(The following statement was released by the rating agency)
Oct 11 - Fitch Ratings has placed NCG Banco's (NCG Banco, 'BB+'/RWN/'B') CedulasHipotecarias (CH; mortgage covered bonds) on Rating Watch Negative (RWN).
The rating action follows the placement of NCG Banco's Long-term Issuer DefaultRating (IDR) on RWN (see "Fitch Places NCG Banco on RWN" published on 10 October2012 at ). The resolution of the RWN on the covered bondratings will depend on NCG's recapitalisation plan and the resolution of the RWNon NCG Banco's IDR.
The CH rating is mainly based on NCG Banco's Long-term IDR of 'BB+'/RWN, theDiscontinuity Cap (D-Cap) assessment of 1 (very high risk) and theovercollateralisation (OC) ratio of 72% that Fitch takes into account within itsanalysis.
As of August 2012, NCG Banco's total CH amounted to EUR11.96bn and were securedover the bank's total mortgage cover pool of EUR26.27bn, resulting in a total OCof 120%. According to Fitch's covered bond criteria, for Spanish issuers ratedbelow 'F2' and in the absence of contractual minimum levels of OC, the agencyapplied a 30% haircut on the lowest OC observed of the last 12 months (103%) toderive a total OC credited level of 72% within its analysis, assuming a staticmortgage pool composition.
The 'BBB+' rating on NCG's CH would be vulnerable to a downgrade if the issuer'sIDR was downgraded, or the programme OC dropped below Fitch's breakeven OC ratioof 68%. In Fitch's view, sizeable reductions in the amount of mortgage loanssecuring CH are likely to occur for Spanish issuers that transfer mortgages tothe Asset Management Company when it is established. This would cause a drop inOC ratios, but could partly be offset by the lower risk of the remaining coverpool. The agency will investigate the resulting effect upon clarification of theprofile of the assets to be transferred.
The Fitch breakeven OC for a given covered bonds rating will be affected, amongothers, by the profile of the cover assets relative to outstanding coveredbonds, which can change over time, even in the absence of new issuances.Therefore it cannot be assumed to remain stable.