London, 07 July 2017 -- Moody's Investors Service has today downgraded to Aa2 from Aa1 (on review
for downgrade) the public-sector Pfandbriefe issued by Deutsche
Hypothekenbank (Actien-Gesellschaft) (Deutsche Hypo; CR assessment
Baa2(cr)). At the same time we confirmed the Aa1 ratings assigned
to its mortgage Pfandbriefe.
This rating action concludes the review for downgrade of both Pfandbriefe
initiated on 19 April 2017.
RATINGS RATIONALE
Today's rating action is prompted by the downgrade of the issuer's
counterparty risk (CR) assessment. For further details, see
"Moody's downgrades NORD/LB's and its subsidiaries' deposits to Baa2 and
senior unsecured ratings to Baa3, outlook negative", published
on 30 June 2017.
Moody's has downgraded the public sector Pfandbriefe to Aa2,because
looking forward, it does not expect over-collateralisation
(OC) in excess of the 2% (on a stressed NPV basis) required by
the German Pfandbrief Act,which is consistent with a Aa2 rating.
Moody's has confirmed the Aa1 rating assigned to the mortgage Pfandbriefe
because looking forward, it expects that OC will be maintained at
a level consistent with a Aa1 rating.
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 probability that the
issuer will cease making payments under the covered bonds (a CB anchor);
and (2) the stressed losses on the cover pool assets should the issuer
cease making payments under the covered bonds (i.e.,
a CB anchor event).
The CB anchor for both programmes is CR assessment plus one notch.
The CR assessment reflects an issuer's ability to avoid defaulting on
certain senior bank operating obligations and contractual commitments,
including covered bonds. Moody's may use a CB anchor of CR assessment
plus one notch in the European Union or otherwise where an operational
resolution regime is particularly likely to ensure continuity of covered
bond payments.
--- Deutsche Hypo Mortgage Pfandbriefe ---
The cover pool losses for this programme are 17.5%.
This is an estimate of the losses Moody's currently models following a
CB anchor event. Moody's splits cover pool losses between market
risk of 11.3% and collateral risk of 6.2%.
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 cover pool assets' credit quality. Moody's derives
collateral risk from the collateral score, which for this programme
is currently 9.3%.
The over-collateralisation in the cover pool is 20.0%,
of which Deutsche Hypo provides 2.0% on a "committed" basis.
The minimum OC level consistent with the Aa1 rating is 15.5%,
of which the issuer should provide 0.0% in a "committed"
form (all numbers on present value basis). These numbers show that
Moody's is relying on "uncommitted" OC in its expected loss analysis.
All numbers in this section are based on the most recent Performance Overview
(based on data as per 31 December 2016), with the exception of the
OC level consistent with the current rating.
--- Deutsche Hypo Public-Sector Pfandbriefe
---
The cover pool losses for this programme are 12.0%.
This is an estimate of the losses Moody's currently models following a
CB anchor event. Moody's splits cover pool losses between market
risk of 9.0% and collateral risk of 3.1%.
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 cover pool assets' credit quality. Moody's derives
collateral risk from the collateral score, which for this programme
is currently 6.1%.
The over-collateralisation in the cover pool is 14.5%,
of which Deutsche Hypo provides 2.0% on a "committed" basis.
The minimum OC level consistent with the Aa2 rating is 2.0%,
of which the issuer should provide 0.0% in a "committed"
form (all numbers on present value basis). These numbers show that
Moody's is not relying on "uncommitted" OC in its expected loss analysis.
All numbers in this section are based on the most recent Performance Overview
(based on data as per 31 December 2016), with the exception of the
OC level consistent with the current rating.
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 Global Covered Bonds
Monitoring Overview", published quarterly.
TPI FRAMEWORK: Moody's assigns a "timely payment indicator"
(TPI), which measures the likelihood of timely payments to covered
bondholders following a CB anchor event. The TPI framework limits
the covered bond rating to a certain number of notches above the CB anchor.
The mortgage and public-sector Pfandbriefe have a TPI of High.
Factors that would lead to an upgrade or downgrade of the ratings:
The CB anchor is the main determinant of a covered bond programme's rating
robustness. A change in the level of the CB anchor could lead to
an upgrade or downgrade of the covered bonds. The TPI Leeway measures
the number of notches by which Moody's might lower the CB anchor before
the rating agency downgrades the covered bonds because of TPI framework
constraints.
Based on the current TPI of "High", the TPI Leeway for Deutsche
Hypo's mortgage Pfandbriefe is one notch. This implies that Moody's
might downgrade the covered bonds because of a TPI cap if it lowers the
CB anchor by two notches, all other variables being equal.
Based on the current TPI of "High", the TPI Leeway for Deutsche
Hypo's public-sector Pfandbriefe is two notches. This implies
that Moody's might downgrade the covered bonds because of a TPI cap if
it lowers the CB anchor by two notches, all other variables being
equal.
A multiple-notch downgrade of the covered bonds might occur in
certain circumstances, such as (1) a country ceiling or sovereign
downgrade capping a covered bond rating or negatively affecting the CB
Anchor and the TPI; (2) a multiple-notch downgrade of the
CB Anchor; 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 December 2016.
Please see the Rating Methodologies 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 credit rating action on the support provider and in relation to
each particular credit 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 credit rating action,
and whose ratings may change as a result of this credit 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.
Martin Rast
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
Client Service: 44 20 7772 5454
Juan Pablo Soriano
MD - Structured Finance
Structured Finance Group
JOURNALISTS: 44 20 7772 5456
Client Service: 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
Client Service: 44 20 7772 5454