 'AA' rating on a probability of default (PD) basis and is sufficient to achieve outstanding recoveries, justifying a two-notch uplift to 'AAA' for the Pfandbriefe rating. In the 'AAA' scenario, Fitch calculated a stressed credit loss of 19.2% compared to 20.4% previously, whereby the stressed defaults and recoveries in this scenario are 76.7% and 75.0%, respectively. The main driver of Fitch's 'AAA' breakeven OC is the stressed credit loss. Fitch notes however somewhat larger asset-liability mismatches compared to 2012's analysis. Similar to 2012, the programme benefits from a noteworthy portion of callable privately placed Pfandbriefe which provide flexibility for managing asset-liability mismatches. Initial open interest and currency positions are significantly mitigated by the inclusion of privileged derivatives in the cover pool. As of end-March 2013, ARB's mortgage Pfandbriefe amounting to EUR10.4bn were secured by a EUR12.7bn cover pool, which led to a nominal OC of around 22.3%. 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 issuance. Therefore the breakeven OC to maintain the covered bond rating cannot be assumed to remain stable over time. More details on the portfolio and Fitch's analysis will be available in a full rating report, which will be shortly available at www.fitchratings.com. Contact: Primary Analyst Martin Kuhn Associate Director +69 768076 132 Fitch Deutschland GmbH Taunusanlage 17 D-60325 Frankfurt am Main Secondary Analyst Vessela Krmnicek, CFA Director +69 768076 298 Committee Chairperson Susanne Matern, CFA Senior Director +49 69 768076 237 Media Relations: Christian Giesen, Frankfurt am Main, Tel: +49 69 768076 232, Email: christian.giesen@fitchratings.com. Additional information is available at www.fitchratings.com. Applicable criteria: 'Covered Bonds Rating Criteria' dated 10 September 2012, 'Covered Bonds Counterparty Criteria' dated 25 July 2012, 'Criteria for the Analysis of Commercial Real Estate Loans Securing Covered Bonds' dated 7 February 2013, 'Criteria for Rating Granular Corporate Balance-Sheet Securitisations (SME CLOs)' dated 28 March 2013 and 'Covered Bonds Rating Criteria - Mortgage Liquidity & Refinance Stress Addendum' dated 14 November 2012 are available at www.fitchratings.com. Applicable Criteria and Related Research Covered Bonds Rating Criteria - Amended here Covered Bonds Counterparty Criteria here Criteria for the Analysis of Commercial Real Estate Loans Securing Covered Bonds here Criteria for Rating Granular Corporate Balance-Sheet Securitisations (SME CLOs) here Covered Bonds Rating Criteria - Mortgage Liquidity & Refinance Stress Addendum here Additional Disclosure Solicitation Status here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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