London, 04 October 2011 -- Moody's Investors Service has today taken the following rating actions
on the mortgage covered bonds (Cédulas Hipotecarias, CHs)
and public-sector covered bonds (Cédulas Territoriales,
CTs) transferred to a new entity, NCG Banco (Baa3/P-3/D+,
on review for downgrade) from Caja de Ahorros de Galicia, Vigo,
Ourense y Pontevedra (NovaCaixaGalicia):
- Mortgage covered bonds assumed by NCG Banco: A1 on review
for downgrade, new rating
- Mortgage covered bonds issued by NovaCaixaGalicia: A1,
withdrawn for reorganisation; previously downgraded to A1 from Aa1
on review for downgrade, on 25 March 2011
- Public-sector covered bonds assumed by NCG Banco:
Aa3 on review for downgrade, new rating
- Public-sector covered bonds issued by NovaCaixaGalicia:
Aa3, withdrawn for reorganisation; previously downgraded to
Aa3 from Aa1 on review for downgrade, on 25 March 2011
RATINGS RATIONALE
The rating actions follow the transfer (effective as of 14 September 2011)
of the financial business of Novacaixagalicia to NCG Banco and Moody's
assignment of Baa3/P-3/D+ ratings to a new entity, NCG
Banco. The ratings assigned are under review for downgrade,
reflecting the weaker financial profile NCG Banco.
Moody's understands that the new cover pools backing NCG Banco's
CHs and CTs represent NovaCaixaGalicia's former total mortgage pool
and public-sector pool, respectively. Moody's
has therefore taken a view on both NovaCaixaGalicia's former total
mortgage pool and public-sector pool.
The CHs and CTs constitute direct, unconditional and senior obligations
of NCG Banco. The CHs are secured by the issuer's entire mortgage
loan pool (excluding securitised loans) and the CTs are secured by the
issuer's entire domestic and EEA public-sector loan pool.
The new ratings take into account the following factors:
(1) The credit strength of NCG Banco (Baa3/P-3/D+, on
review for downgrade).
(2) The structure created by the transaction documents combined with the
legal framework for Spanish mortgage and public-sector covered
bonds.
(3) The credit quality of the assets securing the payment obligations
of the issuer under the covered bonds. All the cover assets backing
the CHs are residential or commercial mortgages originated in Spain.
Most of the assets backing the CTs are loans to Spanish regional and local
governments, or companies owned by such entities.
(4) Sizeable amounts of over-collateralisation. For mortgage
covered bonds: on a statutory level this is 25% based on
the eligible cover pool, and total over-collateralisation
as of end-June 2011 was 159.3%. The over-collateralisation
level needed to maintain the current rating is 27.5%.
For public-sector covered bonds: on a statutory level this
is 42.9%, and the over-collateralisation as
of end-June 2011 was 105%. The over-collateralisation
level needed to maintain the current rating is 14.5%.
Moody's has assigned a TPI of "Probable" to the CHs and "Probable-High"
to the CTs.
The ratings assigned by Moody's address 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 ratings assigned to the existing CHs and CTs is expected to be assigned
to all subsequent covered bonds issued by NCG Banco under these programmes
and any future rating actions 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 -- measured by its rating
of Baa3 -- and the stressed losses on the cover pool assets
following issuer default.
Mortgage covered bonds:
The estimated cover pool losses for this programme are 37.2%.
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 20.5% and collateral risk of 16.7%.
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 24.8%.
Public-sector covered bonds:
The estimated cover pool losses for this programme are 24.2%.
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 18.2% and collateral risk of 6%. 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 12%.
TPI FRAMEWORK: Moody's assigns a 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 TPI Leeway measures the number of notches by which the issuer's rating
may be downgraded before the covered bonds are downgraded under the TPI
framework. Based on the current TPI of "Probable" and "Probable-high"
for the mortgage covered bonds and public-sector covered bonds,
respectively, the TPI Leeway for both programmes is zero notches.
This means that the issuer rating would need to be downgraded to Ba1 before
the covered bonds are downgraded, all other variables 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 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 reporting by the issuer and are subject to
change over time.
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.
REGULATORY DISCLOSURES
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.
The rating has been disclosed to the rated entity or its designated agent(s)
and issued with no amendment resulting from that disclosure.
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 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.
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
special report "Ancillary or other permissible services provided to entities
rated by MIS's EU credit rating agencies" on the ratings disclosure page
on our website www.moodys.com for further information.
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.
Justyna Kochanska
Analyst
Structured Finance Group
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
Juan Pablo Soriano
MD - Structured Finance
Structured Finance Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Releasing Office:
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 new ratings to NCG Banco's covered bonds (Spain)
