Approximately EUR34 billion of notes affected
London, 26 October 2012 -- Moody's Investors Service has today confirmed the Aaa ratings assigned
to the mortgage Pfandbriefe and public-sector Pfandbriefe (covered
bonds) issued by Bayerische Landesbank (BayernLB; Baa1 deposits;
BFSR D-/BCA ba3, outlooks stable) under the German covered
bond act.
Today's rating announcement concludes Moody's review of the
covered bonds, initiated on 6 July 2011.
RATINGS RATIONALE
Moody's confirmation of the Aaa ratings follows BayernLB's
decision to enter into agreements to maintain OC on an unstressed NPV
basis for both its mortgage and public-sector covered bonds in
a form that Moody's considers "committed". These
agreements have been signed and come into effect on 16 November 2012.
This OC comes in the form of a contract for the benefit of a third party,
the bondholders. The commitment will only apply as long "referenced"
covered bonds are outstanding; referenced refers to covered bonds
currently outstanding and to future bonds whose rating at time of issuance
is Aaa and that benefit from this commitment. The agreement tracks
the level of OC consistent with a Aaa rating for as long as this is achievable.
The level of OC will be based on the most recent published OC level consistent
with a Aaa rating (as it is published, for example, in Moody's
performance overviews). If the covered bonds have been downgraded
to a rating below Aaa, the last published OC level consistent with
a Aaa rating would apply.
However, there is a maximum OC number, which is 25%
for BayernLB's mortgage covered bonds, and 15% for
its public-sector covered bonds. These limits would apply
if the amount of OC consistent with a Aaa rating exceeded the relevant
maximum OC number.
Under Moody's rating approach only limited value is given to collateral
that is not considered "committed". Moody's considers over-collateralisation
(OC) to be "committed" if the issuer's discretion to remove this is sufficiently
restricted.
KEY RATING ASSUMPTIONS/FACTORS
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 (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.
In both sections below detailing the cover pool losses, 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.
--- THE MORTGAGE COVERED BONDS
The cover pool losses for BayernLB's mortgage covered bonds are
19.9%. This is an estimate of the losses Moody's
currently models if BayernLB defaults. Cover pool losses can be
split between market risk of 10.7% and collateral risk of
9.3%. Collateral risk is derived from the collateral
score, which for this programme is currently 9.3%.
The OC in the mortgage cover pool is 51.7%, of which
18.5% is provided on a "committed" basis.
The minimum OC level consistent with the Aaa rating target is 18.5%
(numbers in present value terms). Therefore, Moody's
is not relying on "uncommitted" OC in its expected loss analysis.
--- PUBLIC-SECTOR COVERED BONDS
The cover pool losses for BayernLB's public-sector covered
bonds are 10.9%. This is an estimate of the losses
Moody's currently models if BayernLB defaults. Cover pool losses
can be split between market risk of 7.4% and collateral
risk of 3.5%. Collateral risk is derived from the
collateral score, which for this programme is currently 5.3%.
The OC in the public-sector cover pool is 44.3%,
of which 10.5% is provided on a "committed"
basis. The minimum OC level that is consistent with the Aaa rating
target is 10.5% (numbers in present value terms).
Therefore, Moody's is not 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 numbers in
this section are based on the most recent Performance Overviews.
TPI FRAMEWORK: Moody's assigns a "timely payment indicator" (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.
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 High, the TPI Leeway for BayernLB's
mortgage and public-sector covered bonds is 0 notches, meaning
the covered bonds might be downgraded as a result of a TPI cap once BayernLB's
rating is downgraded below Baa1, 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.
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 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 ratings have 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.
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.
Martin Rast
Vice President - Senior 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 Aaa ratings of BayernLB's Pfandbriefe
