EUR5.65 billion of covered bonds affected
London, 19 December 2017 -- Moody's Investors Service ("Moody's") has affirmed the Aaa ratings assigned
to mortgage covered bonds (obligations foncières) issued by AXA
Bank Europe SCF (the issuer, unrated).
RATINGS RATIONALE
This rating action follows the changes to the covered bond programme and
cover pool implemented on 15 December 2017. The main changes are
as follows: (1) the cover pool no longer includes any RMBS notes
and consists of Belgian residential home loans (78.4%),
French residential home loans (17.8%) and substitute assets
(3.8%); (2) Belgian residential home loans have been
transferred by AXA Bank Belgium (CR assessment Aa2(cr)) to the cover pool
via a direct sale to the issuer; (3) in the future, Belgian
residential home could be transferred to the cover pool either via a direct
sale to the issuer or as collateral security securing the repayment of
loan advances to be made by the issuer to AXA Bank Belgium (pledged Belgian
assets); (4) interest rate risk for sold Belgian assets is hedged
through swap agreements entered into with AXA Bank Belgium; (5) under
a cash advance agreement, AXA Bank Belgium undertakes to cover any
liquidity shortfall at the issuer level and to fund commingling reserves
covering at least one month of collections on the cover pool subject to
certain rating triggers.
A covered bond benefits from (1) the issuer's promise to pay interest
and principal on the bonds; and (2) following a CB anchor event,
the economic benefit of a collateral pool (the cover pool). The
ratings therefore reflect the following factors:
(1) The credit strength of AXA Bank Belgium (sponsor, CR assessement
Aa2(cr)) and a CB anchor of CR assessment plus 1 notch.
(2) Following a CB anchor event the value of the cover pool. The
stressed level of losses on the cover pool assets following a CB anchor
event (cover pool losses) for this transaction is 16.5%.
Moody's considered the following factors in its analysis of the
cover pool's value:
a) The credit quality of the assets backing the covered bonds.
The collateral score for the cover pool is 5.1%.
b) The legal framework. This covered bond programme is subject
to French SCF covered bond law.
c) The exposure to market risk, which is 13.1% for
this cover pool.
d) The over-collateralisation (OC) in the cover pool is 26.1%,
of which the issuer provides 12% on a "committed" basis
(see Key Rating Assumptions/Factors, below).
The TPI assigned to this transaction remains Probable. Moody's
TPI framework does not constrain the rating.
KEY RATING ASSUMPTIONS/FACTORS
Moody's determines covered bond ratings using a two-step
process: an expected loss analysis and a TPI framework analysis.
EXPECTED LOSS: Moody's uses its Covered Bond Model (COBOL)
to determine a rating based on the expected loss on the bond. COBOL
determines expected loss as (1) a function of the probability that the
issuer will cease making payments under the covered bonds (a CB anchor
event); and (2) the stressed losses on the cover pool assets following
a CB anchor event.
The CB anchor for this programme is CR assessment plus 1 notch.
The CR assessment reflects an issuer's ability to avoid defaulting
on certain senior bank operating obligations and contractual commitments,
including covered bonds. Moody's may use a CB anchor of CR
assessment plus one notch in the European Union or otherwise where an
operational resolution regime is particularly likely to ensure continuity
of covered bond payments.
The cover pool losses for this programme are 16.5%.
This is an estimate of the losses Moody's currently models following a
CB anchor event. Moody's splits cover pool losses between
market risk of 13.1% and collateral risk of 3.4%.
Market risk measures losses stemming from refinancing risk and risks related
to interest-rate and currency mismatches (these losses may also
include certain legal risks). Collateral risk measures losses resulting
directly from cover pool assets' credit quality. Moody's
derives collateral risk from the collateral score, which for this
programme is currently 5.1%.
The over-collateralisation in the cover pool is 26.1%,
of which the issuer provides 12% on a "committed" basis.
Under Moody's COBOL model, the minimum OC consistent with
the Aaa rating is 4%. These numbers show that Moody's
is not relying on "uncommitted" OC in its expected loss analysis.
All numbers in this section are based on Moody's most recent modelling
(cover pool composition as per 15 December 2017, with residential
pool data as of 31 October 2017).
The cover pool losses are an estimate of the losses Moody's currently
models following a CB anchor event. Moody's splits cover
pool losses between market risk and collateral risk. Market risk
measures losses stemming from refinancing risk and risks related to interest-rate
and currency mismatches (these losses may also include certain legal risks).
Collateral risk is derived from the collateral score, which measures
losses resulting directly from the cover pool assets' credit quality.
For further details on cover pool losses, collateral risk,
market risk, collateral score and TPI Leeway across covered bond
programmes rated by Moody's please refer to "Moody's Global Covered Bonds
Monitoring Overview", published quarterly.
TPI FRAMEWORK: Moody's assigns a "timely payment indicator"
(TPI), which measures the likelihood of timely payments to covered
bondholders following a CB anchor event. The TPI framework limits
the covered bond rating to a certain number of notches above the CB anchor.
Factors that would lead to an upgrade or downgrade of the ratings:
The CB anchor is the main determinant of a covered bond programme's rating
robustness. A change in the level of the CB anchor could lead to
an upgrade or downgrade of the covered bonds. The TPI Leeway measures
the number of notches by which Moody's might lower the CB anchor before
the rating agency downgrades the covered bonds because of TPI framework
constraints.
Based on the current TPI of Probable, the TPI Leeway for this programme
is 5 notches. This implies that Moody's might downgrade the
covered bonds because of a TPI cap if it lowers the CB anchor by 6 notches
all other variables being equal.
A multiple-notch downgrade of the covered bonds might occur in
certain circumstances, such as (1) a country ceiling or sovereign
downgrade capping a covered bond rating or negatively affecting the CB
Anchor and the TPI; (2) a multiple-notch downgrade of the
CB Anchor; or (3) a material reduction of the value of the cover
pool.
RATING METHODOLOGY
The principal methodology used in these ratings was "Moody's
Approach to Rating Covered Bonds" published in December 2016.
Please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
REGULATORY DISCLOSURES
For further specification of Moody's key rating assumptions and sensitivity
analysis, see the sections Methodology Assumptions and Sensitivity
to Assumptions of the disclosure form.
Moody's did not use any stress scenario simulations in its analysis.
For ratings issued on a program, series or category/class of debt,
this announcement provides certain regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides certain regulatory disclosures in relation
to the credit rating action on the support provider and in relation to
each particular credit rating action for securities that derive their
credit ratings from the support provider's credit rating.
For provisional ratings, this announcement provides certain regulatory
disclosures in relation to the provisional rating assigned, and
in relation to a definitive rating that may be assigned subsequent to
the final issuance of the debt, in each case where the transaction
structure and terms have not changed prior to the assignment of the definitive
rating in a manner that would have affected the rating. For further
information please see the ratings tab on the issuer/entity page for the
respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this credit rating action,
and whose ratings may change as a result of this credit rating action,
the associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Elise Lucotte
VP - Senior Credit Officer
Structured Finance Group
Moody's France SAS
96 Boulevard Haussmann
Paris 75008
France
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
Juan Pablo Soriano
MD - Structured Finance
Structured Finance Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
Releasing Office:
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JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
