ֳ

Non-Rating Action Commentary

IDRs Drive Rating Buffer Differences for German Commercial Pfandbriefe

Thu 20 Feb, 2020 - 10:32 AM ET

Link to ֳ' Report(s): German Mortgage Pfandbriefe with Commercial Real Estate Exposure - Peer Review

ֳ-Frankfurt-20 February 2020: UniCredit Bank AG's (BBB+/Negative) and Landesbank Hessen-Thueringen Girozentrale's (Helaba, A+/Stable) mortgage Pfandbriefe are rated at ֳ's highest rating 'AAA', yet the buffer against Issuer Default Rating's (IDR) downgrade differs for the two programmes. Both benefit from an IDR uplift of two notches, a payment continuity uplift of four notches and a recovery uplift of two notches. However, the buffer protecting against an IDR downgrade is one notch for UniCredit's mortgage Pfandbriefe and four notches for Helaba's due to the banks' different IDR levels, with Unicredit rated 'BBB+' and Helaba 'A+'.

The high IDR of Helaba allows the programme to be rated based on the IDR as adjusted by the IDR uplift and another two notches of recovery uplift. As a result, no cash-flow modelling is performed and the ֳ 'AAA' breakeven overcollateralisation (OC) is based on the 'AAA' credit loss for the programme. UniCredit's Pfandbriefe on the other hand are rated based on the rating on a probability-of-default basis of 'AA' and two notches of recovery uplift.

The credit loss difference among the programmes is driven by the different types of cover assets included in the cover pools. While Helaba's cover pool is almost exclusively composed of large commercial assets, including large multifamily houses, that of UniCredit includes a significant share of residential assets and loans to SMEs secured by commercial buildings.

The lower-risk cover assets located exclusively in Germany drive the lower 'AAA' credit loss of 7.2%* for UniCredit's programme. In contrast, the almost 100% share of large commercial assets and the 45.6% foreign exposure of Helaba's cover assets drive its larger 'AAA' credit loss of 19.2%.

More detailed information on the two Pfandbrief programmes and how they compare with the average of the 27 active mortgage Pfandbrief programmes exposed to commercial real estate is available in the report "German Mortgage Pfandbriefe with Commercial Real Estate Exposure - Peer Review" or by clicking the link above.

* 'AAA' credit loss shown for comparability only, the breakeven over-collateralisation (10.0%) for Unicredit remains based on the 'AA' probability-of-default level credit loss (4.6%) and asset-liability mismatch loss (5.4%).

Contact:

Thomas Kaber
Associate Director
+49 69 7680 76 172
ֳ Deutschland GmbH
Neue Mainzer Str. 46-50
D-60311 Frankfurt am Main

Matthew Aitken
Associate Director
+49 69 768076 165

Media Relations: Athos Larkou, London, Tel: +44 20 3530 1549, Email: athos.larkou@thefitchgroup.com

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