-- We are assigning our 'A-' rating to Banco Bilbao Vizcaya Argentaria
S.A.'s (BBVA) mortgage covered bonds. The outlook is negative.
-- The ratings incorporate the maximum possible uplift under our covered
bond criteria, in line with BBVA's current overcollateralization levels.
-- The negative outlook reflects the fact that any negative rating action
on the bank would, all else being equal, lead us to lower the covered bond
ratings by the same number of notches.
Nov 21 - tandard & Poor's Ratings Services today assigned its 'A-'
long-term credit rating to the mortgage covered bonds ("cedulas hipotecarias")
issued by Banco Bilbao Vizcaya Argentaria S.A. (BBVA; BBB-/Negative/A-3). The
outlook is negative (see list below).
The covered bonds are senior secured debt issued by BBVA. To assign the
rating, we applied our 2009 covered bond criteria (see "Revised Methodology
And Assumptions For Assessing Asset-Liability Mismatch Risk In Covered Bonds"
published on Dec. 16, 2009).
Under our criteria for rating covered bonds, we evaluate the maximum potential
rating on a covered bond program as the bank's issuer credit rating (ICR) plus
the maximum number of notches of ratings uplift. The maximum number of notches
of uplift results from our assessment and classification of the program's
asset-liability mismatch (ALMM) risk and the program categorization.
When determining the program categorization, we consider primarily our view of
the jurisdiction of a program and its ability to access external financing or
monetize the cover pool. We then assign the covered bonds to one of three
distinct categories. Under our criteria, to achieve the maximum potential
number of notches of uplift, the available credit enhancement needs to be
commensurate with the target credit enhancement.
Following our analysis, and given our view of the Spanish legal framework, we
have categorized BBVA's mortgage covered bonds in category "1" and determined
a "low" ALMM classification. Under our criteria, these combinations enable us
to assign to the covered bonds a maximum potential ratings uplift of seven
notches above our long-term ICR on BBVA.
Based on our criteria and the application of our credit and cash flow stresses
from the latest information we received from the issuer, we have assessed that
the overcollateralization available to support BBVA's cedulas hipotecarias is
commensurate with a three notch ratings uplift above the 'BBB-' ICR on BBVA.
Therefore, we have assigned our 'A-' long-term rating to BBVA's mortgage
At the same time, we have assigned a negative outlook to the 'A-' rating on
these covered bonds. This reflects the fact that, all other things remaining
equal, any rating action on BBVA would automatically lead to a corresponding
rating action on its covered bonds.
Our ratings on BBVA's mortgage covered bonds follow our analysis of the
issuer's asset as of Aug. 31, 2012, and liability information to date.
We assess the cover pool's credit risk as per our "Criteria for Rating Spanish
Residential Mortgage-Backed Securities," published on March 1, 2002,
"Methodology And Assumptions: Update To The Cash Flow Criteria For European
RMBS Transactions," published on Jan. 6, 2009, "Principles Of Credit Ratings,"
published on Feb. 16, 2011, and "Covered Bond Ratings Framework: Methodology
And Assumptions," published June 26, 2012.
We evaluate cash flows generated by the cover pool, and the cash flow required
to service outstanding covered bonds under severe economic conditions. This
evaluation aims to determine whether the assets in the cover pool are
sufficient to meet the payments on the covered bonds in a timely manner.
Our cash flow analysis assesses the cover pool's performance by considering:
-- Credit risk (as described in the paragraphs below);
-- Interest rate and currency risk;
-- ALMM risk resulting from cash flow mismatches between assets and
liabilities in terms of maturity, and from market value mismatches if the
program has to liquidate assets;
-- Prepayment risk and servicing costs; and
-- An appropriate stress-testing of these risks, using our cash flow
In our modeling, we use cash flow assumptions as per our general cash flow
criteria ("Cash Flow Criteria for European RMBS Transactions," published on
Nov. 20, 2003, and "Methodology And Assumptions: Update To The Cash Flow
Criteria For European RMBS Transactions" published on Jan. 6, 2009), because
we consider these also apply to covered bonds, due to the similar cash flow
risk nature of residential mortgage-backed securities (RMBS) and covered bonds.
The ratings on the covered bonds reflect our expectation of timely payment of
interest and ultimate repayment of principal by the final maturity date of the
As of Aug. 31, 2012, the key characteristics of the combined residential
mortgage books of the three entities were:
Classification of ALMM mismatch Low
Program categorization 1
Maximum potential rating* AA-
Maximum rating, given current
overcollateralization level A-
Current available credit enhancement (%) 53.24
Target credit enhancement commensurate with
the highest credit rating (%) 60.58
Note: we calculate the current credit enhancement as assets /liabilities.
*Limited by "Nonsovereign Ratings That Exceed EMU Sovereign Ratings:
Methodology And Assumptions."
LIABILITIES MATURITY PROFILE
Year Percentage of covered
bonds outstanding (%)
Currently BBVA has outstanding mortgage covered bonds for EUR53.4 billion, with
a weighted-average life of 6.52 years and the highest maturity concentration
taking place in 2013 (15.80% of the outstanding notes).
MORTGAGE BOOK CHARACTERISTICS
Residential Mortgage Loan Book
Principal balance (EUR) 65,575,143,054
Total number of loans 783,188
Average loan size (EUR) 96,271
Weighted-average LTV ratio (%) 58.80
Weighted-average seasoning (months) 58.52
Weighted-average term to maturity (months) 258
Floating-rate loans (%) 96.82
Weighted-average margin (bps) 104
Nonresidential Mortgage Loan Book
Principal balance (EUR) 16,394,148,781
Total number of loans 48,098
Average loan size (EUR) 201,563
Weighted-average LTV ratio (%) 43.74
Weighted-average seasoning (months) 44.32
Weighted-average term to maturity (months) 120
Floating-rate loans (%) 84.62
Weighted-average margin (bps) 150
The above characteristics are based on the information as provided by the
issuer and the principal balances we incorporate in our analysis. We include
developers in the nonresidential analysis and give no credit to land. We
consider the available credit enhancement to be 53.24%.
MORTGAGE LOAN BOOK GEOGRAPHIC DISTRIBUTION (%)
Balearic Islands 2.98
Basque Country 3.69
Canary Islands 5.52
Castilla-La Mancha 3.31
La Rioja 0.52
Although BBVA operates throughout Spain, the highest concentrations are in
Madrid, Andalucia, and Catalonia, which are regions with higher demographic
density and where BBVA has been more active.
We assessed the likelihood that the borrowers would default on their mortgage
payments (the foreclosure frequency), and the amount of loss on the subsequent
sale of the property (the loss severity, expressed as a percentage of the
outstanding loan). We determined the total mortgage balance that we assume
will default, and the total amount of this defaulted balance that is not
recovered for the entire residential book, by calculating the weighted-average
foreclosure frequency (WAFF) and the weighted-average loss severity (WALS).
The product of the WAFF and WALS is the net loss that we assume may affect the
portfolio in a 'AAA' scenario. At the 'AAA' level, the WAFF and WALS results
Weighted Average WAFF and Weighted Average WALS:
WAFF (%) 38.89
WALS (%) 41.67
Assumed net credit loss (WAFF x WALS) (%) 16.21
Our assessment indicated that this combination of factors, along with the
appraisal of other risk factors, is commensurate with a 'A-' rating on BBVA's
RELATED CRITERIA AND RESEARCH
-- Covered Bond Ratings Framework: Methodology And Assumptions, June 26,
-- Counterparty Risk Framework Methodology And Assumptions, May 31, 2012
-- Covered Bonds Counterparty And Supporting Obligations Methodology And
Assumptions, May 31, 2012
-- Assessing Asset-Liability Mismatch Risk In Covered Bonds: Revised
Methodology And Assumptions For Target Asset Spreads, April 24, 2012
-- Nonsovereign Ratings That Exceed EMU Sovereign Ratings: Methodology
And Assumptions, June 14, 2011
-- Principles Of Credit Ratings, Feb. 16, 2011
-- Methodology: Credit Stability Criteria, May 3, 2010
-- Revised Methodology And Assumptions For Assessing Asset-Liability
Mismatch Risk In Covered Bonds, Dec. 16, 2009
-- Use Of CreditWatch And Outlooks, Sept. 14, 2009
-- Update To The Cash Flow Criteria For European RMBS Transactions, Jan.
-- Update to The Criteria For Rating Spanish Residential Mortgage Backed
Securities, Jan. 6, 2009
-- European Legal Criteria For Structured Finance Transactions, Aug. 28,
-- Cash Flow Criteria For European RMBS Transactions, Nov. 20, 2003
-- Criteria For Rating Spanish Residential Mortgage-Backed Securities,
March 1, 2002
Country: Covered bond type
RATINGS ASSIGNED; NEGATIVE OUTLOOK
Banco Bilbao Vizcaya Argentaria S.A. A-/Negative
Spain: Mortgage Covered Bonds ("Cedulas Hipotecarias")