Action follows the merger of Catalunya Banc and BBVA
Madrid, September 12, 2016 -- Moody's Investors Service has today taken the following rating actions
on the ratings of the covered bonds transferred from Catalunya Banc SA
(Catalunya Banc) to Banco Bilbao Vizcaya Argentaria, S.A.
(BBVA or the issuer) (deposits A3; adjusted baseline credit assessment
baa2; counterparty risk (CR) assessment Baa1(cr)) :
- Mortgage covered bonds (Cédulas Hipotecarias, CHs)
issued by Catalunya Banc: withdrawn for reorganisation; previously
Aa2.
- Public-sector covered bonds (Cédulas Territoriales,
CTs) issued by Catalunya Banc: withdrawn for reorganisation;
previously Aa2.
- CHs assumed by BBVA transferred from the former Catalunya Banc:
Aa2, new rating assigned.
- CTs assumed by BBVA transferred from the former Catalunya Banc:
Aa2, new rating assigned.
Today's rating action follows the merger of Catalunya Banc and BBVA.
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 9 September
2016, of Catalunya Banc with its parent BBVA. Following the
merger, Moody's has withdrawn Catalunya Banc's Counterparty Risk
assessment of Baa3(cr) on review for upgrade. For further information
on the rating actions taken by Moody's Financial Institutions Group,
please refer to "Moody's upgrades Catalunya Banc SA's ratings,
and will then withdraw its A3/Prime-2 deposit ratings" published
on 12 September 2016.
Moody's understands that the new cover pool backing BBVA's CHs represents
the addition of Catalunya Banc's and BBVA's former total mortgage pools.
Moody's also understands that the new cover pool backing BBVA's CTs represents
the addition of Catalunya Banc's and BBVA'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 BBVA (deposits A3; adjusted baseline credit
assessment baa2; counterparty risk (CR) assessment Baa1(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 the CH is 32.1%. 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 17.8%. 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 19.7%. 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 20.2%.The market risk for the public-sector
cover pool is 40.2%. These figures are based on the
amalgamated cover pool of the two merged entities.
e) The OC in the mortgage cover pool is 212.2%, of
which BBVA provides 25% on a "committed" basis (see Key Rating
Assumptions/Factors, below). The OC in the public-sector
cover pool is 74.5%, of which BBVA provides 42.9%
on a "committed" basis (see Key Rating Assumptions/Factors, below).
The timely payment indicator (TPI) assigned to these transactions is "Probable".
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 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 these programmes is the 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 elsewhere, where an operational
resolution regime is particularly likely to ensure continuity of covered
bond payments.
For each set of covered bonds listed below, the cover pool losses
are an estimate of the losses Moody's currently models following a CB
anchor event. 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.
--- BBVA'S CHs
The cover pool losses of BBVA CHs are 32.1%, with
market risk of 20.2% and collateral risk of 11.9.%.
Collateral risk is derived from the collateral score, which for
this programme is currently 17.8%. These figures
are based on the amalgamated cover pool of the two merged entities.
The OC in this cover pool is 212.2%, of BBVA provides
25% on a "committed" basis. The minimum OC level that is
consistent with the Aa2 rating target is 16%, of which 0%
should be provided in a "committed" form. These numbers show that
Moody's is not relying on "uncommitted" OC in its expected loss analysis.
--- BBVA'S CTs
The cover pool losses BBVA CTs are 50%, with market risk
of 40.2% and collateral risk of 9.8%.
Collateral risk is derived from the collateral score, which for
this programme is currently 19.7%. These figures
are based on the amalgamated cover pool of the two merged entities.
The OC in this cover pool is 74.5%, of BBVA provides
42.9% on a "committed" basis. The minimum OC level
that is consistent with the Aa2 rating target is 51%, of
which 4% 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 Global Covered Bonds
Monitoring Overview", published quarterly. All numbers in
this section are based on the most recent Performance Overview (based
on data, as of end March 2016).
TPI FRAMEWORK: Moody's assigns a TPI, which indicates the
likelihood that timely payment will be made to covered bondholders following
an issuer's default. The TPI framework limits the covered bond
rating to a certain number of notches above the CB anchor.
The timely payment indicator (TPI) assigned to these transactions is "Probable".
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
it downgrades the covered bonds because of TPI framework constraints.
Based on the current TPI of "Probable", the TPI Leeway for these
programmes is two notches. This implies that Moody's might downgrade
the covered bonds because of a TPI cap if it lowers the CB anchor by three
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 August 2015. Please see the
Ratings 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.
Jose de Leon
Senior Vice President/Manager
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
