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Rating Action:

Moody's confirms A3 ratings assigned to Banco Sabadell, S.A.'s mortgage and public-sector covered bonds.

Global Credit Research - 14 Jan 2014

Madrid, January 14, 2014 -- Moody's Investors Service has today confirmed the A3 ratings assigned to the mortgage and public sector covered bond programmes issued by Banco Sabadell, S.A. (deposits Ba2 negative outlook; BFSR D-/BCA ba3). Today's rating actions conclude the review for downgrade of the covered bond ratings.

RATINGS RATIONALE

Today's rating action on the covered bonds follows Moody's decision to conclude the review for downgrade of Banco Sabadell, S.A.'s long-term deposit rating. The review led to a downgrade of its long-term deposit rating to Ba2 from Ba1 on review for downgrade. However, Moody's confirmed Banco Sabadell's covered bond ratings at A3 because the expected loss and the timely payment assessment of the bonds remain commensurate at A3, even considering the issuer's Ba2 rating.

The downgrade of the issuer's long-term deposit rating increases the expected loss of the covered bonds. However, the level of over-collateralisation held by Banco Sabadell in both the mortgage and public-sector programmes compensates such an increase to a level that makes it compatible with the confirmed ratings.

The covered bond ratings are limited by the timely-payment indicator (TPI) of Probable, given Banco Sabadell's long-term deposit rating of Ba2.

For further information on the rating actions taken by Moody's, please refer to "Moody's downgrades Banco Sabadell to Ba2 from Ba1; negative outlook assigned", published 14 January 2014. Link to PR: https://www.moodys.com/research/Moodys-downgrades-Banco-Sabadell-to-Ba2-from-Ba1-negative-outlook--PR_290045

KEY RATING ASSUMPTIONS/FACTORS

Moody's determines covered bond ratings using a two-step process: an expected loss analysis and a timely payment indicator (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 are an estimate of the losses Moody's currently models if the relevant issuer defaults. 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 measures losses resulting directly from the cover pool assets' credit quality. Moody's derives collateral risk from the collateral score.

--- MORTGAGE COVERED BONDS

The cover pool losses for Banco Sabadell's mortgage covered bonds are 49.4%, with market risk of 23.2% and collateral risk of 26.2%. The collateral score for this programme is currently 39.1%.

The over-collateralisation (OC) in the cover pool is 130.3%, of which Banco Sabadell provides 25% on a "committed" basis. The minimum OC level consistent with the current rating target is 42.5%, of which the issuer should provide 25% in a "committed" form. These figures show that Moody's is relying on "uncommitted" OC in its expected loss analysis.

--- PUBLIC-SECTOR COVERED BONDS

The cover pool losses for Banco Sabadell's public-sector covered bonds are 50%, with market risk of 35.65% and collateral risk of 14.35%. The collateral score for this programme is currently 28.7%.

The OC in the cover pool is 102%, of which Banco Sabadell provides 42.9% on a "committed" basis. The minimum OC level consistent with the current rating target is 49%, of which the issuer should provide 42.9% in a "committed" form. These figures show that Moody's is relying on "uncommitted" OC in its expected loss analysis.

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. All figures in this section are based on the most recent Performance Overview (based on data, as per end-September 2013).

TPI FRAMEWORK: Moody's assigns a "timely payment indicator" (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 long-term deposit rating.

For both programmes, the TPIs remain Probable.

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.

The TPIs assigned to Banco Sabadell's mortgage covered bonds and public-sector covered bonds are 'Probable'. In both cases, this implies that Moody's might downgrade the covered bonds because of a TPI cap, if it downgrades the issuer's rating below Ba2, all other variables being equal.

A multiple-notch downgrade of the 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 credit ratings of the covered bonds were assigned in line with Moody's existing credit rating methodology: "Moody's Approach to Rating Covered Bonds", published July 2012. On 19 September 2013, Moody's published a Request for Comment (RFC) in which 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. For further details regarding the implications of the proposed Credit Rating Methodology changes on Moody's Credit Ratings, please refer to Moody's Request for Comment: "Approach to Determining the Issuer Anchor Point for Covered Bonds" -- please see https://www.moodys.com/research/Approach-to-Determining-the-Issuer-Anchor-Point-for-Covered-Bonds--PBS_SF342448.

RATING METHODOLOGY

The principal methodology used in these ratings 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.

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.

Tomas Rodriguez-Vigil
Analyst
Structured Finance Group
Moody's Investors Service Espana, S.A.
Calle Principe de Vergara, 131, 6 Planta
Madrid 28002
Spain
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 Espana, S.A.
Calle Principe de Vergara, 131, 6 Planta
Madrid 28002
Spain
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's confirms A3 ratings assigned to Banco Sabadell, S.A.'s mortgage and public-sector covered bonds.
No Related Data.

 

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