Frankfurt am Main, March 01, 2011 -- Moody's Investors Service assigns definitive long-term rating of
Aaa to the mortgage covered bonds (obligasjoner med fortrinnsrett or covered
bonds) issued by Sparebanken Oest Boligkreditt (issuer), which are
governed by the Norwegian covered bond legislation.
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 Sparebanken Oest (rated A3). The covered
bond rating is linked to the credit strength of the issuer's parent company,
mainly because Sparebanken Oest has established a revolving credit facility
for the benefit for the issuer. The covered bonds are full recourse
to the issuer and the issuer is a wholly owned subsidiary of Sparebanken
Oest.
(ii) The credit quality of the assets securing the payment obligations
of the issuer under the covered bonds. As of 31 December 2010,
100% of the cover assets are Norwegian residential mortgages.
The credit quality of the cover pool assets is reflected in the collateral
score of 6.9%.
(iii) The strength of the Norwegian legal framework. Pursuant to
the terms of the Norwegian covered bond legislation, the issuer
is regulated and supervised by the Financial Supervisory Authority of
Norway. Covered bondholder and eligible swap counterparties will
have the benefit of a priority right in respect of the cover pool on a
pari passu basis.
(iv) The minimum over-collateralisation level that is consistent
with the Aaa rating target is 11%. The total level of over-collateralisation
currently in the cover pool is 15.5% (as of 31 December
2010). The issuer provides 12% over-collateralisation
on a nominal basis, which the rating agency considers "committed".
For Sparebanken Oest Boligkreditt's covered bonds, Moody's has assigned
a TPI of "Probable-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 (not published),
and the stressed losses on the cover pool assets following issuer default.
The Cover Pool Losses for this programme are 11.8%.
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 7.2% and Collateral Risk of 4.6%.
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 6.9%.
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 0 notches, meaning if the rating
of Sparebanken Oest would be downgraded by one notch to Baa1, the
covered bonds are downgraded too, 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 initial rating assessment published by Moody's and are
subject to change over time.
RATING METHODOLOGY
The principal methodology used in this rating was Moody's Rating Approach
to Covered Bonds published in March 2010.
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 information, and confidential and proprietary Moody's Analytics
information.
Moody's Investors Service considers the quality of information available
on the issuer or obligation satisfactory for the purposes of assigning
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 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
Vice President - Senior 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
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's assigns Aaa rating to Sparebanken Oest Boligkreditt's mortgage covered bonds
