London, 05 October 2012 -- Moody's Investors Service has today downgraded to Aa3 from Aa1 on review
for downgrade the covered bonds issued by Aktia Real Estate Mortgage Bank
(Aktia, or the issuer) issued under both the old and new Finnish
covered bond laws. Today's rating action is prompted by the decision
of the issuer and its owners to cease public covered bond issuance by
the issuer going forward.
RATINGS RATIONALE
Today's rating action on the covered bonds is prompted by the deterioration
of the issuer's credit strength in combination with its decision
to cease public covered bond issuance going forward. For further
information, please refer to "Aktia Real Estate Mortgage Bank Plc
(REMB) adjusts to changed operating environment " published on 12 September
2012 on http://www.aktia.fi/2067. During the
wind down period of the portfolio held by the issuer, the issuer
and its owners have also decided to trap all cash flows stemming from
the two separate covered bond portfolios in the respective cover pools
until the redemption of all outstanding covered bonds backed by these
portfolios.
Moody's has raised the Timely Payment Indicator (TPI) assigned to
the covered bonds issued by Aktia Real Estate Mortgage Bank to Probable-High
from Probable. When assessing the TPI of a covered bond programme,
Moody's takes various aspects into account, including refinancing
risk and the potential impact of issuer discretion on the programmes.
The issuer intends to substantially maintain the current cover pool compositions,
meaning the cover pools will not be subject to future discretionary alteration
which could reduce the overall quality. Maintaining this high quality
of the assets in the cover pool will have a positive impact on potential
refinancing risk, as does the issuer's intention, as
expressed towards Moody's, to segregate all future cash flows
for the benefit of the respective cover pools until the final redemption
of all outstanding covered bonds. Whilst not removing refinancing
risk, the liquidity situation of the cover pools will significantly
improve over time, thereby reducing refinancing risk.
The rating assigned to the covered bonds of Aktia is now restricted at
Aa3 as a result of the combination of the TPI framework and their Timely
Payment Indicator (TPI) of "Probable-High".
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 (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.
1. Covered Bonds issued under the old Finnish covered bond act:
The cover pool losses for this programme's covered bonds are 13.1%.
This is an estimate of the losses Moody's currently models if Aktia defaults.
Cover pool losses can be split between market risk of 9.3%
and collateral risk of 3.8%. 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. Collateral risk is derived from
the collateral score, which for this programme is currently 5%.
The over-collateralisation in the cover pool is 15.4%,
of which 8.5% is provided on a "committed" basis and the
minimum over-collateralisation level that is consistent with the
Aa3 rating target is 4%. Therefore, Moody's is not
relying on "uncommitted" over-collateralisation in its expected
loss analysis.
2. Covered Bonds issued under the new Finnish covered bond act:
The cover pool losses for this programme's covered bonds are 14.4%.
This is an estimate of the losses Moody's currently models if Aktia defaults.
Cover pool losses can be split between market risk of 11% and collateral
risk of 3.4%. 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. Collateral risk is derived from
the collateral score, which for this programme is currently 5%.
The over-collateralisation in the cover pool is 24.7%,
of which 12% is provided on a "committed" basis and the minimum
over-collateralisation level that is consistent with the Aa3 rating
target is 4.5%. Therefore, Moody's is relying
on "uncommitted" over-collateralisation in its expected loss analysis.
All numbers in this section are based on the most recent Performance Overview.
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.
Moody's has assigned a TPI of "Probable-High" to Aktia's
covered bonds.
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 "Probable High" and the rating of Aktia,
there is no TPI Leeway, meaning the covered bonds might be downgraded
as a result of a TPI cap once Aktia's rating is downgraded below its current
level, all other variables being equal.
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.
Volker Gulde
VP - Senior Credit Officer
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 downgrades Aktia's covered bonds to Aa3
