GBP 1.1 billion of notes affected
London, 18 June 2012 -- Moody's Investors Service has today assigned a definite Aaa long-term
rating to the Series 2012-1 and Series 2012-2 covered bonds
issued by Clydesdale Bank plc (Clydesdale or the issuer) under its regulated
GBP 10 billion Global Covered Bond Programme.
RATINGS RATIONALE
As with all covered bonds, the covered bonds benefit from two layers
of protection by having recourse to both the issuer and a collateral pool.
The rating therefore takes into account the following factors:
1) The credit strength of the issuer, rated A2 on review for possible
downgrade / Prime-1 on review for possible downgrade / C-.
2) The credit quality of the cover pool. The covered bonds are
backed by residential mortgage loans.
Other key factors:
3) The over-collateralisation in the cover pool is 40.7
%, of which 30.7% is provided on a "committed"
basis. The minimum over-collateralisation level that is
consistent with the Aaa rating target is 21.5%, of
which 21.5% should be provided in a "committed"
form. These numbers show that Moody's is not relying on "uncommitted"
over- collateralisation in its expected loss analysis.
4) The use of structuring techniques designed to mitigate the rating linkage
between the issuer and the covered bonds. These include (i) provisions
for a liquidity reserve fund; (ii) an asset coverage test; (iii)
a pre-maturity test; and (iv) maturity extensions for bonds
issued as a soft bullet.
Moody's notes that the issuer rating currently is on review for possible
downgrade. If the issuer is downgraded, Moody's will
revisit the over-collateralisation necessary to reach Aaa.
The over-collateralisation necessary to reach Aaa given the current
issuer rating of A2 is 21.5%.
Moody's has assigned a Timely Payment Indicator (TPI) of "Probable" to
the covered bonds.
As of 31 March 2012, the total value of the assets expected to be
included in the cover pool, comprising 14,948 residential
mortgage accounts, will be approximately GBP1.55 billion.
The cover pool assets are mortgage loans secured by properties in the
UK. In the residential pool the loans have a weighted-average
seasoning of 33 months and a weighted average remaining term of 198 months.
The weighted average loan-to-value (LTV) ratio is 63.5%
on an indexed basis.
The ratings assigned by Moody's address 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 and the stressed losses on the cover pool assets
following issuer default.
The Cover Pool Losses for this programme are 22.4%.
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 17.8% 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 6.8%.
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 and an issuer
rating of A2 the TPI Leeway for this programme is one notch, meaning
the issuer rating would need to be downgraded to Baa1 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 cover pool information provided by the issuer
to Moodys and are subject to change over time.
RATING METHODOLOGY
The principal methodology used in this rating was "Moody's Approach
to Rating Covered Bonds" published in March 2010. 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 relevant 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 relevant 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 relevant 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.
The rating has been disclosed to the rated entity or its designated agent(s)
and issued with no amendment resulting from that disclosure.
Information sources used to prepare the 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 considers the quality of information available on the rated
entity, obligation or credit satisfactory for the purposes of issuing
a rating.
Moody's adopts all necessary measures so that the information it
uses in assigning a 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.
Moody's Investors Service may have provided Ancillary or Other Permissible
Service(s) to the rated entity or its related third parties within the
two years preceding the credit rating action. Please see the special
report "Ancillary or other permissible services provided to entities
rated by MIS's EU credit rating agencies" on the ratings disclosure
page on our website www.moodys.com for further information.
Please see the ratings disclosure page on www.moodys.com
for general disclosure on potential conflicts of interests.
Please see the ratings disclosure page on www.moodys.com
for information on (A) MCO's major shareholders (above 5%) and
for (B) further information regarding certain affiliations that may exist
between directors of MCO and rated entities as well as (C) the names of
entities that hold ratings from MIS that have also publicly reported to
the SEC an ownership interest in MCO of more than 5%. A
member of the board of directors of this rated entity may also be a member
of the board of directors of a shareholder of Moody's Corporation;
however, Moody's has not independently verified this matter.
Please see Moody's Rating Symbols and Definitions on the Rating Process
page on www.moodys.com for further information on the meaning
of each rating category and the definition of default and recovery.
Please see ratings tab on the issuer/entity page on www.moodys.com
for the last rating action and the rating history.
The date on which some ratings were first released goes back to a time
before Moody's ratings were fully digitized and accurate data may not
be available. Consequently, Moody's 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 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.
Sang Shin
Vice President - Senior Analyst
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 definite Aaa rating to Clydesdale Regulated covered bonds
