Fitch Affirms Berlin Hyp's Public Sector Pfandbriefe at 'AA-'; Outlook Stable

Fri Feb 7, 2014 9:34am EST

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(The following statement was released by the rating agency) FRANKFURT/LONDON, February 07 (Fitch) Fitch Ratings has affirmed Berlin Hyp AG's (Berlin Hyp; A+/Stable/F1+) outstanding public sector Pfandbriefe at 'AA-' with a Stable Outlook. KEY RATING DRIVERS The rating is based on Berlin Hyp's Long-term Issuer Default Rating (IDR) of 'A+', an unchanged Discontinuity Cap (D-Cap) of 4 (moderate risk) and the legal minimum overcollateralisation (OC), which is the higher of 0% on a nominal basis and 2% on a stressed net present value basis. Fitch deems this programme dormant and in the absence of a public OC statement, only takes into account the legal minimum. This level of OC allows for a one-notch recovery uplift above Berlin Hyp's 'A+' IDR due to recovery prospects (51% - 70%) on the bonds. The Stable Outlook on the public sector Pfandbriefe is reflects that on Berlin Hyp's IDR. The D-Cap of 4 is driven by a moderate risk assessment of the cover pool-specific alternative management component. This risk assessment reflects an increased risk of cover pool deterioration typically seen for dormant programmes. Asset segregation and liquidity gap & systemic risk have been classified as low risk. Systemic alternative management and privileged derivatives have been assessed as very low risk. As of end-September 2013, around 87% of the cover assets were either directly exposed to or guaranteed by the German sovereign or its federal states. Berlin Hyp's EUR4.7bn outstanding public sector Pfandbriefe are secured by a cover pool of EUR5.2bn, resulting in nominal OC of 9.7%. The programme's asset and liability profile is well-matched, with a weighted average residual maturity of 4.5 years for the cover assets and 5.2 years for the Pfandbriefe. All liabilities and assets, except a negligible Swiss franc loan representing 0.03% of the total cover pool, are euro-denominated. In a 'AA-' scenario, Fitch calculated a stressed credit loss of 1.5%, whereby the stressed defaults and recoveries are 1.9% and 20%, respectively. In this scenario, the Federal Republic of Germany (AAA/Stable/F1+) is not assumed to default. RATING SENSITIVITIES The 'AA-' covered bonds rating could be upgraded if Berlin Hyp's IDR is upgraded. It would be vulnerable to downgrade if any of the following occurs: (i) Berlin Hyp's IDR is downgraded by one or more notches to 'A' or below; (ii) the OC that Fitch considers in its analysis would not support recoveries sufficient for a one-notch uplift or (iii) if Germany is downgraded below 'AA-'. Contacts: Primary Analyst Kai-Uwe Richter, CFA, FRM Associate Director +69 768076 131 Fitch Deutschland GmbH Taunusanlage 17 D-60325 Frankfurt am Main Secondary Analyst Jan Seemann, CFA Director +69 768076 112 Committee Chairperson Rebecca Holter Senior Director +69 768076 261 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 4 September 2013, 'Counterparty Criteria for Structured Finance and Covered Bonds' dated 13 May 2013, 'Asset Analysis Criteria for Covered Bonds of European Public Entities, dated 30 January 2013 and 'Covered Bonds Rating Criteria - Public Sector Liquidity and Spread Assumption Addendum', dated 01 February 2013 are available at www.fitchratings.com. Applicable Criteria and Related Research: Covered Bonds Rating Criteria here Counterparty Criteria for Structured Finance and Covered Bonds here Asset Analysis Criteria for Covered Bonds of European Public Entities here Covered Bonds Rating Criteria - Public Sector Liquidity and Spread Assumption 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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