Jan 22 - Fitch Ratings has affirmed Berlin-Hannoversche Hypothekenbank AG's
(Berlin Hyp, 'A+'/Stable/'F1+') outstanding mortgage Pfandbriefe at
'AA+', with a Stable Outlook. The affirmation follows Fitch's periodic review of
the credit risk of the cover pool and the cash flow mismatches between the
programme's assets and liabilities.
The rating is based on Berlin Hyp's Long-term Issuer Default Rating (IDR) of
'A+', the Discontinuity Cap (D-Cap) of 4 (moderate risk) and the
overcollateralisation (OC) that Fitch takes into account in its analysis, which
is currently 25.3%.
In terms of sensitivity of the Pfandbriefe rating, the 'AA+' rating would be
vulnerable to downgrade if any of the following occurred: (i) the IDR was
downgraded by four or more notches to 'BBB' or lower; or (ii) the D-Cap fell by
four or more categories to 0 (full discontinuity); or (iii) the OC that the
agency considers in its analysis dropped below Fitch's 'AAA' breakeven level of
24.5%. The Outlook on the Pfandbriefe rating is Stable as the Outlook on the IDR
In its analysis, the agency takes into account the lowest reported OC of the
past year (since March 2012), reflecting the issuer's Short-term IDR of 'F1+'.
The level of OC Fitch relies upon supports a 'AA-' rating on a probability of
default (PD) basis and is sufficient to achieve outstanding recoveries if the
Pfandbriefe default, justifying a two-notch uplift to 'AA+' for the Pfandbriefe
The D-Cap of 4 is driven by the moderate risk assessment of the cover
pool-specific alternative management and the liquidity gap and systemic risk
components. The programme does not have registered derivatives in the cover
pool, which results in a very low risk assessment for privileged derivatives.
Systemic alternative management is assessed as very low and asset segregation as
low discontinuity risk in line with all German programmes issued under the
The Fitch breakeven 'AA+' OC level for the covered bond rating is unchanged at
24.5%. Following the publication of its revised covered bonds rating criteria,
the agency now communicates the breakeven OC to maintain the covered bonds
rating rather than to maintain the current rating on a PD basis plus recovery
uplift. Detailed line-by-line information for prior and equal ranking liens has
not been provided for all cover assets, thus Fitch applied conservative
assumptions to 14.8% of the cover assets and has calculated a default rate of
61.9% and a recovery rate of 76.2% in a 'AA+' scenario.
As of 30 November 2012, Berlin Hyp's outstanding mortgage Pfandbriefe amounted
to EUR12.49bn and were secured by a cover pool of EUR15.65bn, resulting in a
nominal OC of 25.3%. The cover pool comprises 92.0% mortgage assets classified
by Fitch as commercial real estate loans with the remainder consisting of highly
rated substitute assets.
By balance, 72.2% of the properties securing the mortgage loans are located in
Germany, followed by UK (9.1%) and France (7.0%). Most assets (93.4%) and all
Pfandbriefe are euro-denominated. However, there are currency mismatches arising
from the remaining GBP, CHF, JPY and SEK positions on the asset side. The
programme has a notable initial open interest rate position, as around 50.2% of
the assets are floating rate compared with only 18.3% of the Pfandbriefe.
Neither FX nor interest rate risk are hedged through privileged derivatives.
Based on interest reset dates, the weighted average remaining life of the cover
assets is 3.3 years, while the weighted average remaining life of the covered
bonds is about 4.5 years.
The agency applied in its cash flow analysis an alternative cash flow profile
based on the assumption that loans are extended beyond the interest reset dates
under current conditions until their assumed final legal maturity. For the
extended asset cash flow profile, Fitch has calculated a weighted average
remaining life of 4.5 years.
The Fitch breakeven OC for the covered bond rating will be affected by, among
other factors, 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.
More details on the portfolio and Fitch's analysis will be available in a credit
update, which will shortly be available at www.fitchratings.com.
Fitch may have provided another permissible service to the rated entity or its
related third parties. Details of this service can be found on Fitch's website
in the EU regulatory affairs page.
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,
'Covered Bonds Counterparty Criteria' dated 25 July 2012, 'Criteria for the
Analysis of Commercial Real Estate Loans Securing Covered Bonds' dated 10 August
2012 and 'Covered Bonds Rating Criteria - Mortgage Liquidity & Refinance Stress
Addendum' dated 14 November 2012 are available at www.fitchratings.com.
Applicable Criteria and Related Research:
Covered Bonds Rating Criteria - Mortgage Liquidity & Refinance Stress Addendum
Covered Bonds Rating Criteria - Amended
Covered Bonds Counterparty Criteria
Criteria for the Analysis of Commercial Real Estate Loans Securing Covered Bonds