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Rating Action:

Moody's assigns definitive Aaa to Series 7 of CBA's Covered Bond Programme

Global Credit Research - 03 Feb 2012

Sydney, February 03, 2012 -- Moody's Investors Service has today assigned a definitive long-term rating of Aaa to the Series 7 covered bonds issued under the US$30 billion covered bond programme of the Commonwealth Bank of Australia ("CBA" or the "Issuer") (Aa2/Prime-1/B-). CBA issued EUR 66.5 million floating rate Series 7 covered bonds with a 15-year hard-bullet maturity

The covered bonds will constitute direct, unconditional and senior obligations of CBA, and the payments of all amounts due in respect of the covered bonds will be unconditionally guaranteed by Perpetual Corporate Trust Limited as trustee of CBA Covered Bond Trust. The covered bonds will also be secured by a pool of residential mortgage loans originated by CBA and eligible substitution assets, also known as the cover pool.

Issuer: Commonwealth Bank of Australia

....EUR 66.5M Series 7, Definitive Rating Assigned Aaa

As with all covered bonds, the covered bonds will benefit from two layers of protection by having recourse to both the issuer, CBA, and a collateral pool. The provisional rating therefore takes into account the following factors:

1) The credit strength of CBA, rated Aa2.

2) The value of the cover pool. The covered bonds will be primarily backed by residential mortgage loans originated by CBA.

Other key factors:

3) The commitment of the Issuer to maintain a minimum over-collateralisation of 5.03% which Moody's views as "committed".

4) Structure created by the transaction documents.

5) Protections provided under the Banking Amendment (Covered Bonds) Act 2011.

Moody's has assigned a Timely Payment Indicator (TPI) of "Probable" to the covered bonds.

As of the cut-off date, the total value of the assets in the cover pool was AUD 11,745,905,161. The cover pool assets are mortgage loans secured by properties in Australia. The loans have a weighted-average seasoning of 26 months and weighted-average remaining term of 323 months. The weighted-average current loan to value (LTV) ratio is 61.36%.

If CBA issues hard bullet covered bonds, they will benefit from a pre-maturity test according to which CBA has to pre-fund any covered bond maturing within 12 months of the issuer being downgraded below Prime-1.

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 22.60%. 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 14.63% and Collateral Risk of 7.97%. 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 currently 9.0%.

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 the TPI Leeway for this programme is five notches, 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 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.

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.

Moody's ratings are subject to revision, suspension or withdrawal at any time at our absolute discretion. The ratings are expressions of opinion and not recommendations to purchase, sell or hold securities. Moody's ratings are subject to revision, suspension or withdrawal at any time at our absolute discretion.

REGULATORY DISCLOSURES

The Global Scale Credit Ratings on this press release that are issued by one of Moody's affiliates outside the EU are endorsed by Moody's Investors Service Ltd., One Canada Square, Canary Wharf, London E 14 5FA, UK, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that has issued a particular Credit Rating is available on www.moodys.com.

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.

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 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 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.

Jennifer Wu
VP - Senior Credit Officer
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 Series 7 of CBA's Covered Bond Programme
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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© 2014 Moody's Investors Service, Inc., Moody’s Analytics, Inc. and/or their affiliates and licensors. All rights reserved.
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