OREANDA-NEWS. Fitch Ratings has affirmed ABN AMRO Bank N.V.'s (ABN; A+/Negative/F1+, Viability Rating: a) EUR23.5bn equivalent outstanding mortgage covered bonds at 'AAA' following the addition of 12-month extendible maturities (soft bullet) to the outstanding euro denominated benchmark covered bonds after bondholders' consent. Such bonds, which were originally issued with hard bullet maturity dates, constitute 68% of the outstanding covered bonds balance. The remaining hard bullet series have scheduled maturity dates from August 2015 up to December 2052.

KEY RATING DRIVERS
The rating is based on ABN'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 75.1% asset percentage (AP) that Fitch takes into account in its analysis, which provides more protection than the 80.5% 'AAA' breakeven AP. The Stable Outlook for the covered bonds rating reflects Fitch's view that a potential downgrade of the issuer's IDR to its current VR of 'a' can be compensated for by the IDR uplift of '2'.

The 'AAA' breakeven AP remains unchanged at 80.5% because the new maturity extensions do not impact Fitch's assessment of the impact of the amortisation test (AT) on the breakeven AP. The 'AAA' breakeven AP is driven by Fitch's assessment of the AT under Fitch's stressed house price declines. This has had a large impact on the breakeven AP, in particular, because the test does not consider loan parts above 80% of the post-stress property value. In the calculation of Fitch's breakeven OC components, the added stress from the AT compared with Fitch's standard cash flow analysis has been added to the asset disposal loss component.

The 'AAA' breakeven AP is equivalent to a breakeven OC of 24.2%. It is driven by the asset disposal loss component of 20.9% due to large maturity mismatches between the assets and the bonds, including a 2.0% AT impact. The other components are credit loss at 7.4% and cash flow valuation of -1.3% in a 'AAA' scenario. The breakeven AP considers whether timely payments are met in a 'AA' scenario and tests for recoveries given default of at least 91% in a 'AAA' scenario.

The D-Cap remains unchanged at '4' (moderate risk). The hard bullet bonds still have protection against liquidity gaps in the form of a pre-maturity test under which the issuer, if and when rated below 'F1+', has to cash-collateralise the covered bonds maturing in the following 12 months. For the series that were converted into soft bullet, the pre-maturity test does not apply anymore, but the liquidity gaps risk is mitigated by the 12 month extendible feature. For more information see 'Fitch: No Rating Impact from ABN AMRO's Planned Switch to Soft Bullet' dated 25 February 2015 at www.fitchratings.com.
Fitch takes into account the maximum 75.1% AP that ABN commits to in its investor report.

RATING SENSITIVITIES
The 'AAA' rating would be vulnerable to downgrade if any of the following occurs: (i) the IDR is downgraded by five or more notches to 'BBB-' or below; or (ii) the number of notches represented by the IDR uplift and the D-Cap is reduced to one or lower; or (iii) the AP that Fitch considers in its analysis increases above Fitch's 'AAA' breakeven level of 80.5%.

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.