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Rating Action:

Moody's assigns definitive Aaa to CBA's Series 29 mortgage covered bonds

Global Credit Research - 21 Jan 2014

Sydney, January 21, 2014 -- Moody's Investors Service has today assigned a definitive Aaa long-term rating to Series 29 mortgage covered bonds issued by Commonwealth Bank of Australia ("CBA" or the "issuer") (Aa2 stable, bank financial strength rating B-). CBA issued NZD 314 million fixed rate Series 29 covered bonds with a 7-year soft-bullet maturity and a 1-year Extended Due for Payment Date.

The covered bonds constitute direct, unconditional and senior obligations of CBA, and the payments of all amounts due in respect of the covered bonds are unconditionally guaranteed by Perpetual Corporate Trust Limited as trustee of the CBA Covered Bond Trust.

Issuer: Commonwealth Bank of Australia

NZD 314 million Series 29, Definitive Rating Assigned Aaa

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 CBA (Aa2 stable, bank financial strength rating B-).

2) The value of the cover pool, if the issuer defaults. The stressed level of losses modeled in event of issuer default (cover pool losses) for this transaction is 18.23%.

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 mortgage covered bonds are backed by Australian residential mortgage loans. The collateral score for the cover pool is 6.8%.

b) The legal framework.

c) The exposure to market risk, which is 13.70% for this cover pool.

d) The over-collateralisation (OC) in the cover pool is 101.5%, of which the issuer provides 17.0% on a "committed" basis (see Key Rating Assumptions/Factors, below).

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

As at 30 November 2013, the total value of residential mortgage loans included in the cover pool is AUD27,198,776,386.The residential mortgage loans have a weighted-average seasoning of 48 months and a weighted-average loan-to-value (LTV) ratio of 56.91%.

The definitive 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 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 18.23%. This is an estimate of the losses Moody's currently models if CBA defaults. Moody's splits cover pool losses between market risk of 13.70% and collateral risk of 4.53%. 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 6.8%.

The over-collateralisation in the cover pool is 101.5%, of which CBA provides 17.0% on a "committed" basis. The minimum OC level consistent with the Aaa rating target is 8.8%. Moody's does not take into account any "uncommitted" OC in its expected loss analysis.

All numbers in this section are based on Moody's most recent modeling based on data as per 30 November 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 Global 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.

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.

FACTORS THAT WOULD LEAD TO A DOWNGRADE OF THE RATING

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 bond because of TPI framework constraints.

Based on a current TPI of "Probable", the TPI Leeway for this programme is 4 notches. This implies that Moody's might downgrade the covered bonds because of a TPI cap, if it downgrades the issuer below A3, 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 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.

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.

Irene Kleyman
Vice President - Senior Analyst
Structured Finance Group
Moody's Investors Service Pty. Ltd.
Level 10
1 O'Connell Street
Sydney NSW 2000
Australia
JOURNALISTS: (612) 9270-8102
SUBSCRIBERS: (612) 9270-8100

Kei Kitayama
MD - Asia-Pac Structured Fin
Structured Finance Group
JOURNALISTS: (03) 5408-4110
SUBSCRIBERS: (03) 5408-4100

Releasing Office:
Moody's Investors Service Pty. Ltd.
Level 10
1 O'Connell Street
Sydney NSW 2000
Australia
JOURNALISTS: (612) 9270-8102
SUBSCRIBERS: (612) 9270-8100

Moody's assigns definitive Aaa to CBA's Series 29 mortgage covered bonds
No Related Data.

 

© 2014 Moody's Corporation, Moody's Investors Service, Inc., Moody's Analytics, Inc. and/or their licensors and affiliates (collectively, "MOODY'S"). All rights reserved.

 


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