London, 15 December 2010 -- Moody's Investors Service has today assigned a definitive long-term
rating to the covered bonds issued by Aktia Real Estate Mortgage Bank
(Aktia or the issuer), under the new Finnish covered bond law:
- Series 12 EUR500 million covered bonds, due 18 November
2013: Aa1; new rating
RATINGS RATIONALE
As with all covered bonds, these bonds benefit from two layers of
protection by having recourse to both the issuer and a collateral pool.
The Aa1 rating therefore principally reflects (i) the issuer's credit
strength; and (ii) the credit quality of the cover pool.
The covered bonds are approximately 90% backed by residential mortgage
loans and 10% backed by loans to housing companies (operating under
the Finnish Housing Companies Act (22.12.2009/1599)).
The Collateral Score for this programme is provisionally 6.94%.
Other key factors:
- The over-collateralisation of 12%, which
Moody's considers "committed". This level of over-collateralisation
is consistent with an Aa1 rating.
- The Finnish legal framework for covered bonds. The covered
bonds are governed by the Finnish covered bond legislation.
Moody's has assigned a Timely Payment Indicator (TPI) of "Probable" to
the covered bonds.
As of August 2010, the total value of the assets in the cover pool
-- comprising 76,194 residential mortgage loans and
257 housing-company loans -- was approximately EUR477.8
million. The cover pool assets have a weighted-average seasoning
of 8 months and a weighted-average remaining term of 218 months.
The weighted-average loan-to-value (LTV) ratio is
54.3%.
The housing-company loans have a weighted-average seasoning
of 10 months and a weighted-average remaining term of 208 months.
The weighted-average loan-to-value (LTV) ratio is
25.8%
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.
The Aa1 rating assigned to the above-referenced covered bonds is
expected to be assigned to all subsequent covered bonds issued by Aktia
under this programme. Consequently, any subsequent future
rating actions in relation to the issuer's covered bonds are expected
to affect all such covered bonds. If there are any exceptions to
this, Moody's will in each case publish details in a separate press
release.
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 15.81%.
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 11.15% and Collateral Risk of 4.65%.
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 provisionally 6.94%.
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 issuer's
credit strength.
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 there is no
TPI Leeway for this programme, meaning if issuer rating is downgraded
the covered bonds would be downgraded, all other things being equal.
A multiple notch downgrade of the covered bonds might occur in certain
limited circumstances. Some examples might be (i) a sovereign downgrade
negatively affecting both the issuer's senior unsecured rating and the
TPI; (ii) a multiple notch downgrade of the issuer; or (iii)
a material reduction in the cover pool's value.
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 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.
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 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 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.
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
London
Volker Gulde
Vice President - Senior Analyst
Structured Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
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 definitive Aa1 rating to Aktia's series 12 covered bonds (Finland)
