Fitch Revises the Outlook for BA Covered Bonds to Negative; Affirms WM Covered Bonds Ratings

Thu May 1, 2014 10:46am EDT

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(The following statement was released by the rating agency) NEW YORK, May 01 (Fitch) Fitch Ratings has affirmed the covered bond ratings for the WM Covered Bond Program (WMCBP) and BA Covered Bond Issuer (BACBI) following the implementation of the agency's revised Covered Bonds Rating Criteria dated March 10, 2014. The Rating Outlook for BACBI's covered bonds has been revised to Negative from Stable which reflects the Negative Outlook for the Issuer Default Rating (IDR) of Bank of America, N.A. (BANA: 'A'/RON/'F1') as the program sponsor, announced by Fitch on March 26, 2014 (see the press release: 'Fitch Takes Rating Action on Global Trading and Universal Banks Following Peer Review' on Fitch's website). KEY RATING DRIVERS The Outlook for the 'AA-' rated mortgage covered bonds issued by BACBI has been revised to Negative to indicate the potential for a rating downgrade based on the Negative Outlook for BANA's IDR, to which the rating of the covered bonds is equalized on a probability of default basis. The covered bonds rating is based on BANA's IDR of 'A', an unchanged D-Cap of 1 (very high discontinuity risk) and the program's contractual asset percentage (AP) providing more protection than Fitch's breakeven AP. The affirmation of the 'AA-'; Stable Outlook rating for WMCBP's mortgage covered bonds is based on the 'A+' IDR of the program sponsor JP Morgan Chase Bank N.A. and an unchanged D-Cap of 0 (full discontinuity). In the U.S., covered bonds are not explicitly exempt from bail-in under the Orderly Liquidation Authority (OLA) provision of the Dodd-Frank Act though secured debt in general is protected. While there is a high chance that covered bonds would be treated comparable to other secured debt in the event of a bank failure, the legislation is written to provide regulators with some discretion in the liquidation process. Therefore, given this uncertainty, Fitch believes the sponsor IDR remains a satisfactory indicator of the likelihood that the recourse against the cover pool would be enforced, and no IDR uplift is applicable. Fitch will revisit its analysis over time as soon as more clarity in the legislation with respect to covered bonds is provided. RATING SENSITIVITIES WMCBP's covered bonds' rating would be vulnerable to a downgrade if JPM's IDR was downgraded by one or more notches, all else being equal, as the rating of the covered bonds on a probability of default (PD) basis is directly linked to JPM's IDR. BACBI's covered bonds' rating would be vulnerable to a downgrade if BANA's IDR was downgraded by one or more notches or the AP that Fitch takes into account in its analysis exceeded 71%. The rating could be maintained even if the D-Cap was reduced to 0 (full discontinuity), subject to a satisfactory level of AP, given BANA's current IDR of 'A' which enables the bonds to reach 'AA-' taking only recoveries into account. Contact: Primary Analyst Vanessa Purwin Senior Director +1-212-908-0269 Fitch Ratings, Inc. 33 Whitehall Street New York, NY 10004 Secondary Analyst Roger Lin Senior Director +1-212-908-0778 Committee Chairperson Suzanne Mistretta Senior Director 1 212 908 0639 Media Relations: Sandro Scenga, New York, Tel: +1 212-908-0278, Email: Additional information is available at Applicable Criteria and Related Research: --'Covered Bonds Rating Criteria' (March 10, 2014); --'Counterparty Criteria for Structured Finance and Covered Bonds' (May 13, 2013); --'Covered Bonds Rating Criteria - Mortgage Liquidity and Refinance Stress Addendum' (June 3, 2013); --'US RMBS Loan Loss Model Criteria' (Dec. 23, 2013). Applicable Criteria and Related Research: Covered Bonds Rating Criteria here Counterparty Criteria for Structured Finance and Covered Bonds here Covered Bonds Rating Criteria - Mortgage Liquidity & Refinance Stress Addendum – Effective 14 November 2012 to 3 June 2013 here Additional Disclosure Solicitation Status null/gws/en/disclosure/solicitation?pr_id=828435 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.