November 8, 2012 / 5:50 PM / in 5 years

TEXT-S&P rates NCG Banco's Spanish mortgage covered bonds 'BBB'

     -- We are assigning our 'BBB' rating to NCG Banco S.A.'s (Novagalicia) 
mortgage covered bonds and placing them on CreditWatch negative. 
     -- The ratings incorporate the maximum possible uplift under our covered 
bond criteria, in line with Novagalicia's current overcollateralization 
     -- The negative CreditWatch reflects our view that the covered bonds 
could be negatively affected by the transfer of assets from the mortgage book 
to the asset management company and our current view of the issuer's 

MADRID (Standard & Poor's) Nov. 8, 2012--Standard & Poor's Ratings Services 
today assigned its 'BBB' long-term credit rating to NCG Banco S.A.'s 
(Novagalicia) mortgage covered bonds ("cedulas hipotecarias"). At the same 
time, we placed the rating on CreditWatch with negative implications (see list 

The covered bonds are senior secured debt issued by Novagalicia. 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 based on our assessment of the bank's 
creditworthiness and what we evaluate as 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. Finally, we 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 Novagalicia's mortgage covered bonds in category "1" and 
determined a "moderate" ALMM classification. 

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 the 
overcollateralization available, which led us to assign a 'BBB' long-term 
rating to Novagalicia's covered bonds. 

We also placed the rating on these covered bonds on CreditWatch negative. This 
reflects the fact that, all other things remaining equal, any change in the 
issuer's creditworthiness or in the overcollateralization levels driven by the 
transfer of assets to an asset management company could lead to a negative 
rating action on the covered bonds.

Our ratings on Novagalicia's mortgage covered bonds follow our analysis of the 
issuer's asset and cash flow information as of June 30, 2012.

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 "Expanding European Covered Bond 
Universe Puts Spotlight On Key Analytics," published on July 16, 2004.

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 
model (Imake).

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 to be appropriate to 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 
covered bonds.

As of June 30, 2012, the key characteristics of the combined residential 
mortgage books of the three entities were:

Classification of ALMM mismatch                        Moderate
Program categorization                                 1
Maximum potential rating                               A-
Current available credit enhancement (%)               107.46
Target credit enhancement commensurate with
  the highest credit rating (%)                        118.45

Note: We calculate the current credit enhancement as assets /liabilities. 
ALMM--Asset-liability mismatch.


Year            Percentage of covered
                 bonds outstanding (%)

2012                6.15
2013                11.12
2014                22.35
2015                14.70
2016                7.07
2017                5.43
2018                5.73
2019                13.18
2020                1.39
2021                2.51
2022                1.08
2023                0.84
2025                5.10
2027                1.67
2031                1.67

TOTAL               100.00

Currently Novagalicia has outstanding mortgage covered bonds for EUR11.960 
million, with a weighted-average life of 4.23 years and the highest maturity 
concentration taking place in 2014 (22.35% of the outstanding notes). 


Residential Mortgage Loan Book

Principal balance (EUR)                     14,940,225,609
Total number of loans                              187,879
Average loan size (EUR)                             79,520
Weighted-average LTV ratio (%)                       58.92
Weighted-average seasoning (months)                  56.40
Weighted-average term to maturity (months)             296
Floating-rate loans (%)                              98.96
Weighted-average margin (bps)                           84

Nonresidential Mortgage Loan Book

Principal balance (EUR)                     11,599,997,854
Total number of loans                               27,870
Average loan size (EUR)                            416,218
Weighted-average LTV ratio (%)                       60.18
Weighted-average seasoning (months)                  47.55
Weighted-average term to maturity (months)          170.71
Floating-rate loans (%)                              96.51
Weighted-average margin (bps)                          158

For our credit and cash-flow analysis we have not given credit in the 
collateral to land and intercompany mortgage loans. This results in a lower 
nonresidential book of EUR9,871.5 million, which means that the available credit
enhancement is 107.46%


Andalucia           6.16%
Aragon              1.13%
Asturias            1.10%
Balearic Islands    1.21%
Basque Country      2.01%
Canary Islands      1.65%
Cantabria           0.33%
Castilla-La Mancha  0.75%
Castilla-Leon       3.44%
Catalonia           7.11%
Extremadura         0.25%
Galicia             51.86%
La Rioja            0.32%
Madrid              9.15%
Murcia              0.93%
Navarra             0.29%
Valencia            9.45%
Others              2.88%

Galicia is the region with the highest concentration (51.86%) as the two cajas 
that form the bank (Caixa Galicia and Caixanova) have historically developed 
their activity in this region.

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 

Residential Mortgage Book :
WAFF (%)                                       24.96
WALS (%)                                       27.77
Assumed net credit loss (WAFF x WALS) (%)      6.93
Non-Residential Mortgage Book
WAFF (%)                                       75.07
WALS (%)                                       75.93
Assumed net credit loss (WAFF x WALS) (%)      57.00

Our assessment indicated that this combination of factors, along with the 
appraisal of other risk factors, is commensurate with a 'BBB' rating on 
Novagalicia's cedulas hipotecarias.


     -- 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
     -- 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 
     -- Methodology And Assumptions: Update To The Cash Flow Criteria For 
European RMBS Transactions, Jan. 6, 2009
     -- European Legal Criteria For Structured Finance Transactions, Aug. 28, 
     -- Cash Flow Criteria For European RMBS Transactions, Nov. 20, 2003


Program/            To                From
Country: Covered bond type


NCG Banco, S.A.     BBB/Watch Neg     Not rated

Spain: Mortgage Covered Bonds ("Cedulas Hipotecarias")
0 : 0
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