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Fitch Places BMN's CH on Rating Watch Positive
April 12, 2017 / 4:26 PM / 8 months ago

Fitch Places BMN's CH on Rating Watch Positive

(The following statement was released by the rating agency) MADRID/BARCELONA, April 12 (Fitch) Fitch Ratings has placed the 'BBB+' rating of Banco Mare Nostrum's (BMN) mortgage covered bonds (Cedulas Hipotecarias, CH) on Rating Watch Positive (RWP). This follows the action taken by the agency to place the bank's Long-Term Issuer Default Rating (IDR) of 'BB' on Rating Watch Positive due to BMN's potential merger with Bankia S.A (BBB-/Stable/bbb-). See "Fitch Places Spain's Banco Mare Nostrum on RWP on Potential Merger" dated 7 April 2017. KEY RATING DRIVERS The 'BBB+'/RWP rating of BMN's CH is based on an IDR uplift of two notches, a payment continuity uplift (PCU) of zero notches and a recovery uplift of two notches. The overcollateralisation (OC) of 70% which Fitch relies upon in its analysis provides more protection than the 'BBB+' breakeven OC of 25%, which is based on the cover pool's credit loss stressed in a 'BBB+' rating scenario. BMN's breakeven OC is equal to the legal minimum. The RWP on the bonds mirrors the RWP on BMN's Long-Term IDR. Spanish covered bonds are eligible for a maximum IDR uplift of two notches given their bail-in exemption in a resolution scenario, Fitch's assessment that resolution of the issuer will not result in the direct enforcement of recourse against the cover pool and the low risk of undercollateralisation at the point of resolution. BMN's covered bonds benefit from a two-notch IDR uplift as the bank's Long-Term IDR is driven by its Viability Rating of 'bb'. The PCU of zero notches reflects the lack of specific liquidity protection mechanisms to bridge temporary shortfalls after the recourse to the cover pool has been enforced. This is common for all Spanish covered bond programmes rated by Fitch. Spanish covered bonds have hard bullet maturities while the cover assets gradually amortise. Given the PCU of zero notches, BMN's CH is not tested for timely payment and is only rated based on recoveries. BMN's CH benefit from maximum recovery uplift of two notches. RATING SENSITIVITIES BMN's CH would be upgraded if the bank's Issuer Default Rating (IDR) were upgraded by one or more notches to 'BB+' or above and if the overcollateralisation relied upon by Fitch offsets the breakeven OC in the corresponding rating scenario. This would also occur if the legislative framework in Spain included a stronger provision on liquidity protection, allowing for a payment continuity uplift above zero. The 'BBB+' rating of BMN's CH would be vulnerable to a downgrade if the bank's Long-Term IDR were downgraded by two or more notches to 'B+' or below. If the tested rating on a probability of default basis falls by one notch, the programme would in turn benefit from a three-notch recovery uplift provided credit losses are covered by overcolleteralisation. Contact: Beatriz Gomez Primary Analyst +91 702 57 75 Fitch Ratings Espana.S.A.U Plaza Colon 2, Torre II 28046 Madrid Secondary Analyst Juan David Garcia Senior Director +34 91 702 57 74 Committee Chairperson Carmen Munoz Senior Director +34 93 383 84 08 Additional information is available on - Sources of information: Asset analysis for this programme was last performed in 16 November 2016 based on stratified mortgage cover pool data provided by the issuer as at 30 June 2016 in line with the data provisions for Multi-Issuer Cedulas Hipotecarias (MICH) transactions detailed in the Rating Crtieria for Multi-Issuer Cedulas Hipotecarias. (See: "Fitch Upgrades 4 Spanish Covered Bonds; Affirms 3 Others"). OC relied upon by Fitch in its asset analysis was last reviewed 3 January 2016. (See:"Fitch: No Rating Impact from BMN'S OC Commitment Withdrawal"). Media Relations: Athos Larkou, London, Tel: +44 203 530 1549, Email:; Pilar Perez, Barcelona, Tel: +34 93 323 8414, Email: Additional information is available on Applicable Criteria Covered Bonds Rating Criteria (pub. 26 Oct 2016) here Criteria for Country Risk in Global Structured Finance and Covered Bonds (pub. 26 Sep 2016) here Criteria for Rating Caps and Limitations in Global Structured Finance Transactions (pub. 16 Jun 2016) here EMEA RMBS Rating Criteria (pub. 29 Nov 2016) here Fitch's Cover Assets Refinancing Spread Level (RSL) Assumptions - Excel file (pub. 20 Jan 2017) here Fitch's Interest Rate Stress Assumptions for Structured Finance and Covered Bonds - Excel File (pub. 17 Feb 2017) here Global Bank Rating Criteria (pub. 25 Nov 2016) here Global Rating Criteria for CLOs and Corporate CDOs (pub. 09 Sep 2016) here Multi-Issuer Cedulas Hipotecarias Rating Criteria (pub. 10 Apr 2017) here SME Balance Sheet Securitisation Rating Criteria (pub. 03 Mar 2017) here Structured Finance and Covered Bonds Counterparty Rating Criteria (pub. 20 Mar 2017) here Structured Finance and Covered Bonds Interest Rate Stresses Rating Criteria (pub. 17 Feb 2017) here Additional Disclosures Solicitation Status here#solicitation Endorsement Policy here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. 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