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Rating Action:

Moody's assigns a provisional rating to CHF475 million credit tenant-linked notes to be issued by NOE Verwaltungszentrum-Verwertungs GmbH

20 Jul 2017

CHF475 Million of Notes rated

London, 20 July 2017 -- Moody's Investors Service has assigned the following provisional rating to the note issuance of NOE Verwaltungszentrum-Verwertungsgesellschaft mbH (Issuer):

CHF475m Notes due 31 December 2031, assigned (P) Aa3

The transaction represents a credit tenant-lease transaction backed by a lease with the State of Lower Austria. The leased property is the headquarter for the administration and the parliament of the State of Lower Austria and is located in St. Poelten in Austria. The tenant waived its termination rights until 30 April 2032, which is past the legal final maturity of the Notes. Citigroup Global Markets Limited has arranged the transaction.

RATINGS RATIONALE

The provisional rating of the Notes is based on (i) the credit strength of the State of Lower Austria (Aa1) as tenant, (ii) the legal and structural features of the transaction, such as the undertakings of the tenant (Waiver Letter) and HYPO NOE Gruppe Bank AG (HYPO NOE) (Comfort Letter), which partially mitigate the limitations and uncertainties under Austrian law in respect of the lease and the lack of bankruptcy remoteness of the Issuer and (iii) the credit strength of HYPO NOE as Comfort Letter provider.

The provisional rating of the Notes is two notches below the rating of the State of Lower Austria, because the Issuer relies in certain remote scenarios on the Comfort Letter provider to meet its payments obligations when the tenant is not paying under the lease agreement.

In Moody's view the key strengths of the transaction include (i) the credit strength of the State of Lower Austria as tenant and Waiver Letter provider, (ii) the Comfort Letter provided by HYPO NOE and (iii) the cash reserves of EUR 22 million.

Challenges in the transaction include (i) certain limitations to contracts under Austrian law, (ii) lack of bankruptcy remoteness of the Issuer, (iii) the recourse against the Issuer under the Waiver Letter and (iv) lack of mortgage security.

The Waiver Letter and the Comfort Letter partially mitigate the risk of a cash shortfall under the Notes due to limitations of the lease under Austrian law and the lack of bankruptcy remoteness of the Issuer. Whilst the lease stipulates that all risks and all operating costs associated with the property shall be borne by the tenant, there are certain limitations under Austrian law mainly concerning the tenant's statutory rights to reduce rent and/or to terminate the lease under certain conditions. The tenant provides in the Waiver Letter a supplemental undertaking for the benefit of the noteholders to always make payment in full and to waive any statutory defence rights.

The noteholders also benefit from the Comfort Letter in which HYPO NOE undertakes to keep the Issuer solvent to ensure that the Issuer meets its debt obligations under the Notes, if any shortfalls arise under certain circumstances. The Issuer is an indirect wholly owned subsidiary of HYPO NOE, that has been in operation since 1988 and which has other creditor obligations, predominantly further financings with HYPO NOE.

More information can be found in Moody's Pre-Sale Report for this transaction that will be available in due course on its website www.moodys.com.

Methodology Underlying the Rating Action:

The principal methodology used in this rating was Moody's Approach to Rating Credit Tenant Lease and Comparable Financings published on 3 October 2016. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Please note that on 22 March 2017, Moody's released a Request for Comment, in which it has requested market feedback on potential revisions to its Approach to Assessing Counterparty Risks in Structured Finance. If the revised Methodology is implemented as proposed, the Credit Rating on NOE Verwaltungszentrum-Verwertungsgesellschaft mbH is not expected to be affected. Please refer to Moody's Request for Comment, titled "Moody's Proposes Revisions to Its Approach to Assessing Counterparty Risks in Structured Finance", for further details regarding the implications of the proposed Methodology revisions on certain Credit Ratings.

Moody's issues provisional ratings in advance of the final sale of the securities and these ratings reflect Moody's preliminary credit opinion regarding the transaction only. Upon a conclusive review of the final documentation, Moody's will endeavour to assign a definitive rating to the Notes. A definitive rating may differ from a provisional rating.

The provisional rating for the Notes addresses the expected loss posed to investors by the legal final maturity. In Moody's opinion, the structure allows for timely payment of interest and ultimate payment of principal at par on, or before, the legal final maturity date. Moody's ratings address only the credit risks associated with the transaction; other non-credit risks have not been addressed but may have significant effect on yield to investors.

Factors that would lead to an upgrade or downgrade of the rating:

Main factors or circumstances that could lead to a change of the rating are (i) a change in the rating of the State of Lower Austria as tenant and Waiver Letter provider and (ii) a change in Moody's assessment of the credit strength of HYPO NOE as Comfort Letter provider.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions of the disclosure form.

Moody's did not use any models, or loss or cash flow analysis, in its analysis.

Moody's did not use any stress scenario simulations in its analysis.

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 credit rating action on the support provider and in relation to each particular credit 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 credit rating action, and whose ratings may change as a result of this credit 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.

Tobias S. Venzke
Asst Vice President - Analyst
Structured Finance Group
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Andrea M. Daniels
Associate Managing Director
Structured Finance Group
JOURNALISTS: 44 20 7772 5456
Client Service: 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
Client Service: 44 20 7772 5454

No Related Data.
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