Frankfurt am Main, September 16, 2010 -- Moody's Investors Service has assigned a definitive long-term rating
of Aa1 to the mortgage covered bonds (Hypothekenpfandbriefe or covered
bonds) issued by UniCredit Bank AG (the issuer), which are governed
by the German Pfandbrief Act.
RATINGS RATIONALE
A covered bond benefits from (i) a promise to pay by the issuer;
and (ii) in the event of default of the bank supporting the covered bonds,
the economic benefit from a pool of collateral (the cover pool).
The ratings of the covered bonds take into account the following factors:
(i) The credit strength of the issuer (rated A1/ Prime-1).
(ii) The credit quality of the assets securing the payment obligations
of the issuer under the covered bonds. As of 31 March 2010,
the assets in UniCredit Bank's cover pool amounted to EUR34 billion.
The vast majority of the cover assets are commercial and residential mortgage
loans. The remaining part of the cover pool are so-called
further cover pool assets (Weitere Deckungswerte).
(iii) The strength of the German legal framework. There are a number
of strengths in the German Pfandbrief legislation, these include
inter alia the regulatory requirement for the issuer to maintain 2%
over-collateralisation on a stressed present value basis.
The issuer is also required to cover potential liquidity gaps over the
next 180 days between payments expected to be received under the cover
pool assets and the payments due under the outstanding covered bonds.
The current Aa1 rating for the covered bonds does not rely on any over-collateralisation
over and above the minimum legal requirements by the Pfandbrief Act.
The total level of over-collateralisation currently in the cover
pool is 14.6% on a present value basis (as of 31 March 2010).
For UniCredit Bank's mortgage covered bonds, Moody's has assigned
a TPI of "Probable-High".
The Aa1 rating assigned to the existing covered bonds is expected to be
assigned to all subsequent covered bonds issued by the issuer under this
programme and any future rating actions are expected to affect all such
covered bonds. Should there be any exceptions to this, Moody's
will in each case publish details in a separate press release.
The rating assigned by Moody's addresses the expected loss posed to investors.
Moody's ratings address only the credit risks associated with the transaction.
Other non-credit risks have not been addressed, but may have
a significant effect on yield to investors.
KEY RATING ASSUMPTIONS/FACTORS
Covered bond ratings are determined after applying a two-step process:
expected loss analysis and 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 a function of the
issuer's probability of default, measured by the issuer's
rating of A1, and the stressed losses on the cover pool assets following
issuer default.
The Cover Pool Losses for this programme are 18.6%.
This is an estimate of the losses Moody's currently models in the event
of issuer default. Cover Pool Losses can be split between Market
Risk of 10.6% and Collateral Risk of 8%. 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 which for this programme
is currently 12%.
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 number of notches by which the issuer's rating may be downgraded before
the covered bonds are downgraded under the TPI framework is measured by
the TPI Leeway. Based on the current TPI of Probable-High
the TPI Leeway for this programme is 3 notches, meaning the issuer
rating would need to be downgraded to Baa2 before the covered bonds are
downgraded, all other things being equal.
A multiple notch downgrade of the covered bonds might occur in certain
limited circumstances. Some examples might be (a) a sovereign downgrade
negatively affecting both the issuer's senior unsecured rating and the
TPI; (b) a multiple notch downgrade of the issuer; or (c) a
material reduction of the value of the cover pool.
For further details on Cover Pool Losses, Collateral Risk,
Market Risk, Collateral Score and TPI Leeway across all 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 most recent Performance Overview published by Moody's
and are subject to change over time.
RATING METHODOLOGY
The principal methodology used in rating the issuer's covered bonds
is "Moody's Rating Approach to Covered Bonds" published
in March 2010. Other methodologies and factors that may have been
considered in the rating process can also be found on the Moody's
website. In addition, Moody's publishes a weekly summary
of structured finance credit, ratings and methodologies, available
to all registered users of our website, at www.moodys.com/SFQuickCheck.
REGULATORY DISCLOSURES
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, parties not involved in the ratings,
public information, confidential and proprietary Moody's Investors
Service's information.
Moody's Investors Service considers the quality of information available
on the issuer or obligation satisfactory for the purposes of maintaining
a credit rating.
The rating has been disclosed to the rated entity or its designated agents
and issued with no amendment resulting from that disclosure.
Moody's Investors Service may have provided Ancillary or Other Permissible
Service(s) to the rated entity or its related third parties within the
three years preceding the Credit Rating Action. Please see the
ratings disclosure page www.moodys.com/disclosures on our
website for further information.
MOODY'S adopts all necessary measures so that the information it uses
in assigning a credit rating 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.
Please see ratings tab on the issuer/entity page on Moodys.com
for the last rating action and the rating history.
The date on which some Credit Ratings were first released goes back to
a time before Moody's Investors Service's Credit Ratings were fully digitized
and accurate data may not be available. Consequently, Moody's
Investors Service 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 the Credit Policy page on Moodys.com for the methodologies
used in determining ratings, further information on the meaning
of each rating category and the definition of default and recovery.
Frankfurt am Main
Joerg Homey
Asst Vice President - Analyst
Structured Finance Group
Moody's Deutschland GmbH
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Madrid
Juan Pablo Soriano
MD - Structured Finance
Structured Finance Group
Moody's Investors Service Espana, S.A.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's Deutschland GmbH
An der Welle 5
Frankfurt am Main 60322
Germany
Moody's assigns Aa1 rating to UniCredit Bank's Mortgage Pfandbrief
