Fitch Ratings has affirmed
The Outlook is Stable.
KEY RATING DRIVERS
The covered bonds' '
The covered bonds are rated four notches above
Fitch relies on the highest level of adjusted AP over the last 12 months of 76.8%, which provides more protection than Fitch's revised '
The Stable Outlook reflects a five-notch buffer against a Santander
'
Fitch's '
The improved break-even AP for the rating is mainly driven by a reduction in the ALM (assets/liabilities mismatch) loss component to -0.4% (from 4.8%), which reflects the impact on the '
The reduction is primarily due to the recalibration of the applicable refinancing spread levels (RSLs) across all rating scenarios following the updated Fitch Covered Bonds Rating Criteria, published in
The credit loss component based on the 'AA+' timely payment rating level is 3.3% (3.8% previously). The smaller credit loss reflects Fitch's application of its most recent
Cover Pool Credit Quality
The
The cover pool is evenly distributed across the
Uplifts
The IDR uplift of two notches reflects that collateralised covered bonds in the
The PCU of six notches reflects the 12 months of liquidity protection provided by the 12-month maturity extension applicable to soft-bullet bonds and a 12-month pre-maturity test for hard-bullet bonds. A reserve fund has also been sized to cover three months of interest payments and some senior expenses, in addition to the GPB600,000 available within the fund. Amounts due under the interest-rate swap on the cover assets rank senior to the payments under the covered bond swap, but are not sized in the reserve fund. However, it would become subordinated in case the issuer, acting as asset swap counterparty, defaults.
The recovery uplift is capped at one notch due to the presence of significant pre-swap foreign-exchange (FX) mismatches between cover assets and liabilities. The covered bonds are fully hedged until maturity (including the extension period), but in the event of a covered bond's default, recoveries from sterling-denominated assets, which have a longer weighted average life than the covered bonds, could expose holders of non-sterling-denominated bonds to FX risk.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive rating action/upgrade:
The ratings are '
Factors that could, individually or collectively, lead to negative rating action/downgrade:
Fitch's break-even AP for the covered bonds' rating will be affected, among other factors, 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 break-even AP to maintain the covered bonds' rating cannot be assumed to remain stable over time.
In December, Fitch revised its Global Economic Outlook GDP forecasts for the
However, the covered bonds rating benefits from a significant cushion between the OC that Fitch relies upon in its analysis and Fitch's '
Best/Worst Case Rating Scenario
International scale credit ratings of Financial Institutions and Covered Bond issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from '
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
PUBLIC RATINGS WITH CREDIT LINKAGE TO OTHER RATINGS
The rating on the covered bonds is driven by
ESG Considerations
Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg
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