Madrid, December 10, 2012 -- Moody's Investors Service has today taken the following rating actions
on the ratings of the covered bonds transferred to Banco Sabadell,
S.A. following the merger with Banco CAM, S.A.U.
- Mortgage covered bonds (Cédulas Hipotecarias, CHs)
issued by Banco CAM: withdrawn for reorganisation; previously
A3, upgraded on 25 October 2012.
- Public-sector covered bonds (Cédulas Territoriales,
CTs) issued by Banco CAM: withdrawn for reorganisation; previously
A3, upgraded on 25 October 2012.
- CHs assumed by Banco Sabadell transferred from the former Banco
CAM: A3, new rating assigned.
- CTs assumed by Banco Sabadell transferred from the former Banco
CAM: A3, new rating assigned.
Please refer to the Moody's Investors Service's Policy for Withdrawal
of Credit Ratings, available on www.moodys.com.
RATINGS RATIONALE
Today's rating actions follow the merger, effective as of
8 December 2012, of Banco CAM and Banco Sabadell. Following
the merger, Moody's has withdrawn Banco CAM's standalone credit
assessment and deposit ratings. The ratings on Banco CAM's debt
instruments remain unchanged and have been transferred to Banco Sabadell.
For further information on the rating actions taken by Moody's Financial
Institutions Group, please refer to "Moody's withdraws Banco
CAM's Ba1/NP/E+ ratings" published on 10 December 2012.
Banco CAM's CHs and CTs ratings have been withdrawn. At the
same time, the series that carry definitive ratings have been assigned
new ratings because of the transfer of those assets to Banco Sabadell.
Moody's understands that the new cover pool backing Banco Sabadell's
CHs represents the addition of Banco CAM's and Banco Sabadell's
former total mortgage pools. Moody's also understands that the
new cover pool backing Banco Sabadell's CTs represents the addition
of Banco CAM's and Banco Sabadell's former total public-sector
pools.
A covered bond benefits from (1) the issuer's promise to pay interest
and principal on the bonds; and (2) if the issuer defaults,
the economic benefit of a collateral pool (the cover pool). The
ratings therefore take into account the following factors:
(1) The credit strength of Banco Sabadell (Ba1, deposits,
negative; BFSR D/BCA ba2, negative).
(2) The value of the cover pool in the event of issuer default.
The stressed level of losses modelled in event of issuer default (cover
pool losses) for the CHs is 50.3%. The cover pool
losses for CTs is 50%.
The analysis of the value of the cover pool considered:
a) The credit quality of the assets backing the covered bonds.
The mortgage covered bonds are backed by Spanish commercial and residential
mortgage loans. The collateral score for the mortgage cover pool
is 35.1%. The public-sector covered bonds
are backed by claims against Spanish public-sector entities or
claims guaranteed by such entities. The collateral score for the
public-sector cover pool is 40.3%. These figures
are based on the amalgamated cover pool of the two merged entities.
b) The robust Spanish legal framework for CHs. CHs are issued by
Spanish financial institutions, secured by the issuer's entire mortgage
book and regulated mainly by the Spanish Mortgage Market Law and the Insolvency
Law. The Spanish legal framework for CHs is characterised by (1)
the fact that CH holders have a priority security claim over the bank's
whole mortgage pool (the total cover pool); (2) the restriction on
issuing CHs to a maximum of 80% of the portion of loans regarded
as eligible mortgages (the eligible cover pool), which provides
for a minimum 25% over-collateralisation (OC) for the purposes
of issuance; and (3) the fact that CHs do not have to be accelerated
because of insolvency proceedings.
c) The robust Spanish legal framework for CTs. CTs are governed
mainly by the Law 44/2002, of 23 November, on the reform of
the Financial System and the Insolvency Law, and are full-recourse
direct corporate obligations of the issuing entity. Legal framework
strengths include (1) that CT holders have a priority security claim over
all the issuer's public-sector loans made in the European Economic
Area (the cover pool); (2) the restriction on issuing CTs to a maximum
of 70% of the cover pool, which provides for a minimum 43%
OC; and (3) if the issuer becomes insolvent, the CTs do not
have to be terminated or accelerated.
d) The exposure to market risk. The market risk for the mortgage
cover pool is 26.8%.The market risk for the public-sector
cover pool is 29.8%. These figures are based on the
amalgamated cover pool of the two merged entities.
e) The OC in the mortgage cover pool is 119.6%, of
which Banco Sabadell provides 25% on a "committed"
basis (see Key Rating Assumptions/Factors, below). The OC
in the public-sector cover pool is 94.1%, of
which Banco Sabadell provides 42.9% on a "committed"
basis (see Key Rating Assumptions/Factors, below).
The timely payment indicator (TPI) assigned to this transaction is "Improbable".
This TPI constrains the rating of the covered bonds at its current level.
KEY RATING ASSUMPTIONS/FACTORS
Covered bond ratings are determined after applying a two-step process:
an expected loss analysis and a TPI framework analysis.
EXPECTED LOSS: Moody's determines a rating based on the expected
loss on the bond. The primary model used is Moody's Covered
Bond Model (COBOL), which determines expected loss as (1) a function
of the issuer's probability of default (measured by the issuer's
rating); and (2) the stressed losses on the cover pool assets following
issuer default.
For each set of covered bonds listed below, the cover pool losses
are an estimate of the losses Moody's currently models if the relevant
issuer defaults. Cover pool losses can be split between market
risk and collateral risk. Market risk measures losses as a result
of 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 the credit quality
of the assets in the cover pool. Collateral risk is derived from
the collateral score.
--- BANCO SABADELL'S CHs
The cover pool losses of Banco Sabadell CHs are 50.3%,
with market risk of 26.8% and collateral risk of 23.%.
The collateral score for this programme is currently 35.1%.
These figures are based on the amalgamated cover pool of the two merged
entities. The OC in this cover pool is 119.6%,
of Banco Sabadell provides 25% on a "committed" basis.
The minimum OC level that is consistent with the A3 rating target is 46.5%,
of which 11.5% should be provided in a "committed"
form. These numbers show that Moody's is relying on "uncommitted"
OC in its expected loss analysis.
--- BANCO SABADELL'S CTs
The cover pool losses of Banco Sabadell CTs are 50%, with
market risk of 29.8% and collateral risk of 20.1%.
The collateral score for this programme is currently 40.2%.
These figures are based on the amalgamated cover pool of the two merged
entities. The OC in this cover pool is 94.1%,
of Banco Sabadell provides 42.9% on a "committed"
basis. The minimum OC level that is consistent with the A3 rating
target is 50%, of which 7.1% should be provided
in a "committed" form. 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 "Moody's EMEA Covered Bonds
Monitoring Overview", published quarterly. These figures
are based on the latest data that has been analysed by Moody's and are
subject to change over time.
TPI FRAMEWORK: Moody's assigns a "timely payment indicator" (TPI),
which indicates the likelihood that timely payment will be made to covered
bondholders following issuer default. The effect of the TPI framework
is to limit the covered bond rating to a certain number of notches above
the issuer's rating.
SENSITIVITY ANALYSIS
The robustness of a covered bond rating largely depends on the credit
strength of the issuer. The TPI Leeway measures the number of notches
by which the issuer's rating may be downgraded before the covered bonds
are downgraded under the TPI framework.
The TPIs assigned to these programmes is "Improbable". The TPI
Leeway for these programmes is limited, and thus any downgrade of
the issuer ratings may lead to a downgrade of the covered bonds.
A multiple-notch downgrade of the covered bonds might occur in
certain limited circumstances, such as (1) a sovereign downgrade
negatively affecting both the issuer's senior unsecured rating and the
TPI; (2) a multiple-notch downgrade of the issuer; or
(3) a material reduction of the value of the cover pool.
On 21 August 2012, Moody's released a Request for Comment seeking
market feedback on proposed adjustments to its modelling assumptions.
These adjustments are designed to account for the impact of rapid and
significant country credit deterioration on structured finance transactions.
If the adjusted approach is implemented as proposed, the rating
of the notes affected by today rating action may be negatively affected.
See "Approach to Assessing the Impact of a Rapid Country Credit Deterioration
on Structured Finance Transactions", (http://www.moodys.com/research/Approach-to-Assessing-the-Impact-of-a-Rapid-Country-Credit--PBS_SF294880)
for further details regarding the implications of the proposed methodology
changes on Moody's ratings.
RATING METHODOLOGY
The principal methodology used in these ratings was "Moody's Approach
to Rating Covered Bonds" published in July 2012. Please see the
Credit Policy page on www.moodys.com for a copy of this
methodology.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt,
this announcement provides relevant 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 relevant regulatory disclosures in relation
to the rating action on the support provider and in relation to each particular
rating action for securities that derive their credit ratings from the
support provider's credit rating. For provisional ratings,
this announcement provides relevant 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.
The ratings have been disclosed to the rated entities or their designated
agent(s) and issued with no amendment resulting from that disclosure.
Information sources used to prepare each of the ratings are the following:
parties involved in the ratings, parties not involved in the ratings,
public information, confidential and proprietary Moody's Investors
Service information, and confidential and proprietary Moody's
Analytics information.
Moody's considers the quality of information available on the rated
entities, obligations or credits satisfactory for the purposes of
issuing these ratings.
Moody's adopts all necessary measures so that the information it
uses in assigning the ratings is of sufficient quality and from sources
Moody's considers to be reliable including, when appropriate,
independent third-party sources. However, Moody's
is not an auditor and cannot in every instance independently verify or
validate information received in the rating process.
Moody's Investors Service may have provided Ancillary or Other Permissible
Service(s) to the rated entities or their related third parties within
the two years preceding the credit rating action. Please see the
special report "Ancillary or other permissible services provided
to entities rated by MIS's EU credit rating agencies" on the
ratings disclosure page on our website www.moodys.com for
further information.
Please see the ratings disclosure page on www.moodys.com
for general disclosure on potential conflicts of interests.
Please see the ratings disclosure page on www.moodys.com
for information on (A) MCO's major shareholders (above 5%) and
for (B) further information regarding certain affiliations that may exist
between directors of MCO and rated entities as well as (C) the names of
entities that hold ratings from MIS that have also publicly reported to
the SEC an ownership interest in MCO of more than 5%. A
member of the board of directors of this rated entity may also be a member
of the board of directors of a shareholder of Moody's Corporation;
however, Moody's has not independently verified this matter.
Please see Moody's Rating Symbols and Definitions on the Rating Process
page on www.moodys.com for further information on the meaning
of each rating category and the definition of default and recovery.
Please see ratings tab on the issuer/entity page on www.moodys.com
for the last rating action and the rating history.
The date on which some ratings were first released goes back to a time
before Moody's ratings were fully digitized and accurate data may not
be available. Consequently, Moody's provides a date that
it believes is the most reliable and accurate based on the information
that is available to it. Please see the ratings disclosure page
on our website www.moodys.com for further information.
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.
Tomas Rodriguez-Vigil
Associate 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 assigns A3 to covered bonds of former Banco CAM, following merger with Banco Sabadell
