Frankfurt am Main, February 08, 2011 -- 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 Vorarlberger Landes- und Hypothekenbank
AG (the issuer or VLH), which are governed by Austrian 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 issuing 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 30 June 2010,
the assets in VLH's cover pool amounted to EUR 1.8 billion.
All cover assets are claims against public sector entities or claims guaranteed
by such entities.
(iii) The strength of the Austrian legal framework. There are a
number of strengths in the Austrian Pfandbrief Legislation, these
include inter alia the regulatory requirement for the issuer to maintain
2% over-collateralisation on par basis. The law also
requires that interest income on the cover pool assets has to cover the
coupon payments on the outstanding covered bonds at all times.
(iv) The minimum over-collateralisation level that is consistent
with the Aaa rating target is 31.5%. The total level
of over-collateralisation currently in the cover pool is 219.3%
as of 30 June 2010.
For VLH'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 31.6%.
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 28.0% and Collateral Risk of 3.6%.
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 6.5%.
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.
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 and confidential and proprietary Moody's Investors
Service 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
Patrick Widmayer
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 Vorarlberger Landes- und Hypothekenbank AG Public-Sector Covered Bonds
