June 27, 2014 / 3:31 PM / 3 years ago

Fitch Upgrades Laboral Kutxa's CH to 'A+'; Outlook Stable

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(The following statement was released by the rating agency) MADRID/LONDON, June 27 (Fitch) Fitch Ratings has upgraded Caja Laboral Popular Cooperativa de Credito (Laboral Kutxa, BBB+/Stable/F2/bbb+) outstanding EUR4.2bn cedulas hipotecarias (mortgage covered bonds or CH) to 'A+' from 'A-'. The Outlook is Stable. KEY RATING DRIVERS The upgrade follows the upgrade of Laboral Kutxa's Long-term Issuer Default Rating (IDR) to 'BBB+' from 'BBB' on 26 June 2014. Laboral Kutxa's IDR is driven by its standalone creditworthiness (see 'Fitch Upgrades Laboral Kutxa and Caja Rural de Navarra to 'BBB+'; Outlook Stable' at www.fitchratings.com). In addition, the European Union Bank Recovery and Resolution Directive (BRRD) was enacted on 12 June 2014, so Fitch has factored into the programme's rating the IDR uplift of 1, which was assigned in April 2014 (see "Fitch Revises Outlook on Spanish Covered Bonds on Criteria Amendments" dated 2 April 2014). The IDR uplift is supported by the agency's opinion of Spain being a covered bonds-intensive jurisdiction. The CH's 'A+' rating is based on Laboral Kutxa's 'BBB+' Long-term IDR, an IDR uplift of 1, a Discontinuity Cap of 0 (full discontinuity) and the level of overcollateralisation (OC) between the cover assets and the outstanding CH of 131% relied upon by Fitch, which would provide recoveries in excess of 91% on CH assumed to be in default in a 'A+' scenario. Fitch's lifetime default and recovery expectations on the entire cover pool are 16.2% and 49.7%, respectively, under a base case scenario, and 31.7% and 40.4% under a 'A+' stress. These expectations take into consideration the cover pool composition by asset type, which is mainly composed of residential mortgages (86%). The breakeven OC for Laboral Kutxa's CH 'A+' rating is 52%. There is a significant cushion against a decrease in the 131% OC which Fitch takes into account in its analysis. The fact that the bank does not have a public OC commitment in place and considering Laboral Kutxa's Short-Term IDR of 'F2', in its analysis, Fitch relies on the lowest OC observed during the last 12 months, after applying a 10% haircut. RATING SENSITIVITIES The CH's 'A+' rating would be vulnerable to a downgrade if Laboral Kutxa's IDR was downgraded by one notch or more to 'BBB' or below, or the programme's relied upon OC drops below Fitch's estimated breakeven OC ratio of 52% in a 'A+' stress. The Stable Outlook on Laboral Kutxa's IDR drives the Stable Outlook on the CH. The Fitch breakeven OC for a given 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 issuances. Therefore the breakeven OC to maintain the covered bond rating cannot be assumed to remain stable. Contacts: Primary Analyst Antonio Casado Associate Director +34 91 702 57 76 Fitch Ratings Espana S.A.U. General Castanos, 11 28004 Madrid Secondary Analyst Alvaro Utrera Associate Director +34 91 702 57 75 Committee Chair Carmen Munoz Senior Director +34 93 323 8408 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, 'Covered Bonds Rating Criteria - Mortgage Liquidity & Refinancing Stress Addendum' dated 4 February 2014 (in addition see NRAC 'Fitch Reviews CVBs Mortgage Liquidity and Refinancing Stresses for European Peripheral Countries', dated 4 June 2014), EMEA RMBS Master Rating Criteria' dated 28 May 2014, 'EMEA Residential Mortgage Loss Criteria' dated 28 May 2014, 'Criteria Addendum: Spain - Residential Mortgage Loss And Cash Flow Assumptions' dated 05 June 2014, 'Criteria for Rating Granular Corporate Balance-Sheet Securitisations (SME CLOs)' dated 5 March 2014are available at www.fitchratings.com. Applicable Criteria and Related Research: Covered Bonds Rating Criteria here Covered Bonds Rating Criteria – Mortgage Liquidity and Refinancing Stress Addendum here EMEA RMBS Master Rating Criteria here EMEA Residential Mortgage Loss Criteria here Criteria Addendum: Spain - Residential Mortgage Loss and Cash Flow Assumptions here Criteria for Rating Granular Corporate Balance-Sheet Securitisations (SME CLOs) 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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