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Fitch Affirms Credit Suisse AG's Mortgage Covered Bonds at 'AAA'; Outlook Stable
January 22, 2015 / 4:42 PM / 3 years ago

Fitch Affirms Credit Suisse AG's Mortgage Covered Bonds at 'AAA'; Outlook Stable

(The following statement was released by the rating agency) FRANKFURT/LONDON, January 22 (Fitch) Fitch Ratings has affirmed Credit Suisse AG's (CS, A/Stable/F1) CHF13.1bn equivalent outstanding mortgage covered bonds at 'AAA', following the implementation of a 12-month extendible maturity for seven of nine outstanding covered bond series. The remaining hard bullet series have a scheduled maturity date of March 2015 and July 2039, respectively. KEY RATING DRIVERS The rating is based on CS'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 maximum 85% asset percentage (AP) that Fitch takes into account in its analysis, which provides more protection than the increased 'AAA' breakeven AP of 86.0%. The Stable Outlook for the covered bonds rating reflects that of the issuer. The 'AAA' breakeven AP has improved to 86% from 85%, reflecting the implementation of the 12 month extendible maturity. In Fitch`s view the change has reduced liquidity risk for the programme as a whole, by reducing both maturity mismatches and the need to liquidate assets compared with the previous nine month pre-maturity test. The equivalent 'AAA' breakeven overcollateralisation (OC) of 16.3% is mainly driven by the cash flow valuation component (8.7%), primarily due to the differences between the stressed present values of the programme's assets and liabilities, as a result of the eight-year difference between the modelled WA life of the cover assets and the covered bonds. This is followed by an asset disposal loss component of 6.3%, underlining the need for forced asset liquidation to ensure timely payment of outstanding covered bonds post issuer default. The third most important driver of the breakeven OC is a 'AAA' credit loss of 4.9%, reflecting an weighted average (WA) default rate of 19.6% and a 76.1% WA recovery rate. The D-Cap remains unchanged, driven by moderate high risk in systemic alternative management, due to the absence of a third-party loan servicing market in Switzerland. However, the assessment for liquidity gap and systemic risk has improved to moderate from moderate high to reflect decreased liquidity risk. As of 19 September 2014, the outstanding mortgage covered bonds of CHF13.1bn were backed by a cover pool of CHF15.5bn of residential mortgages secured on 28,944 Swiss properties. All of the issued covered bonds are fixed-rate and denominated in foreign currencies (79% in EUR and 31% in USD). The guarantor hedges interest rate and foreign exchange risks between the cover assets and the covered bonds. CS acts as swap provider, subject to collateralisation and best-effort replacement triggers. RATING SENSITVITIES The 'AAA' rating would be vulnerable to downgrade if any of the following occurs: (i) the IDR is downgraded by three or more notches to 'BBB' or below; or (ii) the sum of notches represented by the IDR uplift and the Discontinuity Cap (D-Cap) is reduced by three or more notches; or (iii) the AP that Fitch considers in its analysis increases above Fitch's 'AAA' breakeven level of 86.0%. The Fitch breakeven AP for the covered bond rating will be affected, amongst others, 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 breakeven AP 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 report, which will shortly be available at Contact: Primary Analyst Kai-Uwe Richter, CFA, FRM Associate Director +49 69 768076 131 Fitch Deutschland GmbH Taunusanlage 17 D-60325 Frankfurt am Main Secondary Analyst Mathias Pleissner Director +49 69 768076 133 Committee Chairperson Rebecca Holter Senior Director +49 69 768076 261 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 8 August 2014, 'Counterparty Criteria for Structured Finance and Covered Bonds' dated 14 May 2014, 'Criteria Addendum: Switzerland', dated 3 June Mai 2014 and 'Covered Bonds Rating Criteria - Mortgage Liquidity and Refinancing Stress Addendum', dated 04 February 2014 are available at Applicable Criteria and Related Research: Covered Bonds Rating Criteria here Covered Bonds Rating Criteria – Mortgage Liquidity and Refinancing Stress Addendum here Counterparty Criteria for Structured Finance and Covered Bonds 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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