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Fitch Revises Outlook on CGD's OSP to Stable; Affirms at 'BBB-'
April 14, 2014 / 3:01 PM / 4 years ago

Fitch Revises Outlook on CGD's OSP to Stable; Affirms at 'BBB-'

(The following statement was released by the rating agency) LONDON/MILAN, April 14 (Fitch) Fitch Ratings has revised the Outlook on Caixa Geral de Depositos S.A.'s (CGD; BB+/Negative/bb-) Obrigacoes sobre o sector public (OSP or public sector covered bond) to Stable from Negative and affirmed the rating at 'BBB-'. The rating action follows the revision of Outlook on the Portuguese sovereign (BB+/Positive/B) to Positive from Negative (see "Fitch Revises Outlook on Portugal to Positive; Affirms at 'BB+'", dated 11 April 2014 on www.fitchratings.com). KEY RATING DRIVERS Although the sovereign Outlook has been changed to Positive, the Outlook on CGD's OSP has been changed to Stable due to the current level of overcollateralisation (OC) not being sufficient to withstand stresses at levels higher than the current Issuer Default Rating (IDR) of the Portuguese sovereign. Therefore, in the event of an upgrade of the Sovereign IDR, the OSP rating would likely remain at an unchanged number of notches above the bank's IDR. The Stable Outlook also reflects that a potential downgrade of CGD's IDR to its current Viability Rating (VR) of 'bb-' would be compensated by the IDR uplift of '2' assigned to the programme (see "Fitch Affirms Portuguese Covered Bonds on Criteria Amendments", dated 1 April 2014 on www.fitchratings.com). The 'BBB-' rating of OSP's one outstanding series of EUR800m is based on CGD's IDR of 'BB+', an unchanged Discontinuity Cap (D-Cap) of 0 (full discontinuity risk) and the OC (45%) publicly committed to by the bank, which is also in line with the break-even OC calculated by Fitch. This level of OC provides for at least 51% recoveries on the covered bonds assumed to be in default in a 'BBB-' stress scenario. The OSP is collateralised by a pool of public sector loans originated by CGD. As of end-December 2013, the cover pool amounted to EUR1.22bn and consisted of 1,940 loans granted to 293 Portuguese municipalities. The top 10 obligors represent 27.5% of the cover pool. The largest exposure in the portfolio is to the municipality of Lisbon, which represents 5.7% of the total outstanding balance. RATING SENSITIVITIES The 'BBB-' rating would be vulnerable to a downgrade if one of the following occurs: (i) the bank's IDR is downgraded by three or more notches; (ii) the Portuguese sovereign is downgraded by one notch or (iii) the programme OC decreases below the 'BBB-' breakeven level. The Fitch breakeven OC for the covered bond 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 issuance. Therefore it cannot be assumed to remain stable over time. Contacts: Primary Analyst Anastasiya Kapustina Analyst +44 20 3530 1516 Fitch Ratings Limited 30 North Colonnade London E14 5GN Secondary Analyst Roberto Del Ragno Analyst +39 02 8790 87 206 Committee Chairperson Federica Fabrizi Senior Director +39 02 87 90 87 232 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; 'Counterparty Criteria for Structured Finance and Covered Bonds', dated 13 May 2013; 'Counterparty Criteria for Structured Finance and Covered Bonds: Derivative Addendum', dated 13 May 2013; Asset Analysis Criteria for Covered Bonds of European Public Entities, dated 30 January 2013; Covered Bonds Rating Criteria - Public Sector Liquidity and Refinancing Stress Addendum, dated 7 February 2014 and 'Criteria for Interest Rate Stresses in Structured Finance Transactions and Covered Bonds', dated 23 January 2014 are available on www.fitchratings.com. Applicable Criteria and Related Research: Covered Bonds Rating Criteria here Covered Bonds Rating Criteria – Public Sector Liquidity and Refinancing Stress Addendum here Asset Analysis Criteria for Covered Bonds of European Public Entities here Counterparty Criteria for Structured Finance and Covered Bonds here Counterparty Criteria for Structured Finance and Covered Bonds: Derivative Addendum here Criteria for Interest Rate Stresses in Structured Finance Transactions 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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