ALPHA SERVICES AND HOLDINGS S.A.
Fitch Ratings has placed
The rating action follows the publication of the agency's revised Covered Bonds Rating Criteria published on the 8 of
KEY RATING DRIVERS
Fitch has recalibrated and reduced the applicable refinancing spread levels (RSLs) for Greek residential mortgages to 300bp in a 'B' scenario (from 400bp previously), keeping them unchanged at 'BBB+' (the maximum achievable rating for Greek covered bonds). Fitch applies the RSLs in its covered bond analysis when simulating the sale of the cover assets once the recourse to the cover pool has been enforced upon issuer default. The reduction in the RSLs could result in a lower breakeven overcollateralisation (OC) for the covered bond rating, leading to a potential upgrade. This is because the covered bonds' rating is currently constrained by the relied upon asset percentage (AP) and there are unused notches of uplifts.
OC Protection
The covered bonds are rated 'BBB-', five notches above the bank's Long-Term IDR of 'B', out of a maximum achievable uplift of 10 notches. This is based on an unchanged resolution uplift of two notches, an unchanged payment continuity uplift (PCU) of six notches and a recovery uplift of three notches (which would be capped at two notches if the timely payment rating level was in the investment-grade category). The 'BBB-' break-even AP is unchanged at 90%, higher than the committed AP of 78.7% that Fitch relies upon (27% OC equivalent).
The covered bonds' rating is currently constrained by the OC. The 'BBB-' rating can be reached based on three notches of recovery uplift above the 'BB-' resolution reference point as the committed AP does not sustain timely payments in scenarios higher than 'BB-'. The only contributor for Alpha's break-even AP is the credit loss, which stands at 11.2% for the 'BBB-' instrument rating.
Uplifts
The unchanged resolution uplift of two notches reflects Greek covered bonds' exemption from bail-in, that the bank's Long-Term IDRs is driven by its Viability Rating, and Fitch's view of the low risk of under-collateralisation at the point of resolution. The PCU remains six notches, given the soft-bullet feature of the covered bonds and the available protection for interest payments of at least three months. The programme is eligible for a recovery uplift of three notches as the timely payment rating is non-investment-grade and Fitch has not identified any material downside risk to recoveries given default.
ESG
Alpha's mortgage covered bonds have an ESG Relevance Score of 5 for Transaction Parties &Operational Risk due to the relied-upon OC being insufficient to support higher rating levels.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive rating action/upgrade:
Alpha's covered bonds could be upgraded if the committed OC is sufficient to sustain timely payments in rating scenarios higher than 'BB-', taking into account the revision of the RSLs.
The covered bonds could be upgraded to the Country Ceiling of 'BBB+', provided sufficient protection is available to withstand stresses associated with higher ratings.
Alpha's covered bonds could be upgraded if its IDR was upgraded by one notch, meaning the new resolution reference point was 'BB', provided that sufficient protection is available to support higher rating levels.
Factors that could, individually or collectively, lead to negative rating action/downgrade:
Alpha's covered bonds would be vulnerable to a downgrade if the relied-upon AP rises above Fitch's 90% breakeven AP for the 'BBB-' covered bonds' rating.
A downgrade of Alpha's IDR would lead to a downgrade of the covered bonds' rating if sufficient protection is not available to withstand stresses associated with the 'BBB-' rating.
If the reference IDR goes below 'B-', Fitch applies a floor in its covered bonds analysis in line with its Covered Bonds Rating Criteria if it believes that the switch of recourse to the cover pool is unlikely to occur upon a default on senior unsecured obligations. The floor will be set at the highest of one of the following: 'B-' or the IDR plus resolution uplift. No resolution uplift will be considered above the floor, but we would continue to apply the PCU and recovery uplift above the floor.
Fitch has recently revised its Global Economic Outlook forecasts as inflation pressures continue to intensify, with increasingly adverse implications for the growth outlook. While the outlook for the covered bonds sector is neutral, driven by the prime and secured nature of the assets, downside risks have increased and we have published an assessment of the potential rating and asset performance impact on all sectors (see 'What a Stagflation Scenario Would Mean for Global Structured Finance' dated
Fitch's breakeven AP for the covered bonds' rating will be affected, among other factors, by the profile of the cover assets relative to outstanding covered bonds, which can change over time, even in the absence of new issuance. Therefore, the breakeven AP to maintain the covered bonds' rating cannot be assumed to remain stable over time.
Best/Worst Case Rating Scenario
International scale credit ratings of Financial Institutions and Covered Bond issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from '
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
ESG Considerations
Alpha's covered bonds have an ESG Relevance Score of 5 for Transaction Parties & Operational Risk due to the relied-upon OC not being sufficient to support higher rating levels, which has a negative impact on the credit profile, and is highly relevant to the rating, resulting in a rating constraint of two notches below the 'BBB+' Country Ceiling for
Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg
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