Approximately EUR3.5 billion of notes affected
Frankfurt am Main, December 06, 2012 -- Moody's Investors Service today has downgraded to Aa2 from Aa1 the mortgage
covered bonds (Hypothekenpfandbriefe) issued by Deutsche Kreditbank AG
(the issuer or DKB), which are governed by the German Pfandbrief
Act.
This rating action concludes Moody's review of the above rating
initiated on 6 July 2011. The downgrade of BayernLB's issuer
rating on 16 November 2011 impacted the credit profile of DKB since DKB
is a fully owned subsidiary of BayernLB. As a result, Moody's
downgraded DKB's mortgage covered bonds to Aa1 from Aaa on 16 December
2011 due to the TPI framework. The ratings remained on review because
of the lack of sufficient committed over-collateralisation (OC)
to support this rating level. Today's rating action is prompted
by the issuer's confirmation that it will not provide committed
OC for the mortgage covered bonds.
RATINGS RATIONALE
The TPI of this programme is "High". Aa1 is the maximum
achievable rating according to Moody's TPI framework. However,
for DKB to maintain this rating level a certain level of committed OC
above the statutory level of 2% would have been necessary.
Following DKB's confirmation that it will not provide committed
OC, today's rating action brings the rating to the maximum
level that is achievable without committed OC, i.e.,
Aa2. The level of uncommitted OC necessary to support the Aa2 rating
of the mortgage covered bonds is 13.5% (in present value
terms). Moody's expects that DKB will provide this level
of OC going forward.
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.
The cover pool losses for this programme are 20.8%.
This is an estimate of the losses Moody's currently models if DKB defaults.
Cover pool losses can be split between market risk of 11.5%
and collateral risk of 9.2%. 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 13.8%.
The OC in the cover pool is 77%, of which DKB provides 2%
on a "committed" basis. The minimum OC level that is
consistent with the Aa2 rating target is 13.5% (numbers
in present value terms). Therefore, 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
and Moody's most recent modelling (based on data as of 30 June 2012).
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 "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 this programme
is one notch, meaning the covered bonds might be downgraded as a
result of a TPI cap once the issuer rating is downgraded by 2 notches,
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 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.
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 rating has been disclosed to the rated entity or its designated agent(s)
and issued with no amendment resulting from that disclosure.
Information sources used to prepare the rating 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
entity, obligation or credit satisfactory for the purposes of issuing
a rating.
Moody's adopts all necessary measures so that the information it
uses in assigning a rating 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 entity or its 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
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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 Lenhard
Vice President - Senior Analyst
Structured Finance Group
Moody's Deutschland GmbH
An der Welle 5
Frankfurt am Main 60322
Germany
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 Deutschland GmbH
An der Welle 5
Frankfurt am Main 60322
Germany
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's downgrades Deutsche Kreditbank's Mortgage Pfandbriefe to Aa2
