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Rating Action:

Moody's assigns definitive A3 to Akbank's mortgage covered bonds

13 Feb 2015

Madrid, February 13, 2015 -- Moody's Investors Service has today assigned a definitive A3 long-term rating to the Turkish Lira-denominated covered bonds issued under the mortgage covered bond programme of Akbank TAS (the issuer, deposits Baa3 negative, bank financial strength rating D+ stable/ adjusted baseline credit assessment ba1). The Turkish covered bond law (the Communiqué) governs the covered bonds.

RATINGS RATIONALE

A covered bond benefits from (1) the issuer's promise to pay interest and principal on the bonds; and (2) following a CB anchor event, the economic benefit of a collateral pool (the cover pool). The rating therefore reflects the following factors:

(1) The credit strength of the issuer and a CB anchor of the senior unsecured rating (SUR) plus zero notches. The covered bonds are full recourse to the issuer.

(2) Following a CB anchor event, the value of the cover pool. The stressed level of losses on the cover pool assets following a CB anchor event (cover pool losses) for this transaction is 48.6%.

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. Claims against Turkish mortgage loans form the cover pool that backs the mortgage covered bonds, and the collateral score for the cover pool is 10.2%.

b) The Turkish legal framework for covered bonds. Notable aspects of the legislation include:

(i) The ring-fencing of cover pool assets from the issuer's bankruptcy estate. Also, issuer insolvency does not trigger the acceleration of the covered bonds.

(ii) The segregation of transaction accounts and cash flows from the issuer's bankruptcy estate.

(iii) Various asset and liability requirements, which include (1) a nominal value test to ensure that the nominal value of assets cannot be lower than the nominal value of the covered bonds; (2) a cash flow test to ensure that the interest and revenues expected to be generated in one year cannot be lower than that expected to arise from the covered bonds; and (3) a net present value (NPV) test to ensure that the NPV of the assets must exceed at least 2% of the NPV of the covered bonds.

(iv) A cover pool monitor that is responsible for monitoring the cover pool on an ongoing basis and observing the compliance with the Communiqué.

c) The transaction structural features that aim to mitigate various risks - the features are:

(i) A committed over-collateralisation (OC) level of 12%, which aims to mitigate credit risk.

(ii) An 18-month extension maturity, which aims to mitigate refinancing risk.

d) The exposure to market risk, which is 41.8%for this cover pool. The main components are the interest-rate risk, the refinancing risk and other risks such as set-off and commingling risk.

e) The OC in the cover pool is currently 924% on a nominal value basis, of which Akbank provides 12% on a "committed" basis (see Key Rating Assumptions/Factors, below).

Our local currency country risk ceilings determine the maximum credit rating achievable in local currency for a debt issuer domiciled in that country or for a structured note whose cash flows are generated from domestic assets or residents. The A3 Turkish local currency ceiling constrains the rating on the covered bonds at the same level.

The TPI assigned to this transaction is "Improbable", and Moody's TPI framework does not constrain the rating.

Moody's believes that the strength of the Communiqué and the programme's structural mechanisms partly mitigate refinancing and operational risks. Nevertheless, Moody's says that illiquid scenarios are more likely in a less mature mortgage market, like Turkey, so the cover pool would still pose refinancing risk if an illiquidity scenario developed, despite the mitigants. There are also some risks -- such as set-off or commingling -- and some other uncertainties that make it less likely the issuer will be able to make timely payments to covered bondholders following a CB anchor event.

At present, the total value of the cover pool is approximately TL4.17 billion, comprising 58,291 residential mortgage loans and some substitute assets. The residential mortgage loans have a weighted-average (WA) seasoning of 24 months, a WA remaining term of 78 months and a WA loan-to-value (LTV) ratio of 52.5%. The substitute assets consist of around TL22.50 million domestic government bonds.

The 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.

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 probability that the issuer will cease making payments under the covered bonds (a CB anchor event); and (2) the stressed losses on the cover pool assets following a CB anchor event.

The CB anchor for this programme is the SUR plus zero notches.

The cover pool losses for this programme are 48.6%. This is an estimate of the losses Moody's currently models following a CB anchor event. Moody's splits cover pool losses between market risk of 41.8% and collateral risk of 6.8%. 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, such as set-off and commingling 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 10.2%.

The OC in the cover pool is currently 924%, of which the issuer provides 12% on a "committed" basis. The minimum OC level consistent with the A3 rating target is 10.5%.

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 Global Covered Bonds Monitoring Overview", published quarterly. All numbers in this section are based on Moody's most recent modelling (based on data, as of 30 January 2015).

TPI FRAMEWORK: Moody's assigns a "timely payment indicator" (TPI), which measures the likelihood of timely payments to covered bondholders following a CB anchor event. The TPI framework limits the covered bond rating to a certain number of notches above the CB anchor.

FACTORS THAT WOULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATING:

The CB anchor is the main determinant of a covered bond programme's rating robustness. A change in the level of the CB anchor could lead to an upgrade or downgrade of the covered bonds. The TPI Leeway measures the number of notches by which Moody's might lower the CB anchor before the rating agency downgrades the covered bonds because of TPI framework constraints.

Based on the current TPI of "Improbable", the TPI Leeway for Akbank's mortgage covered bonds is zero to one notches. This implies that Moody's might downgrade the covered bonds because of a TPI cap if it lowers Akbank's CB anchor, all other variables being equal.

A multiple-notch downgrade of the covered bonds might occur in certain limited circumstances, such as (1) a sovereign downgrade negatively affecting both the CB anchor and the TPI; (2) a multiple-notch downgrade of the CB anchor; 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 March 2014. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

We published a Request for Comment (RFC) on 8 January 2015. In the RFC, we propose an adjustment to the anchor point we use in our covered bond analysis. The proposed changes in this RFC apply to all new and existing ratings for covered bonds. If we adopt the proposed changes, we expect more covered bond ratings to be positively affected than negatively affected. However, in light of the banking RFC (see RFC published on 9 September 2014 by our Banking group) and the CR rating RFC , measure (see RFC published on 8 January 2015 by our Banking group) we are not in a position to fully assess and disclose the exact impact of the proposed changes to our covered bond methodology. https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBS_SF390257.

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 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 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.

Tomas Rodriguez-Vigil
Analyst
Structured Finance Group
Moody's Investors Service Espana, S.A.
Calle Principe de Vergara, 131, 6 Planta
Madrid 28002
Spain
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 Espana, S.A.
Calle Principe de Vergara, 131, 6 Planta
Madrid 28002
Spain
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's assigns definitive A3 to Akbank's mortgage covered bonds
No Related Data.
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