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Fitch Affirms UniCredit Bank's Mortgage Pfandbriefe at 'AAA'; Outlook Stable
October 1, 2014 / 12:07 PM / 3 years ago

Fitch Affirms UniCredit Bank's Mortgage Pfandbriefe at 'AAA'; Outlook Stable

(The following statement was released by the rating agency) FRANKFURT/LONDON, October 01 (Fitch) Fitch Ratings has affirmed UniCredit Bank AG's (UCB, A+/Negative/F1+) mortgage Pfandbriefe at 'AAA' with a Stable Outlook, following a periodic review of the programme. KEY RATING DRIVERS The rating is based on UCB's Long-term Issuer Default Rating (IDR) of 'A+', an unchanged IDR uplift of 2, an unchanged Discontinuity Cap (D-Cap) of 3 (moderate high risk) and the lowest level of overcollateralisation (OC) of the last 12 months, currently 28.4%. The Outlook is Stable despite the Negative Outlook on UCB's IDR, reflecting Fitch's favourable view on the position of covered bonds under the EU Bank Recovery and Resolution Directive (BRRD). Fitch expects the IDR uplift of 2 to offset potential negative rating actions on UCB's IDR related to a weakening of state support. The weakest link within Fitch's D-Cap assessment remains the cover pool-specific alternative management component, primarily reflecting the on-going limitations of UCB's IT system in generating detailed line-by-line information on all cover assets. In particular, line-by-line information regarding original loan-to-value, current loan-to-value (CLTV) and prior ranking rights was only provided for a sample representing around 65% of the total cover pool. Where necessary, Fitch has applied conservative assumptions to fill existing data gaps. The programme's 'AAA' breakeven OC of 19% is unchanged in comparison to last year's analysis. The main driver of the breakeven OC remains the credit loss component of 17.1%, which reflects the cover pool's significant share of commercial real estate-backed loans and the worst case CLTV assumptions Fitch has employed, which substantially reduce recovery expectations. Fitch's cash flow valuation component (5.9%) constitutes the programme's second largest breakeven OC component. The component reflects the difference between the stressed present values of the programme's assets and liabilities, primarily driven by maturity mismatches, unhedged interest rate positions and negative carry that results from resetting cover assets in a modelled low interest rate scenario. The asset disposal loss component (3.4%) underlines the need for forced asset sales to ensure timely payment of all outstanding Pfandbriefe post issuer default. As of 30 June 2014, UCB's EUR18.4bn outstanding mortgage covered bonds were secured by a cover pool of EUR 25.2bn, resulting in a nominal OC of 37%. By asset balance, the cover pool is almost exclusively composed of German assets that can be classified as residential (51%) and commercial (41%) loans, plus an additional liquidity reserve in the form of eligible substitute assets (8%). RATING SENSITIVITIES The 'AAA' rating would be vulnerable to downgrade if any of the following occurs: (i) the IDR is downgraded by two or more notches to 'A-' or lower; or (ii) the total number of notches represented by the D-Cap is reduced to 1 or lower; (iii) the OC that Fitch considers in its analysis drops below Fitch's 'AAA' breakeven level of 19%. If the OC that Fitch considers in its analysis drops to the legal minimum requirement of 2% on a net present value basis, it would not be sufficient to allow for timely payment of the covered bonds following an issuer default. As a result, the covered bond rating would likely be downgraded to 'AA- ', because this level of OC would limit the covered bond rating to be one notch above the issuer's IDR. The Fitch breakeven OC for the covered bond rating will be affected by, among other factors, the profile of the cover assets relative to outstanding covered bonds, which can change over time, even in the absence of new issuances. Therefore the breakeven OC 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 credit update, which will be shortly available at Contact: Primary Analyst Tobias Bayerl Analyst +49 69 768 076 126 Fitch Deutschland GmbH Taunusanlage 17 D-60325 Frankfurt am Main Secondary Analyst Kai-Uwe Richter, CFA, FRM Associate Director +49 69 768 076 131 Committee Chairperson Susanne Matern, CFA Managing Director +49 69 768 076 237 Media Relations: Christian Giesen, Frankfurt am Main, Tel: +49 69 768076 232, Email: Additional information is available at Applicable criteria: 'Covered Bonds Rating Criteria', dated 08 August 2014, 'Counterparty Criteria for Structured Finance and Covered Bonds', dated 14 May 2014, 'Criteria for Rating Granular Corporate Balance-Sheet Securitisations (SME CLOs)', dated 05 March 2014, 'EMEA RMBS Master Rating Criteria', dated 28 May 2014, 'EMEA Criteria Addendum - Germany', dated 03 June 2014, 'Criteria for the Analysis of Commercial Real Estate Loans Securing Covered Bonds', dated 22 May 2014 and 'Mortgage Liquidity & Refinance Stress Addendum', dated 04 February 2014 are available at Applicable Criteria and Related Research: Covered Bonds Rating Criteria here Counterparty Criteria for Structured Finance and Covered Bonds here Criteria for Rating Granular Corporate Balance-Sheet Securitisations (SME CLOs) here EMEA RMBS Master Rating Criteria here Criteria Addendum: Germany - Residential Mortgage Loss and Cash Flow Assumptions here Criteria for the Analysis of Commercial Real Estate Loans Securing Covered Bonds here Covered Bonds Rating Criteria – Mortgage Liquidity and Refinancing Stress Addendum 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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