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Rating Action:

Moody's confirms Banco de Investimento Imobiliario covered bonds and Banco Comercial Portugues mortgage covered bonds ratings

27 Feb 2015

Madrid, February 27, 2015 -- Moody's Investors Service has today confirmed the Baa1 ratings on the mortgage covered bonds issued by Banco de Investimento Imobiliario S.A. (unrated) (the BII covered bonds) and the Ba1 ratings on mortgage covered bonds issued by Banco Comercial Portugues, S.A. (deposits B1 negative, bank financial strength rating E/adjusted baseline credit assessment (BCA) caa2) (the BCP mortgage covered bonds).

This rating action concludes the review of the above ratings, initiated on 31 October 2014.

RATINGS RATIONALE

Today's rating actions follow the confirmation on Banco Comercial Portugues's B1 issuer rating. The rating rationale for the rating action on the issuer ratings is detailed in the press release https://www.moodys.com/viewresearchdoc.aspx?docid=PR_318126, published on 12 February 2015.

We have confirmed that the Over-Collateralisation held by BII and BCP Covered Bonds are sufficient in amount and form to maintain the current ratings.

KEY RATING ASSUMPTIONS/FACTORS

Moody's determines covered bond ratings using a two-step process: an expected loss analysis and a TPI framework analysis.

EXPECTED LOSS: Moody's uses its Covered Bond Model (COBOL) to determine a rating based on the expected loss on the bond. COBOL determines expected loss as (1) a function of the probability that the issuer will cease making payments under the covered bonds (a CB anchor event), and (2) the stressed losses on the cover pool assets following a CB anchor event.

The CB anchor for the BII covered bonds and BCP mortgage covered bonds is the senior unsecured rating plus zero notches, given the debt ratio is between 5% and 10% and the uplift of the issuer's senior unsecured rating over the adjusted BCA is four notches.

For each programme given below, the cover pool losses are an estimate of the losses Moody's currently models following a CB anchor event. Moody's splits cover pool losses between market risk and collateral risk. Market risk measures losses stemming from refinancing risk and risks related to interest-rate and currency mismatches (these losses may also include certain legal risks). Collateral risk measures losses resulting directly from the cover pool assets' credit quality. Moody's derives collateral risk from the collateral score.

--- BII COVERED BONDS

The cover pool losses of the BII covered bonds are 19.7%, with market risk of 13.0% and collateral risk of 6.7%. The collateral score for this programme is currently 10%. The over-collateralisation (OC) in this cover pool is 19.7%, of which the issuer provides 7.0% on a "committed" basis. The minimum OC level that is consistent with the Baa1 rating target is 12.5%. These numbers show that Moody's is relying on "uncommitted" OC in its expected loss analysis.

--- BCP MORTGAGE COVERED BONDS

The cover pool losses of BCP mortgage covered bonds are 27.7%, with market risk of 21.0% and collateral risk of 6.7%. The collateral score for this programme is currently 10%. The OC in this cover pool is 34.7%, of which the issuer provides 5.3% on a "committed" basis. The minimum OC level that is consistent with the Ba1 rating target is 0.5%. These numbers show that Moody's is not relying on "uncommitted" OC in its expected loss analysis.

For further details on cover pool losses, collateral risk, market risk, collateral score and TPI Leeway across covered bond programmes rated by Moody's, please refer to "Moody's Global Covered Bonds Monitoring Overview", published quarterly. All numbers in this section are based on the most recent Performance Overview, which used data of 30 September 2014.

TPI FRAMEWORK: Moody's assigns a TPI, which measures the likelihood of timely payments to covered bondholders following a CB anchor event. The TPI framework limits the covered bond rating to a certain number of notches above the CB anchor.

For the BII covered bonds, Moody's has assigned a TPI of Probable-High. For the BCP mortgage covered bonds, Moody's has assigned a TPI of Improbable.

FACTORS THAT WOULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS:

The CB anchor is the main determinant of a covered bond programme's rating robustness. A change in the level of the CB anchor could lead to an upgrade or downgrade of the covered bonds. The TPI Leeway measures the number of notches by which Moody's might lower the CB anchor before downgrading the covered bonds because of TPI framework constraints.

The TPI assigned to the BII covered bond programme is Probable-High. The TPI Leeway for the BII covered bond programme is zero notches, and thus any reduction of the CB anchor may lead to a downgrade of the covered bonds.

The TPI assigned to the BCP mortgage covered bonds is Improbable. The TPI Leeway for the BCP mortgage covered bonds is zero to one notch, and thus any reduction of the CB anchor may lead to a downgrade of the covered bonds.

A multiple-notch downgrade of the covered bonds might occur in certain circumstances, such as (1) a sovereign downgrade negatively affecting both the CB anchor and the TPI, (2) a multiple-notch downgrade of the CB anchor, or (3) a material reduction of the value of the cover pool.

RATING METHODOLOGY

The principal methodology used in these ratings was "Moody's Approach to Rating Covered Bonds" published in March 2014. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

We published a Request for Comment (RFC) on 8 January 2015. In the RFC, we propose an adjustment to the anchor point we use in our covered bond analysis. The proposed changes in this RFC apply to all new and existing ratings for covered bonds. If we adopt the proposed changes, we expect more covered bond ratings to be positively affected than negatively affected. However, in light of the banking RFC (see RFC published on 9 September 2014 by our Banking group) and the CR rating RFC , measure (see RFC published on 8 January 2015 by our Banking group) we are not in a position to fully assess and disclose the exact impact of the proposed changes to our covered bond methodology

https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBS_SF390257.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions of the disclosure form.

Moody's did not use any stress scenario simulations in its analysis.

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this rating action, and whose ratings may change as a result of this rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Miguel Lopez Patron
Analyst
Structured Finance Group
Moody's Investors Service Espana, S.A.
Calle Principe de Vergara, 131, 6 Planta
Madrid 28002
Spain
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Juan Pablo Soriano
MD - Structured Finance
Structured Finance Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Releasing Office:
Moody's Investors Service Espana, S.A.
Calle Principe de Vergara, 131, 6 Planta
Madrid 28002
Spain
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's confirms Banco de Investimento Imobiliario covered bonds and Banco Comercial Portugues mortgage covered bonds ratings
No Related Data.
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