July 2, 2014 / 4:31 PM / 3 years ago

Fitch Affirms SNS Bank Covered Bonds at 'AA+'; Outlook Negative

(The following statement was released by the rating agency) LONDON, July 02 (Fitch) Fitch Ratings has affirmed SNS Bank's (BBB+/Negative/F2) EUR4.4bn equivalent mortgage covered bonds at 'AA+' with Negative Outlook, following an annual review of the programme. KEY RATING DRIVERS The rating is based on SNS Bank's Long-term Issuer Default Rating (IDR) of 'BBB+', a Discontinuity Cap (D-Cap) of 4 (moderate risk) and an asset percentage (AP) of 72.8% which Fitch takes into account in its analysis. The Negative Outlook on the bank's IDR and the fact that a potential downgrade of the IDR may not be entirely compensated by the assigned IDR uplift of '1' drives the Negative Outlook for the covered bonds rating. Key rating drivers have remained largely unchanged since the previous review. The 'AA+' breakeven AP has been lowered to 75.0% from 76.0%, which is mainly due to the revised refinancing spreads by Fitch which increased by 0.15% to 2.86% at 'AA+' rating. The 'AA+' break-even AP of 75.0% continues to be driven by the large maturity mismatches between the assets and the covered bonds and by the expected loss on the assets. The weighted average life (WAL) of the bonds is four years while the WAL of the assets is 20 years. Fitch calculated a weighted average (WA) foreclosure frequency of 15.2%, a WA recovery rate of 58.2% and WA expected loss of 6.4% in the 'AA+' rating scenario for the cover pool of Dutch residential mortgages. The cover pool is well seasoned (seven years) and has an indexed current loan-to-value (LTV) of 87%. The unchanged D-Cap of 4 continues to reflect what Fitch assesses as moderate risk for the asset segregation, liquidity gap and systemic risk, and cover pool-specific alternative management D-Cap components. The 72.8% AP Fitch relies on supports a 'AA-' rating on the covered bonds on a probability of default basis and is sufficient to achieve recoveries in excess of 91% should the covered bonds default, supporting a two-notch uplift to 'AA+'. Fitch takes into consideration the highest AP of the past 12 months, as the issuer's Short-term rating is 'F2'. RATING SENSITVITIES The 'AA+' rating would be vulnerable to downgrade if any of the following occurs: (i) the IDR is downgraded by two or more notches to 'BBB-' or below; or (ii) the number of notches represented by the IDR uplift and the D-Cap is reduced to 3 or lower; or (iii) the AP that Fitch considers in its analysis increases above Fitch's 'AA+' breakeven level of 75.0%. A potential downgrade of SNS Bank's IDR to the bank's current Viability Rating of 'bbb-' would lead to a downgrade of the covered bonds to 'AA', all else being equal. The Fitch breakeven AP for the covered bond rating will be affected, amongst others, by 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 AP 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 SNS Bank Covered Bonds full rating report, which will shortly be available at www.fitchratings.com. Contacts: Primary Analyst Ieva Snejkova, CFA Director +44 20 3530 1276 Fitch Ratings Limited 30 North Colonnade London E14 5GN Secondary Analyst Kevin Vanistandael Analyst +44 20 3530 1564 Committee Chairperson Suzanne Albers Senior Director +44 20 3530 1165 Media Relations: Christian Giesen, Frankfurt am Main, Tel: +49 69 768076 232, Email: christian.giesen@fitchratings.com. Additional information is available at www.fitchratings.com. Applicable criteria, 'Covered Bonds Rating Criteria', dated 10 March 2014, 'Counterparty Criteria for Structured Finance and Covered Bonds', dated 14 May 2014, 'Covered Bond Rating Criteria - Mortgage Liquidity and Refinance Stress Addendum' dated 4 February 2014, 'EMEA Residential Mortgage Loss Criteria', dated 28 May 2014, 'Criteria Addendum: Netherlands', dated 3 June 2014 are available on www.fitchratings.com. Applicable Criteria and Related Research: Covered Bonds Rating Criteria here Counterparty Criteria for Structured Finance and Covered Bonds here Covered Bonds Rating Criteria - Mortgage Liquidity and Refinance Stress Addendum here EMEA Residential Mortgage Loss Criteria here Criteria Addendum: Netherlands - Residential Mortgage Loss and Cash Flow Assumptions 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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