EUR 1,000 million bonds rated.
London, 01 April 2011 -- Moody's Investors Service has assigned a definitive long term rating of
Aaa to the following series of covered bonds issued by OP Mortgage Bank
("OPMB" or the issuer) under the Finnish covered bond law (Act on Mortgage
Credit Bank Operations)
- EUR 1,000,000,000 3.25% Covered
Bonds due 2016: Aaa; new rating
RATINGS RATIONALE
As with all covered bonds, the covered bonds benefit from two layers
of protection by having recourse to both the issuer and a collateral pool.
The rating therefore takes into account the following factors:
1) The credit strength of the issuer. OPMB is a wholly-owned
subsidiary of OP Pohjola Group Central Cooperative ("the Group"),
the largest Finnish co-operative banking group. It serves
as a funding vehicle for the Group in respect of residential mortgage
loans originated by its member banks. As of September 2010,
the cooperative OP-Pohjohla Group consisted of 218 independent
cooperative banks, their central institution and its subsidiaries.
The most important subsidiary of the Central Cooperative is Pohjola Bank,
rated Aa2.
Under the 2007 Act on Cooperative Banks and Other Cooperative Credit Institutions
and the 2010 Amalgamations Act, all the cooperative member banks
and banking subsidiaries of OP Pohjola Group Central Cooperative including
Pohjola Bank and OP Mortgage Bank share a joint responsibility for each
other's liabilities.
2) The value of the cover pool. The mortgage covered bonds are
backed by residential mortgage loans.
Other key factors:
3) The issuer maintaining, on an "uncommitted" basis,
minimum over-collateralisation consistent with the covered bond
rating. The current minimum is 0%, while the minimum
required under the law is 2% on a NPV basis.
4) The Finnish legal framework for covered bonds, as the covered
bonds are governed by the Finnish covered bond legislation.
Moody's has assigned a Timely Payment Indicator (TPI) of "Probable-High"
to the covered bonds.
As of the launch date, the total value of the assets included in
the cover pool, comprising 27393 mortgage loans, is EUR 1,807,340,601.
The cover pool assets are mortgage loans secured by residential properties
in Finland. The loans have a weighted average seasoning of 39 months
and a weighted average remaining term of 187 months. The unindexed
weighted average loan-to-value (LTV) ratio reported by the
issuer is 55.7%.
The provisional 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 Aaa rating assigned to the above-referenced covered bonds is
expected to be assigned to all subsequent covered bonds issued by the
issuer under this programme and any future rating actions are expected
to affect all such covered bonds. Should there be 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, measured by its rating of
Aa3, and the stressed losses on the cover pool assets following
issuer default.
The Cover Pool Losses for this programme are 15.28%.
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 12.47% and Collateral Risk of 2.81%.
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 4.19%.
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-High"
the TPI Leeway for this programme is4 notches, meaning the highest
rating within the Group 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 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, parties not involved in the ratings,
public information, and confidential and proprietary Moody's
Investors Service information.
Moody's Investors Service considers the quality of information available
on the issuer or obligation satisfactory for the purposes of assigning
a credit rating.
The rating has been disclosed to the rated entity or its designated agents
and issued with no 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 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.
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
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
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 rating to covered bonds issued by OP Mortgage Bank
