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TEXT-Fitch cuts NIBC's covered bonds to 'AA-'
October 18, 2012 / 4:30 PM / 5 years ago

TEXT-Fitch cuts NIBC's covered bonds to 'AA-'

Oct 18 - Fitch Ratings has downgraded NIBC Bank N.V.'s (NIBC,
'BBB'/Negative/'F3') outstanding EUR500m mortgage covered bonds to 'AA-',
Negative Outlook from 'AAA' and removed them from Rating Watch Negative (RWN).

The downgrade comes one month after Fitch placed all programmes for which the
analysis no longer supported the current rating on RWN, following the
implementation of the agency's updated Covered Bonds Rating Criteria (see "Fitch
Puts 2 Dutch Covered Bonds on RWN; Assigns Dutch & Irish Programmes D-Caps &
Outlooks " dated 12 September 2012 at The one-month
period was established to allow issuers to respond to the updated assessment and
propose changes to the programme, if appropriate. NIBC has not proposed any
changes to the programme that would address the drivers of the downgrade.

Under the updated criteria, a Discontinuity Cap (D-Cap) of 3 applies to the
programme, which when combined with the issuer's long-term Issuer Default Rating
(IDR) of 'BBB', limits the maximum achievable rating on the programme to 'AA-',
taking into account a two-notch uplift for recoveries.

The 'AA-' rating would be vulnerable to further downgrade if any of the
following occurred: (i) the IDR was downgraded by one notch or more to 'BBB-' or
lower; or (ii) the D-Cap fell by at least one category to 2 (high risk) or
lower; or (iii) the AP that Fitch considers in its analysis increased above
Fitch's 'AA-' breakeven AP of 78.0%. The Negative Outlook on NIBC's IDR drives
the Negative Outlook on the covered bonds.

The agency takes into account the AP published by the issuer in its analysis,
reflecting the issuer's 'F3' short-term IDR. The issuer has confirmed to Fitch
that at the next reporting date the AP will be updated to 78.0%. The level of AP
Fitch relies upon supports a 'A' rating on a probability of default (PD) basis
and supports a 'AA-' rating considering recoveries given default.

The D-Cap of 3 is driven by the moderate high risk assessment of the cover pool
specific alternative management risk, which is the weakest of the D-Cap
components. The asset segregation component and systemic alternative management
are assessed as very low risk and low risk, respectively, and the privileged
derivatives component is assessed as moderate risk from a discontinuity point of

The moderate high risk cover pool specific alternative management assessment
reflects the agency's view of the data delivery and the adequacy of the mainly
internally-developed IT systems in place. Fitch expects internally developed IT
systems to lead to a more difficult transition to an alternative manager than
market-based systems. Furthermore, Fitch considers the programme dormant as it
does not expect further issuance from the programme in the short to medium term.

The Fitch breakeven 'AA-' AP level of 78.0% for the covered bond rating is
slightly lower than Fitch's previous supporting AP of 78.2%, which related to a
covered bonds rating of 'AA' on a PD basis plus two notches recovery uplift.
Although a lower rating applies, updated mortgage assumptions for the Dutch
mortgage market, most notably a more punitive low CPR stress, the further
decline in the Dutch house price index and the impact of the amortisation test,
have led to a lower 'AA-' breakeven AP. The amortisation test is run post-issuer
default and triggers a CBC event of default and an early amortisation of the
covered bonds if breached. The test only gives credit to the lower of the loan
balance and 80% of the property value, which leads to punitive results for loans
with high LTV ratios in Fitch's 'AA-' stresses.

The Fitch breakeven AP for the covered bond rating will be affected, among
others, by the profile of the cover assets relative to outstanding covered
bonds, which can change over time, even in the absence of new issuances.
Therefore it cannot be assumed to remain stable over time.

Additional information is available at The ratings above
were solicited by, or on behalf of, the issuer, and therefore, Fitch has been
compensated for the provision of the ratings.

Applicable criteria, 'Covered Bonds Rating Criteria', dated 10 Sept 2012,
'Covered Bonds
Counterparty Criteria', dated 25 July 2012, 'EMEA Residential Mortgage Loss
Criteria', dated 7 June 2012 and 'EMEA RMBS Criteria Addendum - Netherlands',
dated 14 June 2012 are available on

Applicable Criteria and Related Research:
Covered Bonds Rating Criteria - Amended
Covered Bonds Counterparty Criteria
EMEA Residential Mortgage Loss Criteria
EMEA Criteria Addendum - Netherlands - Mortgage Loss and Cash Flow Assumptions

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