Frankfurt am Main, September 01, 2010 -- Moody's Investors Service has today assigned a definitive long-term
rating of Aaa to the mortgage covered bonds (obligasjoner med fortrinnsrett
or covered bonds) issued by Sparebanken Vest 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 Vest (rated A2). The covered
bond rating is linked to the credit strength of the issuer's parent
company, mainly because Sparebanken Vest 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 Vest.
(ii) The credit quality of the assets securing the payment obligations
of the issuer under the covered bonds. As of 30 April 2010,
the assets in cover pool amounted to NOK 18 billion. The vast majority
of the cover assets are Norwegian residential mortgages. The remaining
part of the cover pool (around 7%) are substitute assets (for example
claims against Norwegian financial institutions).
(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) 8% over-collateralisation, which the rating agency
considers "non-committed". The minimum over-collateralisation
level that is consistent with the Aaa rating target is 8%.
The total level of over-collateralisation currently in the cover
pool is 67.8% (as of 30 April 2010).
For Sparebanken Vest Boligkreditt's 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 (not published), and the stressed losses on the cover pool
assets following issuer default.
The Cover Pool Losses for this programme are 10.5%.
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 5.8% and Collateral Risk of 4.7%.
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 7%.
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 2 notches, meaning the rating of Sparebanken
Vest 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 methodologies used in rating these covered bonds were "Moody's
Rating Approach to Covered Bonds", published in March 2010 and "Assessing
Swaps as Hedges in the Covered Bond Market", published in September
2008. Other methodologies and factors that may have been considered
in the process of rating this issuer can also be found on Moody's website.
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 Investors Service adopts all necessary measures so that the information
it uses in assigning a credit rating is of sufficient quality and from
reliable sources; however, Moody's Investors Service does not
and cannot in every instance independently verify, audit 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 Sparebanken Vest Boligkreditt's mortgage covered bonds
