(The following statement was released by the rating agency)
Feb 8 - Fitch Ratings has affirmed Aareal Bank's (Aareal, 'A'/Stable/'F1')
public sector Pfandbriefe at 'AAA'/Stable following the publication of the
agency's Asset Analysis Criteria for Covered Bonds of European Public Entities
(see 'Fitch: Criteria for the Asset Analysis of European Public Entities'
Covered Bonds' dated on 30 January 2013 at www.fitchratings.com).
The rating is based on Aareal Bank's Long-term Issuer Default Rating (IDR) of
'A-', the Discontinuity Cap (D-Cap) of 5 (low risk) and the
overcollateralisation (OC) that Fitch takes into account in its analysis, which
is currently 10.3%.
Sensitivity / Rating Drivers
In terms of sensitivity of the covered bonds' rating, the 'AAA' rating would be
vulnerable to downgrade if any of the following occurred: (i) the IDR was
downgraded by two or more notches to 'BBB' or lower; or (ii) the D-Cap fell by
two or more categories to 3 (moderate high risk) or lower; or (iii) the OC that
Fitch considers in its analysis dropped below Fitch's 'AAA' breakeven level of
In its analysis, the agency takes into account the lowest reported OC of the
past year (since March 2012), reflecting Aareal's Short-term IDR of 'F1'.
The unchanged D-Cap of 5 (low risk) results from a low risk assessment for cover
pool-specific alternative management, asset segregation and privileged
derivatives components. The systemic alternative management and liquidity gap
and systemic risk components have been assessed as very low risk.
As of 29 January 2013, the pool amounted to EUR3.2bn, compared withEUR2.9bn of
Pfandbriefe outstanding. The nominal OC was at 10.4%, with the lowest OC of the
past 12 months 10.3%. The programme's rating is credit linked to Germany as
around 74% of the assets in the cover pool are directly exposed to or guaranteed
by the German sovereign or its federal states. The remaining pool is highly
concentrated with 36 assets that Fitch aggregated to 13 issuers. The main
sources of risk in the portfolio remain the exposures to regions and
municipalities in Spain ('BBB'/Negative) and the Italian sovereign
('A-'/Negative), which each represent 3.6% of the total pool. Overall, the
exposure to non-'AAA' countries represents around 10.3% of the portfolio.
Fitch has analysed the portfolio using its updated criteria for the analysis of
public-sector pools. In a 'AAA' scenario, Fitch calculated a stressed credit
loss of 13.8%, whereby the stressed defaults and recoveries in this scenario are
16.2% and 15.0%, respectively.
Asset liability mismatches with regard to maturity and interest rates remain
limited in this programme. The initial open position of floating-rate assets has
partly been mitigated by the inclusion of privileged interest rate swaps. Fitch
has taken all mismatches into account in modelling the expected cash flows by
applying appropriate stresses. All assets and Pfandbriefe are euro-denominated.
The breakeven OC of 10.0% is sufficient to ensure timely payments of the
Pfandbriefe in a 'AA' rating scenario and to achieve high recoveries in a 'AAA'
scenario supporting two-notches recovery uplift to 'AAA' of the covered bonds
rating. The Fitch breakeven OC for the covered bond rating will be affected by,
amongst 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.
(Caryn Trokie, New York Ratings Unit)