London, 05 September 2013 -- Moody's Investors Service has today assigned a provisional (P)Aaa long-term
rating to the mortgage covered bonds to be issued by Skandiabanken Aktiebolag
(publ) (Skandiabanken or the issuer; deposits A3 stable/standalone
bank financial strength rating C-/baseline credit assessment baa1
stable). A pool of Swedish residential mortgages backs the covered
bonds, which will be governed by the Swedish covered bond legislation.
Covered bonds that the issuer states are backed by the Swedish cover pool
will not have recourse to the issuer's Norwegian cover pool,
and vice versa. For the purposes of publishing ratings and research,
Moody's will therefore treat covered bonds backed by the Swedish
cover pool as forming a separate programme from those backed by the Norwegian
cover pool.
RATINGS RATIONALE
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 reflect the following factors:
(1) The credit strength of Skandiabanken (A3 senior unsecured).
(2) The value of the cover pool, if the issuer defaults.
The stressed level of losses modelled in event of issuer default (cover
pool losses) for this transaction is 11.2%.
Moody's considered the following factors in its analysis of the
cover pool's value:
a) The credit quality of the assets backing the covered bonds.
The covered bonds are backed by Swedish residential mortgage loans.
The collateral score for the cover pool is 5.9%.
b) The Swedish legal framework for covered bonds.
c) The exposure to interest-rate risk and Moody's expectation
that the covered bonds will not be exposed to currency risk, provided
that only SEK-denominated bonds are issued.
d) The over-collateralisation (OC) in the cover pool. The
minimum OC level consistent with the (P)Aaa rating target is 8.5%
(assuming a floating-rate issuance). Moody's is therefore
relying on "uncommitted" OC in its expected loss analysis.
The TPI assigned to this transaction is Probable-High. Moody's
TPI framework does not constrain the rating.
At present, the total value of the assets included in the cover
pool is approximately SEK 10 billion, comprising 7,648 residential
mortgage loans. The residential mortgage loans have a weighted-average
seasoning of 53 months and a weighted-average loan-to-value
(LTV) ratio of 58.3% (on an indexed basis).
The provisional rating that Moody's has assigned addresses the expected
loss posed to investors. Moody's ratings address only the credit
risks associated with the transaction. Moody's did not address
other non-credit risks, but these may have a significant
effect on yield to investors.
Moody's issues provisional ratings in advance of the final sale
of securities and these ratings only represent Moody's preliminary
opinion. Upon a conclusive review of the transaction and associated
documentation Moody's will endeavour to assign a definitive rating
to the covered bonds.
KEY RATING ASSUMPTIONS/FACTORS
Moody's determines covered bond ratings using 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 issuer's probability
of default (measured by the issuer's rating); and (2) the stressed
losses on the cover pool assets following issuer default.
The cover pool losses for this programme are 11.2%.
This is an estimate of the losses Moody's currently models if Skandiabanken
defaults. Moody's splits cover pool losses between market
risk of 7.3% and collateral risk of 3.9%.
Market risk measures losses stemming from 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 cover pool assets' credit quality. Moody's
derives collateral risk from the collateral score, which for this
programme is currently 5.9%.
The OC in the cover pool will depend on the size of the first series.
The minimum OC level consistent with the (P)Aaa rating target is 8.5%
on both a nominal and present value basis. These numbers show that
Moody's is relying on "uncommitted" OC in its expected
loss analysis.
All numbers in this section are based on Moody's most recent modelling
(based on data, as of 30 June 2013).
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 EMEA Covered Bonds
Monitoring Overview", published quarterly.
TPI FRAMEWORK: Moody's assigns a "timely payment indicator" (TPI),
which indicates the likelihood that the issuer will make timely payments
to covered bondholders if the issuer defaults. The TPI framework
limits the covered bond rating to a certain number of notches above the
issuer's rating.
SENSITIVITY ANALYSIS
The issuer's credit strength is the main determinant of a covered
bond rating's robustness. The TPI Leeway measures the number
of notches by which Moody's might downgrade the issuer's rating
before the rating agency downgrades the covered bonds because of TPI framework
constraints.
Based on the current TPI of "Probable-High",
the TPI Leeway for this programme is 0 notches. This implies that
Moody's might downgrade the covered bonds because of a TPI cap if
it downgrades the issuer rating below A3.
A multiple-notch downgrade of the covered bonds might occur in
certain limited circumstances, such as (1) a sovereign downgrade
negatively affecting both the issuer's senior unsecured rating and the
TPI; (2) a multiple-notch downgrade of the issuer; or
(3) a material reduction of the value of the cover pool.
RATING METHODOLOGY
The principal methodology used in this rating was "Moody's
Approach to Rating Covered Bonds" published in July 2012.
Please see the Credit Policy page on www.moodys.com for
a copy of this methodology.
REGULATORY DISCLOSURES
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 rating action on the support provider and in relation to each particular
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 rating action, and
whose ratings may change as a result of this 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.
Martin Rast
VP - Senior Credit Officer
Structured Finance Group
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
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 Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's assigns (P)Aaa to Skandiabanken's Swedish pool covered bonds
