EUR500 million of bonds rated
Singapore, September 12, 2018 -- Moody's Investors Service has today assigned a definitive Aaa long-term
rating to the mortgage covered bonds issued by United Overseas Bank Limited
(the issuer/UOB, counterparty risk (CR) assessment Aa1(cr);
foreign currency senior unsecured rating Aa1; adjusted baseline credit
assessment a1) under its U.S.$8,000,000,000
Global Covered Bond Programme.
Issuer: United Overseas Bank Limited
....EUR500,000,000 0.250
per cent. Covered Bonds due 2023 (Series 6 covered bonds),
Assigned Aaa
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 CR assessment
plus zero notches.
(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 28.6%.
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.
The mortgage covered bonds are backed by Singaporean residential mortgage
loans. The collateral score for the cover pool is 5%.
b) The legal framework for the programme, including a 12-month
pre-maturity test or maturity extension, which aims to mitigate
refinancing risk. Series 6 covered bonds feature a 12-month
maturity extension.
c) The exposure to market risk, which is 25.3% for
this cover pool. The main components are the refinancing risk and
interest-rate risk.
d) The over-collateralisation (OC) in the cover pool is 67.5%,
based on the cover pool amount as of 29 June 2018 and outstanding covered
bonds of the issuer including the Series 6 covered bonds. The issuer
has currently specified to maintain an asset percentage of 86.28%,
which translates into an over-collateralisation of approximately
15.9%. Moody's considers the "committed" over-collateralisation
to be 3% in its analysis (see Key Rating Assumptions/Factors,
below).
The TPI assigned to this transaction is "Improbable". This TPI
does not constrain the rating of the covered bonds at its current level.
As of the pool cut-off date on 29 June 2018, the total value
of the assets included in the cover pool is approximately SGD7,455
million, comprising 11,346 residential mortgage loans and
unutilised principal receipts. The residential mortgage loans have
a weighted-average (WA) seasoning of 57 months, a WA remaining
term of 258 months and a WA current unindexed loan-to-value
(LTV) ratio of 57.5%.
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 CR assessment plus zero notches.
The CR assessment reflects an issuer's ability to avoid defaulting on
certain senior bank operating obligations and contractual commitments,
including covered bonds.
The cover pool losses for this programme are 28.6%.
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 25.3% and collateral risk of 3.4%.
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
5%.
The minimum OC level consistent with the Aaa rating target is 1%.
The over-collateralisation in the cover pool is 67.5%.
The issuer has currently specified to maintain an asset percentage of
86.28%, which translates into an over-collateralisation
of around 15.9%. Moody's deems the "committed" over-collateralisation
to be 3% in its analysis, considering the issuer can adjust
the asset percentage subject to certain requirements under the covered
bond contractual agreements. The requirements include the limitation
that the asset percentage cannot exceed 97%, which translates
to an over-collateralisation of approximately 3% corresponding
to the minimum requirement of 3% under the MAS Notice 648.
These numbers show that Moody's is not relying on "uncommitted" OC in
its expected loss analysis.
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 29 June 2018.
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 A 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
a 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 this
programme is three notches. This implies that Moody's might downgrade
the covered bonds because of a TPI cap if it lowers the CB anchor by four
or more notches, all other variables being equal.
A multiple-notch downgrade of the covered bonds might occur in
certain circumstances, such as (1) a country ceiling or sovereign
downgrade capping a covered bond rating or negatively affecting 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 December 2016. Please see the
Rating Methodologies page on www.moodys.com for a copy of
this methodology.
REGUALATORY 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 credit rating action on the support provider and in relation to
each particular credit 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 credit rating action,
and whose ratings may change as a result of this credit 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.
Dipanshu Rustagi
Asst Vice President - Analyst
Structured Finance Group
Moody's Investors Service Singapore Pte. Ltd.
50 Raffles Place #23-06
Singapore Land Tower
Singapore 48623
Singapore
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
Kei Kitayama
MD - Asia Pac Structured Fin
Structured Finance Group
JOURNALISTS: 81 3 5408 4110
Client Service: 81 3 5408 4100
Releasing Office:
Moody's Investors Service Singapore Pte. Ltd.
50 Raffles Place #23-06
Singapore Land Tower
Singapore 48623
Singapore
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
