London, 17 July 2012 -- Moody's Investors Service has today confirmed the ratings of 11 Italian
covered bonds. At the same time, Moody's maintains two covered
bond ratings on review for downgrade.
This announcement was prompted by Moody's decision on 16 July 2012 to
downgrade the senior debt ratings of the several Italian banks that issue
the affected covered bonds. This also concludes the review of 11
covered bond programmes prompted by the downgrade of Italy's government
bond ratings to Baa2 from A3.
Please click this link http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBS_SF292162
for the List of Affected Credit Ratings.
This list is an integral part of this press release and identifies each
affected issuer.
For more information on the rating actions taken by Moody's Financial
Institutions Group, see the press release published on 16 July 2012.
(http://www.moodys.com/research/Moodys-downgrades-Italian-banks--PR_250584).
RATINGS RATIONALE
(1) The TPI Framework
The weakening of the Italian government's creditworthiness has prompted
the downgrade of several Italian banks that are issuers of covered bonds.
However, following the lowering of country ceiling to A2,
the TPI framework does not further constrain Italian covered bond ratings
to a level below their current rating. Moody's notes that the TPIs
for both mortgage and public-sector covered bonds have been maintained
at "Improbable".
The TPIs of Improbable for the mortgage and public-sector covered
bonds reflect (i) the robustness of Italian covered bond structures (maturity
extension, hedging strategies, etc. ); and (ii)
the high level of protection that the Italian Covered Bonds legal framework
provides to covered bond holders.
However, Moody's notes that the TPIs might be lowered further if
Moody's downgrades Italy's sovereign rating, or if the economic
environment within Italy worsens.
Moody's Timely Payment Indicator (TPI) framework limits a covered bond
rating to a certain number of rating levels above the issuer rating of
the relevant bank. The amount of uplift will depend on the TPI
assigned and for all Italian covered bonds, Moody's currently assigns
a TPI of "Improbable". The indicative rating uplift for covered
bonds based on TPIs can be found in Moody's published TPI table.
Therefore, a downgrade of the issuer rating could limit the maximum
covered bond rating uplift.
However, Moody's notes that there are many factors that might influence
the application of TPIs, in particular for sub-investment-grade-rated
issuers. For these issuers, factors that influence the maximum
rating achievable include (i) the level of over-collateralisation
held in the programme; and (ii) the degree of adequate asset-liability
matching.
(2) Expected loss
As the issuer's credit strength is incorporated into Moody's expected
loss methodology, any downgrade of the issuer's ratings increases
the expected loss on the covered bonds. However, this increase
in expected loss may be offset if sufficient collateral is held in the
cover pool. Moody's has kept on review for downgrade the ratings
of two covered bonds because the current level and form of OC might not
be sufficient to sustain the current ratings over a short period of time.
KEY RATING ASSUMPTIONS/FACTORS
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. Covered bond ratings
are determined after applying a two-step process: an expected
loss analysis and a 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 (i) a function
of the issuer's probability of default (measured by the issuer's rating);
and (ii) the stressed losses on the cover pool assets following issuer
default.
- 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 issuer's
credit strength.
A multi-notch downgrade of the covered bonds might occur in certain
limited circumstances, such as (i) a sovereign downgrade that negatively
affects both the issuer's senior unsecured rating and the TPI; (ii)
a multi-notch downgrade of the issuer; or (iii) a material
reduction of the value of the cover pool.
As the euro area crisis continues, the ratings of covered bonds
remain exposed to the uncertainties of credit conditions in the general
economy. The deteriorating creditworthiness of euro area sovereigns
as well as the weakening credit profile of the global banking sector could
negatively impact the ratings of covered bonds. For more information
please refer to the Rating Implementation Guidance published on 13 February
2012 "How Sovereign Credit Quality May Affect Other Ratings". Furthermore,
as discussed in Moody's special report "Rating Euro Area Governments Through
Extraordinary Times -- An Updated Summary," published
in October 2011, Moody's is considering reintroducing individual
country ceilings for some or all euro area members, which could
affect further the maximum structured finance rating achievable in those
countries. Moody's is also continuing to consider the impact of
the deterioration of sovereigns' financial condition and the resultant
asset portfolio deterioration in covered bond transactions.
The principal methodology used in these ratings 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 entities or their designated
agent(s) and issued with no amendment resulting from that disclosure.
Information sources used to prepare each of the ratings 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
entities, obligations or credits satisfactory for the purposes of
issuing these ratings
Moody's adopts all necessary measures so that the information it
uses in assigning the ratings 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 entities or their related third parties within
the two 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 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.
In addition to the information provided below please find on the ratings
tab of the issuer page at www.moodys.com, for each
of the ratings covered, Moody's disclosures on the lead rating
analyst and the Moody's legal entity that has issued each of the
ratings.
Elise Savoye
Analyst
Structured Finance Group
Moody's France SAS
96 Boulevard Haussmann
Paris 75008
France
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 confirms 11 Italian covered bond ratings; 2 remain on review for downgrade
