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RPT-Fitch Places COREALCREDIT's Mortgage Pfandbriefe on Rating Watch Evolving
January 3, 2014 / 1:31 PM / in 4 years

RPT-Fitch Places COREALCREDIT's Mortgage Pfandbriefe on Rating Watch Evolving

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Jan 3 (Reuters) - (The following statement was released by the rating agency)

Fitch Ratings has placed COREALCREDIT BANK AG’s (COREALCREDIT; BBB-/F3/RWP) mortgage Pfandbriefe ‘AA-’ rating on Rating Watch Evolving (RWE).

The rating action follows the planned acquisition of COREALCREDIT by Aareal Bank AG (ARB; A-/Stable/F1) and the subsequent placement of COREALCREDIT’s ‘BBB-’ Long-term Issuer Default Rating (IDR) on Rating Watch Positive (RWP; see “Fitch Affirms Aareal and Places COREALCREDIT on Positive Watch on Announced Acquisition” dated 27 December 2013 on www.fitchratings.com).

KEY RATING DRIVERS

The RWE reflects the likelihood of a rating change as a result of the announced take-over, and is dependent on strategic decisions regarding COREALCREDIT’s future covered bonds business. If COREALCREDIT’s IDR is upgraded following the completion of the transaction, its mortgage covered bonds would be eligible for an upgrade, provided the bank committed to maintain a percentage of overcollateralisation (OC) in line with a higher rating. If the existing public commitment of 13% was maintained, the current ‘AA-’ mortgage Pfandbriefe rating would most likely be affirmed. If the bank decided to remove its existing public OC commitment, the mortgage Pfandbriefe rating would be downgraded.

ARB is an active Pfandbrief issuer, but at this stage, Fitch assumes that COREALCREDIT’s and ARB’s cover pools will not be merged in the short term. If the agency considers COREALCREDIT’s mortgage Pfandbrief programme to be dormant, we would rely in our analysis on a public commitment regarding the maintenance of OC, or in its absence, on the legally required minimum. COREALCREDIT’s public commitment of 13% can be changed with four weeks’ notice. Under German law, the mandatory OC for Pfandbriefe is at least 2% on a stressed net present value basis and 0% on a nominal basis.

The RWE will be resolved following the resolution of the RWP on COREALCREDIT’s IDR and based on further information regarding COREALCREDIT’s future mortgage loan origination and Pfandbriefe issuance plan as well as its intentions for maintenance of OC. According to current plans, the transaction, which is subject to the approval of the respective authorities, will be completed during 1H14. As of 30 September 2013, COREALCREDIT’s EUR2.6bn outstanding mortgage Pfandbriefe were secured by a cover pool of EUR3.1bn, resulting in nominal OC of 17%.

RATING SENSITIVITIES

COREALCREDIT’s mortgage Pfandbriefe could be upgraded by one notch to ‘AA’ if the bank’s IDR was upgraded by one notch to ‘BBB’ (in line with ARB’s Viability Rating of ‘bbb’) and if the Pfandbriefe were protected by a publicly committed OC corresponding to a ‘AA’ rating.

If Fitch only credited the legal minimum OC, as required by German Pfandbrief legislation, COREALCREDIT’s mortgage Pfandbriefe would be downgraded to one or two notches above the bank’s IDR.

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