SANTIAGO, Chile--(BUSINESS WIRE)--Fitch Ratings has today affirmed at 'AAA(cl)' Banco Santander Chile's Bonos Hipotecarios (mortgage bonds) program (Number 4/2013) with an issuance amount of up to UF20 million and a maturity of 30 years. The Rating Outlook is Stable. At the same time, Fitch has assigned an 'AAA(cl)' rating to the new Serie A-B issuance with the characteristics detailed below.
The Serie A-A issuances under the program placed in August and November 2013 had the following characteristics:
--UF3 million;
--Maturity 15 years;
--Date of final maturity 1 July 2028;
--Interest rate 3.2%.
The new Serie A-B issuance under the program has the following characteristics:
--UF5 millon;
--Maturity 18 years;
--Date of final maturity 1 April 2032;
--Interest rate 3.2%.
It is worth noting that each mortgage loan granted from a particular issuance is associated with that issuance and not to the program as a whole.
With respect to the Serie A-A, issuance was made in two tranches for UF 1.5 million each. As of March 2014, the assets in the special register from the first tranche issued consisted of 561 mortgage loans with an outstanding balance of UF 798,388 and of fixed income instruments issued by the Chilean Central Bank and the Treasury of Chile with a market value of UF 969,418. With respect to the second tranche, the assets included in the special register consisted of fixed income instruments issued by the Chilean Central Bank and the Treasury of Chile with a market value of UF 1,517,978. The assets related to each tranche exceeds the amount issued, owing to the placement of amounts into fixed income instruments which are valued at market value. As these fixed income securities are replaced by mortgages, the value of the assets will converge with the amount issued.
KEY RATING DRIVERS
The rating of the mortgage bonds is based on Banco Santander Chile's National Rating for senior unsecured issuances of 'AAA(cl)' with a Stable Outlook, a Fitch Discontinuity Cap (D-Cap) of 0 (full discontinuity, which implies a default of the bonds in case of issuer default), and uncertainties regarding the recovery potential provided by the related mortgage portfolio.
The D-Cap of 0 is mainly driven by the full discontinuity assessment assigned to the sections Liquidity Gap and Systemic Risk, and Systemic Alternative Management, which reflects the absence of any specific provision in Chile's legislation on mortgage bonds regarding these subjects.
Fitch does not give any uplift for recoveries as the mortgage portfolio does not exist at the issuance date. This problem is magnified by the lack of overcollateralization between the cover asset and the bonds, and the valuation of the assets stipulated by the Bonos Hipotecarios regulation, which in Fitch's view is weak because it fully considers mortgages with high levels of delinquency. Furthermore, in the absence of a tender at a higher value, mortgage bond holders will be treated as senior unsecured creditors from a recovery standpoint.
For more information on the Chilean Mortgage Bond framework and on the risk assessments of the D-Cap components for Banco Santander Chile's mortgage bonds please see the report 'Chilean Mortgage Bond Framework' (published Aug. 26, 2013) and the press release 'Fitch Rates First Mortgage Bonds Issued By Banco Santander Chile' (published June 3, 2013).
RATING SENSITIVITIES
The National Rating of 'AAA(cl)' with a Stable Outlook on the mortgage bonds is directly linked to the senior unsecured National Rating of Banco Santander Chile.
EXCEPTION FROM CRITERIA
The covered bond criteria are normally applied to debt benefiting from a dual recourse against a financial institution and should it fail, against a pool of assets. In the case of these transactions Fitch applies the covered bonds rating criteria, although recourse against the cover assets is only available indirectly.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Global Financial Institutions Rating Criteria' (Jan. 31, 2014);
--'Covered Bond Rating Criteria' (March 10, 2014);
--'Chilean Mortgage Bond Framework' (Aug. 26, 2013).
Applicable Criteria and Related Research:
Global Financial Institutions Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=732397
Chilean Mortgage Bond Framework (Dedicated Covered Bond Legislation Falls Short of the Mark)
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=716737
Additional Disclosure
Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=827531
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