Jan 31 - Fitch Ratings has affirmed Depfa ACS Bank's (Depfa,
'BBB+'/Negative/'F2') asset-covered securities (ACS) at 'A' with a Negative
Outlook. The rating action follows Fitch's review of the programme in-line with
Fitch's new criteria for the analysis of public-sector pools (see 'Fitch:
Criteria for the Asset Analysis of European Public Entities' Covered Bonds'
published on 30 January 2013 at www.fitchratings.com).
A D-Cap of 3 applies to the programme (see "Fitch Puts 2 Dutch Covered Bonds on
RWN; Assigns Dutch & Irish Programmes D-Caps & Outlooks" dated 12 September 2012
at www.fitchratings.com). Combined with the issuer's Issuer Default Rating (IDR)
of 'BBB+', it allows for a maximum rating of 'A+' on a probability of default
basis for the ACS, and 'AA' when factoring in stressed recoveries given default.
However, Depfa is in run-down mode, thus according to its criteria , the agency
only gives credit in its analysis to the level of OC publicly committed by the
issuer, which currently stands at 5% on a nominal basis. This level allows for
outstanding recoveries on the ACS in the agency's 'A' scenario, hence the ACS
can be rated two notches above the issuer's IDR.
The 'A' rating would be vulnerable to downgrade if any of the following
occurred: (i) the IDR was downgraded by one notch or more to 'BBB'; or (ii) the
breakeven overcollateralisation (OC) in line with a 'A' rating increased above
Depfa's public commitment of 5%. The Outlook on the covered bonds' rating is
Negative, as the issuer's IDR is on Negative Outlook and a one notch downgrade
of Depfa would result in a one notch downgrade on the ACS.
As of 28 September 2012, the pool amounted to EUR28.7bn, compared to EUR26.2bn
of ACS outstanding. The nominal OC was at 9.2%, with the lowest OC of the past
12 months being at 8.8%. The pool is highly concentrated with the 20 largest
borrowers and guarantors accounting for more than 80% of the total. The largest
exposures are the Federal Republic of Germany ('AAA'/Stable, 'F1+', 28% of the
pool) and the United States ('AAA'/Negative, 'F1+', 12%). The pool composition,
the proportion of liquid assets, and the FX and maturity mismatches have
remained largely unchanged since the last analysis in June 2012. The cover pool
has decreased in size due to the natural amortisation of the assets. The main
sources of risk in the portfolio remain the exposures to public-sector entities
located in Spain ('BBB'/Negative), which represent 9.6% of the pool, and in
Italy ('A-'/Negative), amounting to 3.6% of the pool.
Fitch has analysed the portfolio using its updated criteria for the analysis of
public-sector pools. In a 'A' scenario Fitch has calculated a stressed credit
loss of 14.3%, whereby the stressed defaults and recoveries in this scenario are
20.1% and 28.9%, respectively.
Maturity mismatches are low, with a weighted average asset maturity of 6.8 years
compared to 7.4 years on the liability side. 59% of the assets in the cover pool
yield a fixed rate of interest, whereas most of the covered bonds (83%) are at a
fixed rate. Also, the cover assets are denominated in 10 different currencies,
mostly EUR (63%) and USD (23%), while the covered bonds are denominated in 11
different currencies, with 68% in EUR and 15% in USD. Privileged swaps are in
place to hedge mismatches between the cover assets and the ACS, so that they are
in floating rate in matching currencies.
Despite the increased pool losses assumed under the new criteria, Fitch
calculated that the OC of 5% that the issuer commits to maintain still allows
for high recoveries on the ACS in a 'A' scenario and enable the ACS to be rated
two notches above Depfa's IDR. The Fitch breakeven OC for the ACS rating will be
affected, among others, by the profile of the cover assets relative to
outstanding ACS, which can change over time, even in the absence of new
issuances. Therefore it cannot be assumed to remain stable over time.
Additional information is available at www.fitchratings.com.
The ratings above were solicited by, or on behalf of, the issuer, and therefore,
Fitch has been compensated for the provision of the ratings.
Applicable criteria, 'Covered Bonds Rating Criteria' dated 10 September 2012,
'Asset Analysis Criteria for Covered Bonds of European Public Entities' dated 30
January 2013, 'Covered Bonds Rating Criteria - Public Sector Liquidity and
Spread Assumption Addendum', dated 27 November 2012, and 'Covered Bonds
Counterparty Criteria', dated 25 July 2012 are available at
Applicable Criteria and Related Research:
Covered Bonds Rating Criteria - Amended
Asset Analysis Criteria for Covered Bonds of European Public Entities
Covered Bonds Rating Criteria - Public Sector Liquidity & Spread Assumption
Covered Bonds Counterparty Criteria