Madrid, January 11, 2023 -- Moody's Investors Service ("Moody's") has today affirmed the Aa1 ratings assigned to the Mortgage Covered Bonds issued by Caja Rural de Navarra ("CRN" or the issuer, CR Assessment A3(cr)) and the Aa1 ratings assigned to the Mortgage Covered Bonds issued by Unicaja Banco ("Unicaja" or the issuer, CR Assessment Baa2(cr)).
RATINGS RATIONALE
Today's rating actions on Covered Bonds issued under Caja Rural de Navarra - Mortgage Covered Bonds and Unicaja Banco, S.A. ? Mortgage Covered Bonds follow Moody's assessment of the new cover pools backing these Covered Bonds as a result of the implementation of the new Spanish covered bond law.
For CRN and Unicaja programmes, credit quality has improved, as reflected in Moody's risk metrics (collateral risk and market risk), mainly due to new eligibility criteria for cover pool assets and the implementation of a liquidity reserve. As a result, the over-collateralisation consistent with current ratings has fallen. However, the new eligibility criteria has also caused a reduction in the amount of cover pool assets for these programmes.
All Covered Bonds issued under CRN and Unicaja programmes are rated Aa1, which is the country ceiling for Spain.
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 (such cessation, a CB anchor event); and (2) the estimated losses that will accrue to covered bondholders should a CB anchor event occur. We express the probability of a CB anchor event as a point on our alpha-numeric rating scale (i.e. the CB anchor), which is typically one notch higher than the issuer's CR assessment.
The CB anchor for these programmes is the CR assessment plus 1 notch.
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.
The cover pool losses of Caja Rural de Navarra ? Mortgage Covered Bonds are 16.4%, with market risk of 12.7% and collateral risk of 3.8%. The collateral score for this programme is currently 5.6%. The over-collateralisation in this cover pool is 16.9%, of which the issuer provides 5.0% on a "committed" basis. Under Moody's COBOL model, the minimum OC consistent with the Aa1 rating is 3.0%. These numbers show that Moody's is not relying on "uncommitted" OC in its expected loss analysis.
The cover pool losses of Unicaja Banco, S.A. ? Mortgage Covered Bonds are 18.7%, with market risk of 15.4% and collateral risk of 3.4%. The collateral score for this programme is currently 5.0%. The over-collateralisation in this cover pool is 30.5%, of which the issuer provides 5.0% on a "committed" basis. Under Moody's COBOL model, the minimum OC consistent with the Aa1 rating is 11.0%. These numbers show that Moody's is relying on "uncommitted" OC in its expected loss analysis.
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 "Covered Bonds Sector Update", published quarterly.
All numbers in this section are based on the most recent modelling (based on data as of end September 2022).
TPI FRAMEWORK: Moody's assigns a "timely payment indicator" (TPI), which is our assessment of the likelihood of timely payment of interest and principal to covered bondholders following a CB anchor event. TPIs are assessed as Very High, High, Probable-High, Probable, Improbable or Very Improbable. The TPI framework limits the covered bond rating to a certain number of notches above the CB anchor.
For Caja Rural de Navarra - Mortgage Covered Bonds, Moody's has assigned a TPI of Probable-High.
For Unicaja Banco, S.A. - Mortgage Covered Bonds, Moody's has assigned a TPI of Probable-High.
RATING METHODOLOGY
The principal methodology used in these ratings was "Moody's Approach to Rating Covered Bonds" published in November 2022 and available at https://ratings.moodys.com/api/rmc-documents/396015. Alternatively, please see the Rating Methodologies page on https://ratings.moodys.com for a copy of this methodology.
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.
The TPI assigned to CRN's Mortgage Covered Bonds is Probable-High. The TPI Leeway for this programme is 2 notches. This implies that Moody's might downgrade the covered bonds because of a TPI cap if it lowers the CB anchor by more than 3 notches all other variables being equal.
The TPI assigned to Unicaja´s Mortgage Covered Bonds is Probable-High. The TPI Leeway for this programme is 0 notches. This implies that Moody's might downgrade the covered bonds because of a TPI cap if it lowers the CB anchor by 1 notch 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.
REGULATORY DISCLOSURES
For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found on https://ratings.moodys.com/rating-definitions.
Moody's did not use any stress scenario simulations in its analysis.
For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security 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 issuer/deal page for the respective issuer on https://ratings.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.
The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.
These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website https://ratings.moodys.com.
Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.
Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://ratings.moodys.com/documents/PBC_1288235.
The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on https://ratings.moodys.com.
Please see https://ratings.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 issuer/deal page on https://ratings.moodys.com for additional regulatory disclosures for each credit rating.
Javier Fernandez
Associate Lead 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
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:
Moody's Investors Service Espana, S.A.
Calle Principe de Vergara, 131, 6 Planta
Madrid, 28002
Spain
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
