Press Release

DBRS Morningstar Confirms BBB (low) Ratings on Piraeus Bank SA Global Covered Bonds Programme (GCB - Mortgages - CPT)

Covered Bonds

August 25, 2023

DBRS Ratings GmbH (DBRS Morningstar) confirmed its BBB (low) ratings on the Greek Covered Bonds (GCB or the Greek legislative covered bonds) issued under the EUR 10,000,000,000 Piraeus Bank SA Global Covered Bonds Programme (the Programme). The rating confirmations follow the completion of a full review of the Programme.

There are currently four series currently outstanding under the Programme, totalling a nominal amount of EUR 2.5 billion.

DBRS Morningstar based its ratings on the following analytical considerations:
-- A Covered Bonds Attachment Point (CBAP) of BB, which is the Long-Term Critical Obligations Rating of Piraeus Bank S.A. (Piraeus). Piraeus is the Issuer and Reference Entity (RE) for the Programme. DBRS Morningstar does not currently classify Greece as a jurisdiction for which covered bonds (CB) are a particularly important financing tool. Piraeus is subject to the European Union’s Bank Recovery and Resolution Directive. The CP is composed of residential mortgage loans. DBRS Morningstar considers it likely that this form of lending would be part of the activity of a going-concern entity possibly resulting from the resolution of the RE.
-- A Legal and Structuring Framework (LSF) Assessment of “Very Strong” associated with the Programme.
-- A Cover Pool Credit Assessment (CPCA) of BB (low), being the lowest CPCA in line with the LSF-Implied Likelihood (LSF-L).
-- An LSF-L of BBB (low).
-- No notches of uplift for recovery prospects.
-- A level of overcollateralization (OC) of 28.1% to which DBRS Morningstar gives credit, being the minimum observed OC level during the past 12 months adjusted by a scaling factor of 0.93. The Issuer contractually commits to maintain a minimum 25% OC level in the nominal value test.
-- The sovereign rating of the Hellenic Republic, rated BB (high) with a Stable trend by DBRS Morningstar, as of the date of this press release.

DBRS Morningstar analysed the transaction with its European Covered Bond Cash Flow tool and its Common RMBS tool. The main assumptions focused on the timing of defaults and recoveries of the assets and interest rate stresses. In accordance with DBRS Morningstar’s “Global Methodology for Rating and Monitoring Covered Bonds” methodology, DBRS Morningstar did not consider any forced asset liquidation for this transaction, given the conditional pass-through structure, and has assumed several prepayment scenarios.

Everything else being equal, a one-notch downgrade of the CBAP would lead to a one-notch downgrade of the LSF-L, resulting in a one-notch downgrade of the CB rating.

In addition, everything else being equal, DBRS Morningstar would downgrade the ratings if any of the following occurred: (1) the CPCA was downgraded below BB (low) or (2) the LSF Assessment associated with the Programme was downgraded to “Average” or below.

Citibank N.A./London Branch (Citibank London) acts as the Transaction Bank and holds the Commingling Reserve in a dedicated ledger of the Transaction Account. Based on DBRS Morningstar’s private rating on this bank and the replacement provisions included in the transaction documentation, DBRS Morningstar considers the risk of such counterparty to be consistent with the ratings assigned, in accordance with its “Legal Criteria for European Structured Finance Transactions” and “Global Methodology for Rating and Monitoring Covered Bonds” methodologies.

The total outstanding amount of bonds outstanding under Piraeus CB is currently EUR 2.5 billion while the aggregate balance of loans (as at June 2023) in the CP was EUR 3.5 billion of first-lien residential mortgage loans, resulting in a total OC of 40.5%.

As at June 2023, the CP comprised 87,592 residential mortgage loans originated by Piraeus. The weighted-average (WA) current loan-to-value ratio of the mortgages was 47.5% and the WA seasoning was 170 months. The assets securing the loans in the CP are located predominantly in the regions of Attica (41.0% by outstanding loan amount), Thessaloniki (11.8%), and Macedonia (9.1%).

The CP comprises 99.7% floating-rate mortgage loans, indexed to different plain vanilla bases, which reset at different dates. This compares with 100% of the liabilities paying a floating rate linked mostly to three-month Euribor. The resulting interest and basis risks are not hedged.

All CP assets and Piraeus CB are denominated in euros. As such, investors are not currently exposed to any foreign-exchange risk.

DBRS Morningstar assessed the LSF related to the Programme as “Very Strong” according to its credit rating methodology. For more information, please refer to the DBRS Morningstar commentary “Greek Covered Bonds: Legal and Structuring Framework Review” on www.dbrsmorningstar.com.

DBRS Morningstar’s credit ratings on the outstanding CB Series address the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents. The associated financial obligations are the related interest payment amounts and the related principal amount.

DBRS Morningstar’s long-term credit ratings provide opinions on risk of default. DBRS Morningstar considers risk of default to be the risk that an issuer will fail to satisfy the financial obligations in accordance with the terms under which a long-term obligation has been issued.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
Credit rating actions on the Issuer are likely to have an impact on this credit rating.

There were no Environmental/Social/Governance factors that had a significant or relevant effect on the credit analysis.

A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (4 July 2023) at https://www.dbrsmorningstar.com/research/416784/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings.

On 9 October 2023, DBRS Morningstar amended the above press release to consider the absence of third-party assessment at the time of the initial credit ratings.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the ratings is: “Global Methodology for Rating and Monitoring Covered Bonds” (8 May 2023) https://www.dbrsmorningstar.com/research/413651/global-methodology-for-rating-and-monitoring-covered-bonds.

Other methodologies referenced in this transaction are listed at the end of this press release.

DBRS Morningstar has applied the principal methodology consistently and conducted a review of the transaction in accordance with the surveillance section of the principal methodology.

A review of the transaction legal documents was not conducted as the legal documents have remained unchanged since the most recent rating action.

For a more detailed discussion of the sovereign risk impact on Structured Finance credit ratings, please refer to "Appendix C: The Impact of Sovereign Ratings on Other DBRS Morningstar Credit Ratings" of the "Global Methodology for Rating Sovereign Governments" at: https://www.dbrsmorningstar.com/research/401817.

The DBRS Morningstar Sovereign group releases baseline macroeconomic scenarios for rated sovereigns. DBRS Morningstar analysis considered impacts consistent with the baseline scenarios as set forth in the following report: https://www.dbrsmorningstar.com/research/384482/baseline-macroeconomic-scenarios-application-to-credit-ratings.

The sources of data and information used for these ratings include investor reports and loan-by-loan data on the CP as of 30 June 2023, repossession data as of December 2022, static pool default and recovery data from 2005 to 2022, and dynamic pool NPLs and arrears data from 2007 to 2022 provided by the Issuer.

DBRS Morningstar did not rely upon third-party due diligence in order to conduct its analysis.

At the time of the initial credit ratings, DBRS Morningstar was not supplied with third-party assessments. However, this did not impact the rating analysis.

DBRS Morningstar considers the data and information available to it for the purposes of providing this credit rating to be of satisfactory quality.

DBRS Morningstar does not audit or independently verify the data or information it receives in connection with the rating process.

The last rating action on this transaction took place on 25 August 2022, when DBRS Morningstar confirmed its BBB (low) ratings on Piraeus CB.

The lead analyst responsibilities for this transaction have been transferred to Antonio Laudani.

Information regarding DBRS Morningstar ratings, including definitions, policies, and methodologies, is available on www.dbrsmorningstar.com.

For further information on DBRS Morningstar historical default rates published by the European Securities and Markets Authority (ESMA) in a central repository, see: https://registers.esma.europa.eu/cerep-publication. For further information on DBRS Morningstar historical default rates published by the Financial Conduct Authority (FCA) in a central repository, see https://data.fca.org.uk/#/ceres/craStats.

These credit ratings are endorsed by DBRS Ratings Limited for use in the United Kingdom.

Lead Analyst: Antonio Laudani, Vice President
Rating Committee Chair: David Lautier, Senior Vice President
Initial Rating Date: 27 August 2018

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The rating methodologies used in the analysis of this transaction can be found at: http://www.dbrsmorningstar.com/about/methodologies.

A description of how DBRS Morningstar analyses structured finance transactions and how the methodologies are collectively applied can be found at: https://www.dbrsmorningstar.com/research/278375.

For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at info@dbrsmorningstar.com.

ALL MORNINGSTAR DBRS RATINGS ARE SUBJECT TO DISCLAIMERS AND CERTAIN LIMITATIONS. PLEASE READ THESE DISCLAIMERS AND LIMITATIONS AND ADDITIONAL INFORMATION REGARDING MORNINGSTAR DBRS RATINGS, INCLUDING DEFINITIONS, POLICIES, RATING SCALES AND METHODOLOGIES.

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