OREANDA-NEWS. Fitch Ratings has affirmed Banco BPI (BPI, BB/Stable/B) mortgage covered bonds at 'BBB' and removed them from Rating Watch Positive (RWP). The Outlook is Stable.

The rating actions follow the affirmation of BPI's Long-term Issuer Default Rating (IDR) at 'BB'/Stable and its removal from RWP as a result of Spain CaixaBank S.A.'s decision to withdraw its tender offer on BPI shares (see "Fitch Affirms Banco BPI at 'BB'; off Rating Watch Positive" dated 23 June 2015 at www.fitchratings.com).

KEY RATING DRIVERS
The rating is based on BPI's IDR of 'BB', an unchanged IDR uplift and Discontinuity Cap (D-Cap) of 0 (full discontinuity risk) and the 32.5% overcollateralisation (OC) that Fitch takes into account in its analysis, which provides more protection than the unchanged 24% 'BBB' breakeven OC. The Stable Outlook on the covered bonds mirrors that on the bank's IDR.

The 32.5% committed OC, as disclosed in the programme investor report, allows the covered bonds to achieve a three-notch uplift from the 'BB' covered bonds rating floor, as recovery prospects on covered bonds assumed to be in default are at least 91% in a 'BBB' rating scenario. Fitch continues not to apply stress scenarios testing for timely payments, because the IDR uplift and the D-Cap of 0 leads to a floor of 'BB' for the covered bonds rating on a probability of default basis regardless of the level of OC.

The greatest contributor to the 24% 'BBB' breakeven OC remains the 36.2% asset disposal loss, due to the high refinancing spread applied in the stressed valuation of Portuguese residential mortgage loans. In a recovery given default scenario, Fitch calculates the stressed present value of the entire cover pool (with a weighted average residual maturity of around 24 years) at half of the 'BBB' 554bp refinancing spreads. The credit loss component of 7.2% reflects an unchanged cover pool composition since the December 2014 annual review; positive excess spread and limited open interest rate positions between almost 95% floating rate assets and 100% floating bonds reduce the 'BBB' breakeven OC by 7.2%.

RATING SENSITIVITIES
The 'BBB' rating would be vulnerable to downgrade if any of the following occurs: (i) the Issuer Default Rating is downgraded by one or more notches to 'BB-' or below; or (ii) the overcollateralisation that Fitch considers in its analysis decreases below Fitch's 'BBB' breakeven level of 24%.

Fitch's breakeven overcollateralisation 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 overcollateralisation for the covered bond rating cannot be assumed to remain stable over time.