Morningstar DBRS Withdraws Credit Ratings on Banco Comercial Português S.A. Covered Bonds Programme

DBRS Ratings GmbH (Morningstar DBRS) withdrew its credit ratings on all outstanding series issued under the Banco Comercial Português S.A. Covered Bonds (Obrigações Cobertas - Mortgages) programme. The decision to withdraw the credit ratings was made at the request of the Issuer. Prior to the withdrawal, Morningstar DBRS confirmed its AA (low) credit ratings on all the outstanding series.

There are currently four series outstanding under the Programme, totaling a nominal amount of EUR 9.2 billion.

CREDIT RATING RATIONALE
Morningstar DBRS based its credit ratings on the following analytical considerations:
-- A Covered Bonds Attachment Point (CBAP) of "A", which is the Long Term COR of BCP. BCP is the Issuer and Reference Entity (RE) for the Programme. Morningstar DBRS considers Portugal as a jurisdiction in which CBs are a particularly important financing tool.
-- A Legal and Structuring Framework (LSF) Assessment of "Strong" associated with the Programme.
-- A Cover Pool Credit Assessment (CPCA) of BBB (low), being the lowest CPCA in line with the LSF-Implied Likelihood (LSF-L).
-- An LSF-L of "A (high)".
-- A one-notch uplift for good recovery prospects.
-- A level of overcollateralisation (OC) of 15.8% to which Morningstar DBRS gives credit, which is the minimum level observed in the past 12 months adjusted by a scaling factor of 0.85.
-- The sovereign credit rating on the Republic of Portugal, rated "A (high)" with a Stable trend by Morningstar DBRS, as of the date of this press release.

Morningstar DBRS analysed the transaction with its European Covered Bond Cash Flow Tool. The main assumptions focused on the timing of defaults and recoveries of the assets, interest rate stresses, and market value spreads to calculate liquidation values on the CP. Morningstar DBRS assumed several prepayment scenarios, starting from the observed prepayment rate.

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 covered bonds rating. In addition, all else unchanged, the CB ratings would be downgraded if any of the following occurred: (1) the CPCA was downgraded below BBB (low); (2) the quality of the CP and the level of OC were no longer sufficient to support a one-notch uplift for high recovery prospects; (3) the relative amortisation profile of the CB and CP moved adversely; or (4) volatility in the financial markets caused the currently estimated market value spreads to increase.

The total outstanding amount of Obrigações Cobertas under the Programme is currently EUR 9.2 billion, while as of end December 2024, the aggregate balance of mortgages and other assets in the CP was EUR 11.0 billion. This resulted in a total estimated OC of 19.4%. The Issuer has publicly committed to maintaining an OC level of 14.0%. The OC level to which Morningstar DBRS gives credit is 15.8%, after applying a scaling factor of 0.85 to the minimum level of OC observed during the past 12 months.

As of 31 December 2024, the CP comprised 177,873 residential mortgage loans granted to individuals, with an average loan amount of EUR 61,461. The weighted-average (WA) current loan-to-value ratio was 50.5% with a seasoning of 116 months. The pool is located mainly in Lisbon (44.6%), northern Portugal (28.5%), and central Portugal (13.9%).

Of the loans in the portfolio, 73.1% pay a floating interest rate and 26.9% pay a fixed rate, while 100% of the CBs are floating rate. This asset-liability mismatch is mitigated by the available OC.

The Morningstar DBRS-calculated WA life of the mortgage assets is roughly 15.6 years, which is longer than the WA life of 1.7 years on the CBs, not accounting for any maturity extension. This generates an asset-liability mismatch that is mitigated by the available OC and the extended maturity date, which falls one year after the maturity date.

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

Morningstar DBRS assessed the LSF related to the Programme as "Strong" according to its "Global Methodology for Rating and Monitoring Covered Bonds". For more information, please refer to the publication "Portuguese Covered Bonds: Legal and Structuring Framework Review", available at https://dbrs.morningstar.com.

Morningstar DBRS' credit rating on the applicable classes addresses 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 balance.

Morningstar DBRS' long-term credit ratings provide opinions on risk of default. Morningstar DBRS 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, AND GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factor(s) that had a significant or relevant effect on the credit analysis.

A description of how Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings (13 August 2024) https://dbrs.morningstar.com/research/437781 .

Notes:
All figures are in Euros unless otherwise noted.

The principal methodology applicable to the credit rating is: Global Methodology for Rating and Monitoring Covered Bonds (25 March 2025) https://dbrs.morningstar.com/research/450542.

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

In Morningstar DBRS' opinion, the changes under consideration do not require the application of the entire principal methodology. Therefore, DBRS Morningstar focused on the cash flow analysis.

A review of the transaction legal documents was not conducted as the legal documents have remained unchanged since the most recent credit 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 Credit Ratings on Other Morningstar DBRS Credit Ratings" of the "Global Methodology for Rating Sovereign Governments" at: https://dbrs.morningstar.com/research/436000.

The sources of data and information used for this credit rating include investor reports, loan-by-loan data on the CP as of 30 June 2024, aggregated data as of 31 December 2024, static performance data for delinquencies from 2003 to 2023 and the withdrawal request provided by the Issuer.

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

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

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

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

The last credit rating action on this issuer took place on 8 October 2024, when Morningstar DBRS upgraded the credit ratings on BCP's outstanding Obrigações Cobertas to "AA (low)".

Information regarding Morningstar DBRS credit ratings, including definitions, policies, and methodologies, is available on dbrs.morningstar.com.

For further information on Morningstar DBRS 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 Morningstar DBRS historical default rates published by the Financial Conduct Authority (FCA) in a central repository, see https://data.fca.org.uk/#/ceres/craStats.

This credit rating is endorsed by DBRS Ratings Limited for use in the United Kingdom.

Lead Analyst: Alejandro Tendero Delicado, Vice President
Rating Committee Chair: Ketan Thaker, Managing Director
Initial Rating Date: 28 February 2012

DBRS Ratings GmbH
Neue Mainzer Straße 75
D-60311 Frankfurt am Main
Tel. +49 (69) 8088 3500
Geschäftsführung: Detlef Scholz, Marta Zurita Bermejo
Amtsgericht Frankfurt am Main, HRB 110259]

The credit rating methodologies used in the analysis of this transaction can be found at: https://dbrs.morningstar.com/about/methodologies.

-- Global Methodology for Rating and Monitoring Covered Bonds (25 March 2025), https://dbrs.morningstar.com/research/450542
-- European RMBS Insight Methodology (28 February 2025), https://dbrs.morningstar.com/research/449129 and European RMBS Insight model v 10.1.0.0.
-- Global Methodology for Rating Banks and Banking Organisations (4 June 2024), https://dbrs.morningstar.com/research/433881
-- Legal and Derivative Criteria for European Structured Finance Transactions (19 November 2024), https://dbrs.morningstar.com/research/443196
-- Operational Risk Assessment for European Structured Finance Originators and Servicers (18 September 2024), https://dbrs.morningstar.com/research/439571
-- Interest Rate Stresses for European Structured Finance Transactions (24 September 2024), https://dbrs.morningstar.com/research/439913
-- Global Methodology for Rating Sovereign Governments (15 July 2024), https://dbrs.morningstar.com/research/436000
-- Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings (13 August 2024), https://dbrs.morningstar.com/research/437781

A description of how Morningstar DBRS analyses structured finance transactions and how the methodologies are collectively applied can be found at: https://dbrs.morningstar.com/research/439604.

For more information on this credit or on this industry, visit https://dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.