Fitch Upgrades Totta's OH to 'BBB+'; Outlook Positive

Mon Jul 7, 2014 11:25am EDT

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(The following statement was released by the rating agency) MILAN/BARCELONA, July 07 (Fitch) Fitch Ratings has upgraded Banco Santander Totta SA's (Totta; BBB/Positive/F2; Viability Rating, bb+) Obrigacoes Hipotecarias (OH or mortgage covered bonds) to 'BBB+' from 'BBB' and revised the Outlook to Positive from Negative. The rating action follows the upgrade of Totta's Long-Term (LT) Issuer Default Rating (IDR) to 'BBB' from 'BBB-' and its Outlook revision to Positive from Negative (see "Fitch Takes Various Rating Actions on 4 Portuguese Banks" dated 4 July 2014 at www.fitchratings.com). KEY RATING DRIVERS The 'BBB+' rating of the mortgage covered bonds is based on Totta's LT IDR of 'BBB', an unchanged Discontinuity Cap (D-Cap) of 0 (full discontinuity risk), an unchanged IDR uplift of 0 (see "Fitch Affirms Portuguese Covered Bonds on Criteria Amendments" dated 1 April 2014 available at www.fitchratings.com) and the overcollateralisation (OC) of 15% publicly committed to by the bank in its investor report. The breakeven OC for the 'BBB+' rating is 11%, and despite OH's upgrade, lower than the breakeven OC of 12% for the previous 'BBB' rating. The improvement in the breakeven OC is mainly driven by a reduction in the asset and liability mismatch: the weighted average life (WAL) of the assets is 7.2 years whereas that on the covered bonds is 2.4 years (up from 1.8 years in October 2013). The 15% OC committed by Totta and which Fitch relies on is sufficient to achieve recoveries of at least 51% should the covered bonds default, supporting a one-notch uplift of the OH to 'BBB+'. The Positive Outlook reflects Fitch's view that in the event of a one-notch upgrade of Totta's IDR the committed level of OC of 15% would withstand stresses on the OH at a higher rating level (A-) and still allow for recoveries of at least 51%. RATING SENSITIVITIES All else being equal, the 'BBB+' rating of the mortgage covered bonds is sensitive to any movements of Totta's LT IDR. Additionally the 'BBB+' rating would be vulnerable to downgrade if the OC that Fitch considers in its analysis decreases below the 'BBB+' breakeven level of 11%. 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. Contact: Primary Analyst Roberto Del Ragno Analyst +39 02 87 90 87 206 Fitch Italia S.p.A. Via Morigi, 6 - Ingresso Via Privata Maria Teresa, 8 Milan, 20123 Secondary Analyst Paolo Sala Associate Director +39 02 87 90 87 292 Committee Chairperson Carmen Munoz Senior Director +34 93 32 38 408 Media Relations: Christian Giesen, Frankfurt am Main, Tel: +49 69 768076 232, Email: christian.giesen@fitchratings.com. Additional information is available on www.fitchratings.com Applicable criteria, 'Covered Bonds Rating Criteria', dated 10 March 2014, 'Counterparty Criteria for Structured Finance and Covered Bonds', dated 14 May 2014, 'Counterparty Criteria for Structured Finance and Covered Bonds: Derivative Addendum', dated 14 May 2014, 'Covered Bond Rating Criteria - Mortgage Liquidity and Refinance Stress Addendum' dated 4 February 2014, 'EMEA Residential Mortgage Loss Criteria', dated 28 May 2014, 'EMEA RMBS Master Rating Criteria', dated 28 May 2013, 'Criteria Addendum: Portugal' dated 3 June 2014, 'Criteria for Interest Rate Stresses in Structured Finance Transactions and Covered Bonds' dated 23 January 2014 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 Counterparty Criteria for Structured Finance and Covered Bonds: Derivative Addendum here Covered Bonds Rating Criteria - Mortgage Liquidity and Refinance Stress Addendum here EMEA Residential Mortgage Loss Criteria here EMEA RMBS Master Rating Criteria here Criteria Addendum: Portugal - Residential Mortgage Loss and Cash Flow Assumptions here Criteria for Interest Rate Stresses in Structured Finance Transactions and Covered Bonds 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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