Fitch Rates ABN AMRO's Covered Bonds 'AAA'.

LONDON -- Fitch Ratings, the international rating agency, has today assigned ABN AMRO's EUR2 billion 3.25% covered bonds due September 2015, a Long-term rating of 'AAA'.

This transaction is the first issuance under ABN AMRO's EUR25 billion Covered Bonds Programme.

The rating is based on the programme's satisfactory legal structure, the cover assets providing sufficient overcollateralisation to absorb potential credit losses and compensate for market risks, and the different mechanisms in place to mitigate liquidity and operational risks. It also reflects the good quality of the cover pool and the sound underwriting and servicing capabilities of the ABN AMRO group.

The Netherlands does not have specific covered bond legislation, and the bonds are therefore issued pursuant to contractual arrangements similar to those already existing in the U.K. The covered bonds constitute direct, unsubordinated obligations of ABN AMRO Bank N.V. (rated 'AA-/F1+' with a Stable Outlook by Fitch), guaranteed by ABN AMRO Covered Bond Company (the CBC), an insolvency remote private company established solely for the purpose of this programme. Under the guarantee, interest and principal payments will be met by the CBC upon occurrence of an issuer event of default, while bondholders will still have an unsecured claim against ABN AMRO if not fully satisfied by the CBC. The guarantee given by the CBC and the legal structure of the programme enable Fitch to assign a rating higher than and not directly based on that of ABN AMRO.

The covered bonds are backed by a pool of Dutch residential mortgages originated by ABN AMRO and MNF Bank N.V., a wholly owned subsidiary of Bouwfonds Hypotheken (in turn wholly owned by ABN AMRO). In the future, both Bouwfonds and other five of its wholly owned originators may contribute loans to the programme. Eligibility criteria stipulate that all loans are performing, secured on a first priority mortgage and granted to borrowers resident in The Netherlands. The pool consists of more than 53,000 loans, totaling approximately EUR7.5 billion, with an average current loan-to-value ratio of 68.8% and a weighted average maturity of 28 years. In an 'AAA' scenario, Fitch has calculated a pool's cumulative weighted average frequency of foreclosure of 14.07% with a loss severity of 32.66%. The cover portfolio is reasonably well diversified by region, with the highest concentrations in Zuid Holland (20.9%), Noord-Holland (19.9%), and Noord-Brabant (15.8%) and the remainder well spread across other Dutch regions.

An asset coverage test is designed to ensure sufficient overcollateralisation between the cover pool and the outstanding covered bonds. The asset percentage is set at 92.5%, equivalent to a 7.5% minimum overcollateralisation. Although there is no cap on the loan-to-value ratio (LTV) in the eligibility criteria, the asset coverage formula gives credit only to a maximum 80% LTV (100% for loans with a Nationale Hypotheek Garantie guarantee), based on the indexed valuation of the mortgage properties. Finally, the asset coverage test accounts for other risks, such as potential set-off arising from either bank deposits or insurance policies.

To mitigate the risk arising from the maturity mismatches between the assets and hard-bullet covered bonds, a prematurity test is in place so that, in the event of a downgrade of ABN AMRO's Short-term rating below 'F1+', sufficient liquidity is available to meet payments due under the covered bonds in the next six months (12 in the event of a downgrade below 'F1'). This can be achieved by various means, prominent among which is the sale of portions of the portfolio. Different assumptions, among others, the cost of funding for a potential buyer and a volume discount, are taken into account by Fitch when estimating the sale price under an 'AAA' stress scenario within a relatively tight timeframe. The option of issuing soft-bullet covered bonds is also available to ABN AMRO to address the risk of maturity mismatches, subject to the consent of the trustee and amendment of the transaction documents.

Some discrepancies may exist between the interest rate yielded by the cover assets and the covered bonds as well as between the currency of denomination of the assets and the bonds themselves. A total return swap is in place with ABN AMRO to lock-in a predefined margin over Euribor, while interest rate and currency swaps will be entered into whenever necessary.

ABN AMRO acts as primary servicer of the programme and will endeavour to enter into a master servicer agreement with a suitable third party should its rating fall below 'BBB-'. Furthermore, Ernst & Young acts as independent asset monitor, whose duties include the verification of the accuracy of all relevant test calculations.

Given the dynamic nature of the collateral, the quality of the cover pool will be closely monitored by Fitch on an ongoing basis; all risks and structural features will be captured by the agency's cashflow analysis, which will be conducted periodically and used to assign and affirm ratings on all series issued under the programme.

A copy of the report is available on the Fitch web site, www.fitchratings.com.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria, and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance, and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.