OREANDA-NEWS. Fitch Ratings has affirmed Deutsche Postbank AG's (Postbank, A+/Negative/F1+) EUR4.8bn mortgage Pfandbriefe at 'AAA' with Stable Outlook, following a periodic review of the programme.

KEY RATING DRIVERS

The rating is based on Postbank's Long-term Issuer Default Rating (IDR) of 'A+', an unchanged IDR uplift of 2, an unchanged Discontinuity Cap (D-Cap) of 4 (moderate risk) and the 15.0% voluntary overcollateralisation (OC) commitment that Fitch takes into account in its analysis, which equals the unchanged 'AAA' breakeven OC of 15.0%.

The Outlook is Stable, despite the Negative Outlook on the issuer, since the rating can sustain a downgrade of Postbank's IDR to its parent`s, Deutsche Bank AG, Viability Rating of 'a'.

The main contributor of the unchanged 'AAA' breakeven OC of 15.0% remains the cash flow valuation component, which increased to 12.1% from 6.3% over the past 12 months because of increased prepayment rate assumptions.

Fitch tested for annual prepayments of up to 10% which is lower than Fitch's standard prepayment assumptions for the respective pool seasoning (6.5 years) of 15%. This reflects the possibility of the alternative manager (Sachwalter) to actively influence the borrower`s repayment behaviour at the interest reset date.

The asset disposal loss component improved to 1.7% from 5.2% over the last 12 months. The decrease reflects that due to the adjusted prepayment assumptions more cash is available and fewer assets need to be sold. Accordingly this component is now driven by negative carry of reinvested cash rather than forced asset sales.

The 'AAA' credit loss also decreased to 4.2% from 5.5%, mirroring lower market value decline assumptions (MVDs) for German residential properties published in the updated 'EMEA Criteria Addendum - Germany', dated 31 March 2015. As a consequence of the lower MVDs, the 'AAA' WA recovery rate improved to 85.5% from 73.3% previously.

As the programme continues to be classified as dormant, Fitch relies on the publicly stated level of OC of 15% on a nominal base which equals the breakeven OC. This level of OC supports an 'AA' rating on a tested probability of default basis and allows for a two-notch uplift for outstanding recoveries given default. The commitment is only valid for Postbank`s residential mortgage Pfandbrief programme (so called cover pool D) and features a one-month notice period.

RATING SENSITIVITIES

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 number of notches represented by the D-Cap is reduced to one or lower; or (iii) the OC that Fitch considers in its analysis decreases below Fitch's 'AAA' breakeven level of 15.0%.

The Fitch breakeven OC 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 OC to maintain the covered bond rating cannot be assumed to remain stable over time.