Various Rating Actions On Three Deutsche Postbank Covered Bond Programs; Ratings Then Withdrawn At The Primary Credit Analyst: Ioan Isopel, Frankfurt (49) 69-33-999-306; ioan_isopel@standardandpoors.com Secondary Contact: Karlo S Fuchs, Frankfurt (49) 69-33-999-156; karlo_fuchs@standardandpoors.com OVERVIEW On July 12, 2012, our updated criteria for assessing counterparty risk in covered bonds became effective, and issuers had six months to meet the updated criteria. On Dec. 14, 2012, we put our ratings on Deutsche Postbank's mortgage-covered bonds and DSL Briefe covered bond program on CreditWatch negative due to the likelihood that these programs would not fully meet our counterparty criteria by Jan. 11, 2013, when the transition period ends. After reviewing these programs under our updated criteria, including the bank's progress in mitigating risks we have identified, we have concluded that account bank and commingling risks remain relevant for the two programs. We are therefore lowering our ratings on the mortgage-covered bond program to 'AA+' from 'AAA' and those on the DSL Briefe program to 'AA-' from 'AAA'. At the same time, we are removing the ratings from CreditWatch. We are affirming our 'AAA' ratings on Postbank's public-sector covered bonds. At the issuer's request, we are subsequently withdrawing the ratings on all three programs and related series. Before the withdrawal, the outlooks on the mortgage-covered bond and DSL Briefe were negative and www.standardandpoors.com 1
that on the public-sector covered bond was stable. FRANKFURT (Standard & Poor's) Jan. 4, 2013--Standard & Poor's Ratings Services has today lowered to 'AA+' from 'AAA' its long-term issue ratings on the Hypothekenpfandbriefe (mortgage-covered bond) of Germany-based Deutsche Postbank AG (A+/Negative/A-1). We have also lowered our long-term issue ratings on Postbank's DSL Briefe program to 'AA-' from 'AAA'. We have removed the ratings on both programs from CreditWatch, where they were placed with negative implications on Dec. 14, 2012. At the same time, we have affirmed our 'AAA/A-1+' issue ratings on Postbank's Oeffentliche Pfandbriefe (public-sector covered bond) program. Upon the issuer's request, we have subsequently withdrawn the ratings on all three programs and related series. Before the withdrawal, the outlooks on the mortgage-covered bond and DSL Briefe were negative, and that on the public-sector covered bond program was stable. Today's rating actions follow our review of the programs' asset and cash flow information as of Sept. 30, 2012, and the implementation of our updated counterparty criteria framework (see "Counterparty Risk Framework Methodology And Assumptions," published Nov. 29, 2012, and "Covered Bonds Counterparty And Supporting Obligations Methodology And Assumptions," published May 31, 2012). In line with our updated counterparty criteria framework, we have identified account bank risk and commingling risk as relevant for the programs. The review encompassed the credit quality of the cover pools, the cash flow structure of assets and liabilities, and likely counterparty risks. Because the most recent cash flow reports we have received are as of Sept. 30, 2012, and based on quarterly cash flow projections only, we used our worst-case assumptions to estimate the size of account bank and commingling risks. Since we published the criteria, we have been in regular contact with the issuer to monitor progress on addressing the risks we have identified and on setting up and implementing the action plan to meet the rating criteria. Under the criteria, using our worst-case assumptions for commingling risk, the available credit enhancement of 22.15% for the mortgage-covered bond program as of Sept. 30, 2012, is not sufficient to cover the target credit enhancement of 22.92% and is only commensurate with three notches of uplift above the issuer credit rating (ICR). Likewise, the available credit enhancement of 29.98% for the DSL Briefe as of Sept. 30, 2012, is not sufficient to cover the target credit enhancement of 41.28%, and is only commensurate with one notch of uplift above the ICR. The available credit enhancement of 38.23% as of Sept. 30, 2012, for the public-sector covered bond program is sufficient to cover the target credit enhancement of 36.47% and is commensurate with the full four possible notches of uplift above the ICR. Standard & Poor s Research January 4, 2013 2
Under our the criteria in "Revised Methodology And Assumptions For Assessing Asset-Liability Mismatch Risk In Covered Bonds," published Dec. 16, 2009, the ratings on the mortgage-covered bonds and DSL Briefe program could be six notches above the ICR, provided that the counterparty risks have been fully mitigated. In our view, these risks have not been fully covered. Therefore the negative outlooks before the withdrawal reflect the negative rating outlook on the issuer. All else being equal, a potentially negative rating action would also have an impact on the covered bond ratings. The stable outlook on the public-sector covered bonds before the withdrawal reflects that the ratings incorporated only four of the five possible notches of uplift above the ICR. The one unused notch acts as a buffer, meaning that under our criteria a potential one-notch downgrade of the issuer would not automatically lead to a downgrade of the outstanding covered bonds, all else being equal. RELATED CRITERIA AND RESEARCH Counterparty Risk Framework Methodology And Assumptions, Nov 29, 2012 Credit FAQ: What Factors Do We Consider When Analyzing Commingling And Account Bank Risk In Covered Bonds?, Nov. 26, 2012 Covered bond Ratings Framework: Methodology And Assumptions, June 26, 2012 Global Investment Criteria For Temporary Investments in Transaction Accounts, May 31, 2012 Covered Bonds Counterparty And Supporting Obligations Methodology And Assumptions, May 31, 2012 Assessing Asset-Liability Mismatch Risk In Covered Bonds: Revised Methodology And Assumptions For Target Asset Spreads, April 24, 2012 Nonsovereign Ratings That Exceed EMU Sovereign Ratings: Methodology And Assumptions, June 14, 2011 Principles Of Credit Ratings, Feb. 16, 2011 Advance Notice Of Proposed Criteria Change: Methodologies And Assumptions For Rating Certain Covered Bonds And CDOs, Aug. 5, 2010 Revised Methodology And Assumptions For Assessing Asset-Liability Mismatch Risk In Covered Bonds, Dec. 16, 2009 Update To The Cash Flow Criteria For European RMBS Transactions, Jan. 6, 2009 Update To The Criteria For Rating German Residential Mortgage-Backed Securities, Jan. 6, 2009 German Law Change Affects Mortgage Foreclosure Period Stresses, Nov. 28, 2008 A Listing Of S&P's New Actions Aimed At Strengthening The Ratings Process, Feb. 7, 2008 CDO Spotlight: Rating Approach To Synthetic CDOs Of Sovereigns Or Local And Regional Governments, May 3, 2006 European Legal Criteria for Structured Finance Transactions, March 23, 2005 German Pfandbrief Framework Further Improved, March 30, 2004 www.standardandpoors.com 3
Cash Flow Criteria For European RMBS Transactions, Nov. 20, 2003 Surviving Stress Scenarios: Assessing Asset Quality of Public Sector Covered Bond Collateral, Sept. 30, 2003 Rating Pfandbriefe--The Analytical Perspective, Jan. 27, 2003 Criteria For Rating German Residential Mortgage-Backed Securities, Aug. 31, 2001 RATINGS LIST Downgraded; CreditWatch/Outlook Action; Ratings Withdrawn; Final To From Deutsche Postbank AG Mortgage Covered Bonds (Hypothekenpfandbriefe) Issue Rating NR AA+/Negative AAA/Watch Neg DSL Briefe Issue Rating NR AA-/Negative AAA/Watch Neg Ratings Affirmed; Ratings Withdrawn Deutsche Postbank AG Public-Sector Covered Bonds (Oeffentliche Pfandbriefe) Issue Rating NR AAA/Stable/A-1+ AAA/Stable/A-1+ NR--Not rated. Additional Contact: Covered Bonds Surveillance; CoveredBondSurveillance@standardandpoors.com Standard & Poor s Research January 4, 2013 4
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