London, 19 December 2013 -- Moody's Investors Service has today confirmed the A2 rating assigned
to the mortgage covered bonds issued by UBI Banca S.c.p.a
(the issuer: deposits Baa3, negative; bank financial
strength rating D+/baseline credit assessment ba1, negative).
This rating action concludes the review of the above-mentioned
ratings initiated on the 24 September 2013.
RATINGS RATIONALE
Today's rating action is prompted by the downgrade and conclusion
of the review of UBI Banca's ratings on the 18 December 2013.
For additional details, please see https://www.moodys.com/research/Moodys-downgrades-UBI-to-Baa3P-3-outlook-negative--PR_288949.
The ratings of UBI Banca's covered bonds were previously capped
at A2 by Italy's country ceiling. The timely payment indicator
(TPI) assigned to this transaction is "Improbable".
Following the downgrade of the bank's ratings, the new TPI
cap constrains the rating of the covered bonds at the current level of
A2.
The A2 ratings assigned to UBI Banca's covered bonds address the
expected loss posed to investors. Moody's ratings address
only the credit risks associated with the transaction. The rating
agency 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 issuer's probability
of default (measured by the issuer's rating); and (2) the stressed
losses on the cover pool assets following issuer default.
The cover pool losses for UBI Banca's covered bonds programme are
33.5%. This figure is an estimate of the losses Moody's
currently models if UBI Banca defaults. Moody's splits cover
pool losses between market risk of 27.1% and collateral
risk of 6.4%. 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).
Collateral risk measures losses resulting directly from the credit quality
of cover pool assets. Moody's derives collateral risk from
the collateral score, which -- for this programme -- is
currently 9.6%.
The over-collateralisation (OC) in the cover pool is 104.0%,
of which UBI Banca provides 7.5% on a "committed"
basis. The minimum OC level consistent with the A2 rating target
is 8.5%, of which the issuer should provide 0%
in a "committed" form. These figures show that Moody's
is relying on "uncommitted" OC in its expected loss analysis.
All figures in this section are based on the most recent Performance Overview
(based on data, as per 30 June 2013).
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
EMEA Covered Bonds Monitoring Overview", published quarterly.
TPI FRAMEWORK: Moody's assigns a TPI, which indicates
the likelihood that the issuer will make timely payments to covered bondholders
if the issuer defaults. The TPI framework limits the covered bond
rating to a certain number of notches above the issuer's rating.
FACTORS THAT WOULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATING
The issuer's credit strength is the main determinant of a covered
bond rating's robustness. The TPI Leeway measures the number
of notches by which Moody's might downgrade the issuer's rating
before the rating agency downgrades the covered bonds because of TPI framework
constraints.
Based on the current TPI of "Improbable", the TPI Leeway
for UBI Banca's covered bonds programme is zero notches.
This implies that Moody's might downgrade the covered bonds because
of a TPI cap, if it downgrades the issuer rating below Baa3,
all other variables being equal.
A multiple-notch downgrade of UBI Banca's covered bonds might
occur in certain limited circumstances, such as (1) a sovereign
downgrade negatively affecting both the issuer's senior unsecured
rating and the TPI; (2) a multiple-notch downgrade of the
issuer; or (3) a material reduction of the value of the cover pool.
The principal methodology used in this rating was "Moody's
Approach to Rating Covered Bonds" published in July 2012.
Please see the Credit Policy page on www.moodys.com for
a copy of this methodology.
The Credit Ratings of the covered bonds were assigned in line with Moody's
existing Credit Rating Methodology entitled "Moody's Approach
to Rating Covered Bonds", dated July 2012. Moody's
notes that on 19 September 2013 it published a Request for Comment (RFC).
In the RFC, the rating agency proposes an adjustment to the anchor
point it uses in its covered bond analysis. If the revised Credit
Rating Methodology is implemented as proposed, the Credit Ratings
of the covered bonds may be affected. Please refer to Moody's
Request for Comment, titled "Approach to Determining the Issuer
Anchor Point for Covered Bonds" for further details regarding the
implications of the proposed Credit Rating Methodology changes on Moody's
Credit Ratings https://www.moodys.com/research/Approach-to-Determining-the-Issuer-Anchor-Point-for-Covered-Bonds--PBS_SF342448.
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 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 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 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 rating action, and
whose ratings may change as a result of this 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.
Monica Bianchi
Associate 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 confirms A2 ratings assigned to UBI Banca S.c.p.a Covered Bond Programme
