Frankfurt am Main, September 07, 2010 -- Moody's Investors Service has assigned a definitive long-term rating
of Aaa to the public-sector covered bonds (Öffentliche Pfandbriefe
or covered bonds) issued by Deutsche Hypothekenbank (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 Deutsche Hypothekenbank's cover pool amounted to EUR16
billion. The majority of the cover assets are claims against Germany
or German regional or local governments or claims guaranteed by such entities.
(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.
(iv) The total level of over-collateralisation currently in the
cover pool is 8.2% on a present value basis (as of 31 March
2010). The minimum over-collateralisation level that is
consistent with the Aaa rating target is 5.5%.
For Deutsche Hypothekenbank's public-sector covered bonds,
Moody's has assigned a TPI of "High".
The Aaa 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 9.4%.
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 8.1% and Collateral Risk of 1.3%.
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 2.3%.
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 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 source used to prepare the credit rating is the following:
parties involved in the ratings, parties not involved in the ratings,
public information, and 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 Aaa rating to Deutsche Hypo's public-sector covered bonds
