Frankfurt am Main, January 13, 2020 -- Moody's Investors Service ("Moody's") has taken the following rating actions
on covered bonds issued by Norddeutsche Landesbank GZ's ("NORD/LB";
deposits A3; adjusted baseline credit assessment ba1; counterparty
risk assessment A3(cr)), Deutsche Hypothekenbank (Actien-Gesellschaft)
("Deutsche Hypo", deposits A3; adjusted baseline credit assessment
ba1; counterparty risk assessment A3(cr)) and NORD/LB Luxembourg
S.A. Covered Bond Bank ("NORD/LB CBB";
deposits A3; adjusted baseline credit assessment ba1; counterparty
risk assessment A3(cr)):
- Norddeutsche Landesbank GZ - Mortgage Covered Bonds:
Aa1 confirmed
- Norddeutsche Landesbank GZ - Public-Sector Covered
Bonds: Aa1 confirmed
- Deutsche Hypothekenbank (Actien-Gesellschaft) -
Mortgage Covered Bonds: Aa1 confirmed
- Deutsche Hypothekenbank (Actien-Gesellschaft) -
Public-Sector Covered Bonds: upgraded to Aa1 from Aa2 on
review for upgrade.
- NORD/LB Luxembourg S.A. Covered Bond Bank -
Public-Sector Covered Bonds: upgraded to Aa2 from Aa3 on
review for upgrade.
- NORD/LB Luxembourg S.A. Covered Bond Bank -
Renewable Energy Covered Bonds: upgraded to (P)Aa2 from (P)Aa3 on
review for upgrade
RATINGS RATIONALE
Today's rating action is prompted by Moody's decision to upgrade
NORD/LB, Deutsche Hypo and NORD/LB CBB's Counterparty Risk (CR)
Assessment at A3(cr).
For further information on the rating action taken by Moody's Financial
Institutions Group, please refer to Moody's press release http://www.moodys.com/viewresearchdoc.aspx?docid=PR_416240.
The Timely Payment Indicator (TPI) assigned to NORD/LB and Deutsche Hypo
mortgage and public sector covered bond programmes is " High".
The TPI assigned to NORD/LB Lux mortgage public sector covered bond programme
is " Probable" and the TPI assigned to NORD/LB Lux renewable energy covered
bond programme is " Improbable". Moody's TPI framework does not
constrain the ratings.
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 all programmes is CR assessment plus one notch.
The cover pool losses are an estimate of the losses Moody's currently
models following a CB anchor event. Moody's splits cover
pool losses between market risk and collateral risk. 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 is derived from the collateral score, which measures
losses resulting directly from the cover pool assets' credit quality.
Norddeutsche Landesbank GZ - Covered Bonds
The cover pool losses of Norddeutsche Landesbank GZ - Mortgage
Covered Bonds are 22.4%, with market risk of 12.7%
and collateral risk of 9.7%. The collateral score
for this programme is currently 14.5%. The over-collateralisation
in this cover pool is 81.0%, of which the issuer provides
2.0% on a "committed" basis. Under Moody's
COBOL model, the minimum OC consistent with the Aa1 rating is 9.0%.
These numbers show that Moody's is relying on "uncommitted"
OC in its expected loss analysis.
The cover pool losses of Norddeutsche Landesbank GZ - Public-Sector
Covered Bonds are 9.9%, with market risk of 7.5%
and collateral risk of 2.4%. The collateral score
for this programme is currently 4.7%. The over-collateralisation
in this cover pool is 24.7%, of which the issuer provides
2.0% on a "committed" basis. Under Moody's
COBOL model, the minimum OC consistent with the Aa1 rating is 0%.
These numbers show that Moody's is not relying on "uncommitted"
OC in its expected loss analysis.
The current levels of over-collateralisation (OC) for NORD/LBs
Mortgage Covered Bonds and Public Sector Covered Bonds exceed the minimum
levels consistent with the current Aa1 ratings but looking ahead,
Moody's does not expect that OC will be maintained at levels consistent
with covered bond ratings higher than Aa1.
Deutsche Hypothekenbank (Actien-Gesellschaft) - Covered
Bonds
The cover pool losses of Deutsche Hypothekenbank (Actien-Gesellschaft)
- Mortgage Covered Bonds are 15.4%, with market
risk of 9.7% and collateral risk of 5.7%.
The collateral score for this programme is currently 8.5%.
The over-collateralisation in this cover pool is 14.5%,
of which the issuer provides 2.0% on a "committed"
basis. Under Moody's COBOL model, the minimum OC consistent
with the Aa1 rating is 2.5%. These numbers show that
Moody's is relying on "uncommitted" OC in its expected
loss analysis.
The cover pool losses of Deutsche Hypothekenbank (Actien-Gesellschaft)
-- Public Sector Covered Bonds are 12.6%, with
market risk of 9.0% and collateral risk of 3.6%.
The collateral score for this programme is currently 7.3%.
The over-collateralisation in this cover pool is 17.4%,
of which the issuer provides 2.0% on a "committed"
basis. Under Moody's COBOL model, the minimum OC consistent
with the Aa1 rating is 1.5%. These numbers show that
Moody's is not relying on "uncommitted" OC in its expected
loss analysis.
The current levels of over-collateralisation (OC) for Deutsche
Hypo Mortgage Covered Bonds and Public-Sector Covered Bonds exceed
the minimum levels consistent with the current Aa1 ratings but looking
ahead, Moody's does not expect that OC will be maintained at levels
consistent with covered bond ratings higher than Aa1.
NORD/LB Luxembourg S.A. - Covered Bond Banks
The cover pool losses of NORD/LB Luxembourg S.A. Covered
Bond Bank - Public-Sector Covered Bonds are 27.0%,
with market risk of 19.9% and collateral risk of 7.1%.
The collateral score for this programme is currently 14.2%.
The over-collateralisation in this cover pool is 24.4%,
of which the issuer provides 2.0% on a "committed"
basis. Under Moody's COBOL model, the minimum OC consistent
with the Aa2 rating is 4.0%. These numbers show that
Moody's is relying on "uncommitted" OC in its expected
loss analysis.
The current levels of over-collateralisation (OC) for NORD/LB Luxembourg
S.A. Covered Bond Bank - Public-Sector Covered
Bonds exceed the minimum levels consistent with the current Aa2 ratings
but looking ahead, Moody's does not expect that OC will be maintained
at levels consistent with covered bond ratings higher than Aa2.
The cover pool losses of NORD/LB Luxembourg S.A. Covered
Bond Bank -- Renewable Energy Covered Bonds are 34.1%,
with market risk of 18.5% and collateral risk of 15.6%.
The collateral score for this programme is currently 31.3%.
Under Moody's COBOL model, the minimum OC consistent with
the Aa2 rating is 8.5%. The over-collateralisation
(OC) in the cover pool will depend on the notional amount of the cover
pool at the time of the initial issuance and the initial covered bond
issuance amount. Moody's expects that NORD/LB CBB will provide
a minimum OC consistent with a rating of Aa2, of which the issuer
provides 2.0% on a "committed" basis.
These numbers show that Moody's is relying on "uncommitted"
OC in its expected loss analysis.
Moody's does not expect that OC will be maintained at levels consistent
with covered bond ratings higher than Aa2.
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 "Covered Bonds Sector Update",
published quarterly.
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.
RATING METHODOLOGY
The principal methodology used in these ratings was "Moody's
Approach to Rating Covered Bonds" published in February 2019.
Please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
FACTORS THAT WOULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS:
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
an upgrade or 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 "High", the TPI Leeway for NORD/LB's
Mortgage and Public-Sector Covered Bonds is 3 notches. This
implies that Moody's might downgrade the Covered Bonds because of a TPI
cap if it lowers the CB anchor by 4 notches, all other variables
being equal.
Based on the current TPI of "High", the TPI Leeway for Deutsche
Hypo's Mortgage and Public Sector Covered Bonds is 3 notches. This
implies that Moody's might downgrade the Covered Bonds because of a TPI
cap if it lowers the CB anchor by 4 notches, all other variables
being equal.
Based on the current TPI of "Probable", the TPI Leeway for NORD/LB
CBB - Public Sector Covered Bonds is 3 notches. This implies
that Moody's might downgrade the Covered Bonds because of a TPI cap if
it lowers the CB anchor by 4 notches, all other variables being
equal.
Based on the current TPI of "Improbable", the TPI Leeway for NORD/LB
CBB - Renewable Energy Covered Bonds is one notch. This
implies that Moody's might downgrade the Covered Bonds because of a TPI
cap if it lowers the CB anchor by two 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.
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, category/class of
debt or security this announcement provides certain regulatory disclosures
in relation to each rating of a subsequently issued bond or note of the
same series, category/class of debt, security 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.
Martin Lenhard
VP - Senior Credit Officer
Structured Finance Group
Moody's Deutschland GmbH
An der Welle 5
Frankfurt am Main 60322
Germany
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
Juan Pablo Soriano
MD - Structured Finance
Structured Finance Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
Releasing Office:
Moody's Deutschland GmbH
An der Welle 5
Frankfurt am Main 60322
Germany
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
