RPT-Fitch rates Banco Mare Nostrum's EUR500m mortgage covered bonds final 'BBB+'

Mon Jan 27, 2014 6:12am EST

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Jan 27 (Reuters) - (The following statement was released by the rating agency)

Fitch Ratings has assigned Banco Mare Nostrum's (BMN, BB+/Negative/B) issue of EUR500m mortgage covered bonds (Cedulas Hipotecarias or CH) a 'BBB+' final rating with a Negative Outlook.

KEY RATING DRIVERS

Outstanding CHs under BMN'€™s CH programme after the new issue's settlement date on 21 January 2014 has increased to EUR12bn (from EUR11.5bn), which is secured by the bank's total mortgage book of about EUR20.5bn, resulting in nominal overcollateralisation (OC) of 71%. This compares with BMN's public minimum OC commitment of 67% to which the agency has given credit in its analysis.

The rating assigned to the new CH issue is based on BMN's Long-term Issuer Default Rating (IDR) of '€˜BB+'€™, a Discontinuity-Cap (D-Cap) of 1 (very high discontinuity risk), and our assessment of recoveries.

It also reflects that the relied-upon OC for the entity's CH programme of 67% is greater than the programme's break-even OC of 44% that is commensurate with a 'BBB+' rating. In our opinion, this 44% OC would provide for outstanding recoveries in excess of 91% to CH investors under a 'BBB+' stress following an assumed CH default.

The Negative Outlook on the programme's rating is driven by the Outlook on BMN's IDR.

RATING SENSITIVITIES

A downgrade of BMN's IDRs by two notches or more to 'BB-' or below would result in a downgrade of the CH programme.

Moreover, the rating is vulnerable to downgrade if the programme's relied-upon OC drops below the break-even OC ratio of 44%. If OC falls to the legal minimum of 25% the rating may be downgraded by a notch.

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