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Announcement:

Moody's: No rating impact on Sekerbank SME - Covered Bonds following proposed amendments

18 Nov 2014

Madrid, November 18, 2014 -- Moody's announced today that proposed amendments to the documentation of Sekerbank SME - Covered Bonds would not, in and of themselves and as of this time, result in the downgrade or withdrawal of its current ratings on SME (small and medium-sized enterprises) covered bonds issued by Sekerbank T.A.S.

The proposed amendments pertain to (1) the removal of the monthly audit report, (2) the removal of a non-performance event trigger, and (3) changes to sector concentration and weighted average coupon in the asset pool eligibility criteria.

1) The first proposed amendment is the removal of monthly audit report, by which the security supervisor verifies that the asset pool satisfies the statutory tests. The quarterly audit report will continue.

Following the update in the Turkish Covered Bond Law, the issuer will monitor compliance with cover matching principles for any change relating to the cover assets register, and in any case, at least once a month. Moody's believes this legal update mitigates the risk of the breach of the statutory tests without remedy.

Any breach of the statutory tests or of the 25% committed OC would be reported on the monthly servicing report and oblige the issuer to remedy the breach. If the breaches are not remedied, the bondholder representative could declare a non-performance event, which would lead to early redemption of the covered bonds.

2) The second proposed amendment is the removal of a non-performance event in case of a downgrade by Moody's of the issuer's local currency rating to Ba3 or lower, or withdrawal of the rating.

In Moody's view, the removal of this trigger is not material to the rating, given that Moody's analysis focuses primarily on the cover pool value in the event of issuer default. Early redemption of the notes (if the issuer's rating were to be downgraded to Ba3 for example) could be credit positive for covered bondholders so long as the early redemption does not compromise available liquidity at the time of the downgrade.

However, when rating covered bonds at the investment-grade level, Moody's assigns limited value to cash-intensive triggers for potential downgrades to non-investment grade; therefore, Moody's does not factor this trigger as a material feature in its analysis.

3) The third proposed amendment is the change to the sector concentration limit and the assets' weighted average coupon in the asset pool eligibility criteria.

The maximum percentage of the aggregate asset pool balance consisting of borrowers in agriculture and forestry will increase to 40% from 35%.

In Moody's view, the issuer has a sufficient OC buffer to account for pool deterioration that could result from a more concentrated pool. The committed OC is 25% on a nominal basis.

Regarding the assets' weighted average coupon, in the new documentation, a floor of 11% will be removed. However, the following weighted average interest yielded by the assets has to be maintained: the sum of (1) 2% per annum, plus (2) the programme servicing costs per annum (including the potential costs of the standby servicer following the occurrence of a servicer transfer event), plus (3) the weighted average coupon per annum of all asset-guaranteed bonds issued under the programme.

Moody's believes that this test still ensures good matching of the interest yielded by the assets and the coupon owed under the covered bonds, because it allows for dynamic adjustment of interest rate fluctuations. In addition, the law contemplates a broader matching principle, where by the sum of interest, revenues and similar income that the issuer expects will be generated from cover assets within a year following the calculation date, may not be less than similar payment obligations the issuers expects will arise from total liabilities during the same period.

Thus, Moody's has determined that these amendments, in and of themselves and at this time, will not result in the downgrade or withdrawal of the rating currently assigned to Sekerbank's SME - Covered Bonds. However, Moody's opinion addresses only the credit impact associated with the proposed amendments, and Moody's is not expressing any opinion as to whether the amendments have, or could have, other non-credit related effects that may have a detrimental impact on the interests of note holders and/or counterparties.

This publication does not announce a credit rating action. For any credit ratings referenced in this publication, please see the ratings tab on the issuer/entity page on www.moodys.com for the most updated credit rating action information and rating history.

Tomas Rodriguez-Vigil
Analyst
Structured Finance Group
Moody's Investors Service Espana, S.A.
Calle Principe de Vergara, 131, 6 Planta
Madrid 28002
Spain
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Juan Pablo Soriano
MD - Structured Finance
Structured Finance Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Releasing Office:
Moody's Investors Service Espana, S.A.
Calle Principe de Vergara, 131, 6 Planta
Madrid 28002
Spain
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's: No rating impact on Sekerbank SME - Covered Bonds following proposed amendments
No Related Data.
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