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03 Apr 2009
New York, April 03, 2009 -- Moody's today moves to correct a press release issued on March 31st
announcing a rating action as to covered bonds issued by BA Covered Bond
Program, which release misstated the percentage of overcollateralization
that Moody's considers as "committed" under the program.
The amount of overcollateralization that Moody's considers to be
committed is approximately 4%, which is the minimum overcollateralization
specified in the program documents. The prior press release incorrectly
listed this percentage as approximately 7.5%, which
was the overcollateralization level in effect on the issuance dates of
the covered bonds. The substance of the correction does not have
any effect on the rating action.
Revised Release Follows:
Moody's Investors Service has placed on review for possible downgrade
the Aaa ratings of the covered bonds issued by BA Covered Bond Program.
This rating action follows Moody's recent downgrade of Bank of America,
N.A.'s long-term senior unsecured ratings (to Aa3
from Aa2) and bank financial strength rating (to D from B-) on
March 25, 2009. Bank of America, N.A.
is the sponsor of the covered bond program.
The rating action reflects Moody's view that the rating of a covered bond
with a high degree of exposure to market value risk (i.e.
high refinancing risk) is closely linked to the rating of its sponsor.
Moody's ratings on covered bonds address both the sponsor's obligation
to pay the covered bonds as well as the value that may be realized on
the cover pool following a sponsor's default. The dependence of
the rating on the value of the cover pool increases as the strength of
the sponsor decreases. For this program, if the sponsor defaults,
the realization on the cover pool is particularly subject to market value
risk. Under the terms of the program, following a default
by the sponsor, the entire cover pool (over $10 billion of
mortgage loans) may need to be sold in less than 120 days. Under
current market conditions, such a sale may obtain an exceptionally
low price or not be completed at all.
Moody's has also assigned a Timely Payment Indicator (TPI) of "improbable"
to the program. The TPI of "improbable" is primarily driven by
the exposure to market value risk discussed above. This TPI is
consistent with the TPI for the only other U.S. covered
bond program, sponsored by JPMorgan Chase Bank (acquired from Washington
Mutual Bank), which employs comparable liquidation mechanisms in
its structure. The TPI indicates Moody's view of the likelihood
that covered bond investors will be paid timely interest and principal
following a default of the sponsor of a covered bond program.
During the review period we will focus on refining our estimate of the
realization value of the cover pool in a highly unlikely event of the
sponsor defaulting. The data on the trading of mortgages of similar
credit quality is extremely sparse in the current market. The estimation
of the realization value of the cover pool will also take into account
the size of the cover pool relative to the available liquidity in the
At this stage, we estimate that the likely ratings outcome will
not exceed two notches (i.e. not lower than Aa2).
The ultimate rating outcome will be dependent upon any change that the
sponsor may make to the program structure which may include an increase
in level of committed overcollateralization. The level of overcollateralization
in this program that Moody's considers to be committed is approximately
4%, which is the minimum overcollateralization specified
in the program documents. In our analysis, we give full credit
only to the level of committed overcollateralization. The current
level of total overcollateralization reported is approximately 37%,
which includes approximately 33% of overcollateralization that
Moody's considers as "not committed."
The principal methodologies used in rating this transactions were " Moody's
Rating Approach to European Covered Bonds" (June 2005) and " Timely Payment
in Covered Bonds following Sponsor Bank Default" (March 2008), which
can be found at www.moodys.com in the Credit Policy &
Methodologies directory, in the Ratings Methodologies subdirectory.
Other methodologies and factors that may have been considered in the process
of rating this issuer can also be found in the Credit Policy & Methodologies
See also Moody's special report "Moody's Credit Rating Perspective on
US Covered Bonds: Frequently Asked Questions" (October 2008),
which can be found at www.moodys.com.
Structured Finance Group
Moody's Investors Service
Correction to Text, March 31, 2009 Release: Moody's places Bank of America's covered bond ratings on review for possible downgrade; assigns TPI
Vice President - Senior Analyst
Structured Finance Group
Moody's Investors Service
No Related Data.
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