June 28, 2017 / 3:39 PM / a year ago

Fitch Rates Andbank's Covered Bonds 'BBB+ (EXP)'

(The following statement was released by the rating agency) Link to Fitch Ratings' Report: Andorra Capital Agricol Reig, B.V. - Mortgage Covered Bonds here MADRID, June 28 (Fitch) Fitch Ratings has assigned Andorra Capital Agricol Reig, B.V.'s (Andbank NL) mortgage covered bonds an expected rating of 'BBB+(EXP)' with a Stable Outlook. The assignment of the final rating is contingent on the receipt of final documentations conforming to information already received. KEY RATING DRIVERS The 'BBB+(EXP)' expected rating is based on the 'BBB' Long-Term Issuer Default Rating (IDR) of Andbank NL's parent, Andorra Banc Agricol Reig S.A. (Andbank), which acts as reference IDR, and a recovery uplift of one notch. Fitch will rely on the 90% expected contractual maximum asset percentage (AP), which will also be the breakeven AP for the rating. The 90% breakeven AP corresponds to a breakeven over-collateralisation (OC) of 11.1%. The Stable Outlook on the covered bond rating mirrors that on the parent's IDR. Fitch rates the covered bonds based on a limited rating uplift approach given the insufficient Andorran market performance information available to develop credit assumptions and perform a full asset analysis. For this reason Fitch is not assigning a payment continuity uplift (PCU) and limits the instrument's recovery uplift to one notch. Despite limitations, the data was sufficient to allow Fitch to conduct a broad asset analysis and estimate recovery prospects. The cover assets, originated by Andbank, will be transferred by means of a true-sale to a bankruptcy-remote Irish special-purpose vehicle (SPV). Fitch views that the cover assets will be sufficiently ring-fenced from the rest of Andbank's balance sheet as this transfer is valid under the laws of Andorra and the Netherlands. The covered bondholders benefit from dual recourse. The obligations of the issuer are guaranteed by the parent bank, Andbank, on first recourse. The second recourse comes from a guarantee by an Irish SPV, secured by rights to Andorran mortgages. Andbank NL's obligations will be secured by the issuer's interests under an intercompany loan granted to Andbank to lend on the proceeds of the issuance, while Andbank's guarantee will be secured by its interests under an intercompany loan and subordinated credit facility, granted to the SPV for the purpose of funding the initial and subsequent purchase of assets respectively. An IDR uplift of zero notches has been assigned. Secured debt is exempt from bail-in as per Andorran bank resolution law and it is Fitch's view that the security arrangements enable this to extend to the covered bonds. However, Fitch sees the risk that the cover pool could be enforced in a bank resolution scenario. We do not have sufficient clarity on the ability of the bank to maintain payments on the bonds in this scenario as there is no lender of last resort in Andorra and the bank only has limited access to European Central Bank liquidity through small European subsidiaries. Under Andbank NL's euro medium term note and covered bond programme it can issue hard- and soft-bullet covered bonds and senior debt up to EUR500 million. The covered bonds are expected to be secured by a dynamic cover pool, which as of April 2017 amounted to EUR177.3 million, consisting of 1,755 prime first ranking residential mortgage loans, granted to Andorran residents. Additional assets will be purchased from Andbank by the SPV with the aim to maintain the maximum contractual level of AP. All assets and covered bonds are expected to be denominated in euro. CRITERIA VARIATION Fitch has applied a variation to the Criteria for Country Risk in Global Structured Finance and Covered Bonds which describes the agency's approach to assigning and maintaining covered bonds ratings that are higher than the relevant sovereign's Local Currency IDR (LC IDR) or the Country Ceiling. Given that no limit above the LC IDR exists for Andorra and that the covered bonds under this programme are expected to be rated above Andorra's LC IDR, Fitch has considered a relative assessment with the limits set in other countries and concluded that the limit above the sovereign LC IDR would be four notches. This is based on the analysis of macroeconomic risks, the strength of the legal system and the intrinsic strength of Andorran banks. Had this variation not been applied, the bond rating would be capped at 'BBB'. RATING SENSITIVITIES Andorra Capital Agricol Reig, B.V.'s (Andbank NL) covered bonds are directly vulnerable to changes to the Long-Term issuer Default Rating (IDR) of parent Andorra Banc Agricol Reig, S.A. (Andbank, BBB/Stable) which acts as the reference IDR. Given Fitch's application of the limited rating uplift approach, the rating of the covered bonds is directly linked to Andbank's Long-Term IDR The programme is also sensitive to obligor concentration risk, exposure to mortgage loans for which property title by the borrower is not absolute and/or to the level of employee loans which Fitch believes are relevant to the covered bond rating. If the combined exposure to these risks is material, recovery expectations could be undermined. In this event the covered bond rating would be equalised to that of senior debt. Contact: Primary Analyst Beatriz Gomez Analyst +34 91 702 5775 Fitch Ratings Espana, S.A.U. Plaza Colon 2, Torre II 28046 Madrid Secondary Analyst Carmen Munoz Senior Director +34 93 323 8408 Committee Chairperson Helene Heberlein Managing Director +33 1 44 29 91 40 Media Relations: Athos Larkou, London, Tel: +44 203 530 1549, Email: athos.larkou@fitchratings.com. The source of information used to assess these ratings was Andorra Banc Agricol Reig. The issuer has informed Fitch that not all relevant underlying information used in the analysis of the rated bonds is public. Additional information is available on www.fitchratings.com 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 EMEA RMBS Rating Criteria (pub. 29 Nov 2016) here Global Bank Rating Criteria (pub. 25 Nov 2016) here Structured Finance and Covered Bonds Counterparty Rating Criteria (pub. 23 May 2017) here Structured Finance and Covered Bonds Counterparty Rating Criteria: Derivative Addendum (pub. 23 May 2017) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here Solicitation Status here Endorsement Policy 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 WEB SITE AT WWW.FITCHRATINGS.COM. 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