London, 16 December 2011 -- Moody's Investors Service has today downgraded HSH Nordbank AG's
public-sector Pfandbriefe to Aa1 from Aaa, its mortgage Pfandbriefe
to Aa1 from Aaa and its ship Pfandbriefe to Baa1 from A2.
Furthermore, the mortgage Pfandbriefe of Deutsche Kreditbank AG
(DKB) have been downgraded to Aa1 from Aaa, and the Public Sector
Pfandbriefe to Aa1 from Aaa.
The above rating action concludes Moody's review of HSH's
ship Pfandbriefe and the public sector Pfandbriefe issued by DKB and HSH.
However, the mortgage Pfandbriefe of both issuers remain on review
for downgrade, pending communication on the form and level of over-collateralisation
(OC) to support the respective Aa1 ratings.
RATINGS RATIONALE
The above rating action follows the previous rating actions taken on German
Landesbanken. For more information see "Moody's takes rating
actions on 12 German Landesbanken" published on 16 November 2011.
Whilst HSH was downgraded to Baa2 from A3, DKB's credit profile
as a fully owned subsidiary of BayernLB reflects the credit standing of
its parent which was downgraded to Baa1 from A1.
Moody's says that the rating actions on the above covered bonds is not
caused by deterioration in the credit quality of the cover pool assets
backing the covered bonds.
Following the rating actions on the issuers, the ratings assigned
to the mortgage and public-sector Pfandbriefe of both HSH and DKB
are now restricted at Aa1 as a result of the combination of the TPI framework
and their Timely Payment Indicators (TPIs) of "High",
which remain unchanged.
The OC in the public-sector Pfandbrief programmes of both issuers
is sufficient (in both form and level) to support the Aa1 rating in Moody's
expected loss modelling. Therefore, the above rating action
concludes the review of these covered bond ratings, as the issuer
ratings are no longer on review.
However, Moody's continues the review for downgrade of the
mortgage Pfandbriefe of both issuers, pending the delivery from
both issuers of their relevant proposals related to the form and level
of OC they intend to maintain in the future, in order to maintain
the current ratings.
Moody's notes that it may limit the value to OC that is "voluntary"
when the issuer is rated below A3.
Moody's currently rates ship Pfandbriefe one notch above the issuer
rating. HSH's ship Pfandbriefe have been downgraded to Baa1
and are no longer on review for downgrade. This reflects Moody's
removal of HSH's rating from review.
KEY RATING ASSUMPTIONS/FACTORS
Covered bond ratings are determined after applying a two-step process:
expected loss analysis and 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.
The cover pool losses are based on Moody's most recent modelling
(based on data, as per 30 June 2011) and are an estimate of the
losses Moody's currently models if the relevant issuer defaults.
Cover pool losses can be split between market risk and collateral risk.
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.
The cover pool losses of DKB's mortgage Pfandbriefe are 20.0%,
with market risk of 12.2% and collateral risk of 7.7%.
The collateral score for this programme is currently 11.6 %.
The level of OC to support the Aa1 rating currently assigned to this programme
is 15.5%.
The cover pool losses of DKB's public-sector Pfandbriefe
are 10.8%, with market risk of 8.5%
and collateral risk of 2.3%. The collateral score
for this programme is currently 4.1%. The level of
OC to support the Aa1 rating currently assigned to this programme is 7.5%.
The cover pool losses of HSH's mortgage Pfandbriefe are 22.5%,
with market risk of 10.1% and collateral risk of 12.3%.
The collateral score for this programme is currently 18.4%.
The level of OC to support the Aa1 rating currently assigned to this programme
is 17.5%.
The cover pool losses of HSH's public-sector Pfandbriefe
are 12.6%, with market risk of 7.7%
and collateral risk of 5.0%. The collateral score
for this programme is currently 9.0%. The level of
OC to support the Aa1 rating currently assigned to this programme is 9.0%.
The cover-pool losses of HSH's ship Pfandbriefe are 72.6%,
with market risk of 5.6% and collateral risk of 67.0%.
The collateral score for this programme is currently 100%.
The ratings assigned to these bonds relies on the OC imposed by the German
Pfandbrief Act.
For further details on cover pool losses, collateral risk,
market risk, collateral score and TPI Leeway across all covered
bond programmes rated by Moody's please refer to "Moody's EMEA Covered
Bonds Monitoring Overview", published quarterly. These figures
are based on the latest data that has been analysed by Moody's and
are subject to change over time. These numbers are updated quarterly
in the "Performance Overview" published by Moody's.
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 High to the mortgage and public-sector
Pfandbriefe issued by DKB and HSH, and a TPI of "Improbable"
to the ship Pfandbriefe issued by HSH .
SENSITIVITY ANALYSIS
The robustness of a covered bond rating largely depends on the credit
strength of the issuer.
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 their current TPI of High, the mortgage and public-sector
Pfandbriefe issued by HSH have a TPI Leeway of 0 notches, meaning
the covered bonds might be downgraded as a result of a TPI cap once HSH's
rating is downgraded, all other variables being equal. The
TPI leeway for HSH's ship Pfandbriefe is one notch, although
Moody's notes that a further downgrade of the issuer is likely to
lead to a downgrade of the ship Pfandbriefe, as they are currently
rated one notch above the issuer rating.
As the issuer rating of DKB is not public, Moody's does not
publish the TPI leeway for its Pfandbrief programmes.
A multiple-notch downgrade of the covered bonds might occur in
certain limited circumstances. Some examples might be (i) a sovereign
downgrade negatively affecting both the issuer's senior unsecured rating
and the TPI; (ii) a multiple-notch downgrade of the issuer;
or (iii) a material reduction of the value of the cover pool.
As noted in Moody's comment 'Rising Severity of Euro Area Sovereign Crisis
Threatens Credit Standing of All EU Sovereigns' (28 November 2011),
the risk of sovereign defaults or the exit of countries from the Euro
area is rising. As a result, Moody's could lower the maximum
achievable rating for covered bonds transactions in some countries,
which could result in rating downgrades.
The principal methodology used in this rating was "Moody's
Rating Approach to Covered Bonds" published in March 2010.
Please see the Credit Policy page on www.moodys.com for
a copy of this methodology.
The lead analyst and rating office for each of the transactions affected
are generally different from the contact and office listed at the end
of this press release. For each transaction, the lead analyst
name and the rating office is available on the issuer page on www.moodys.com
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.
In addition to the information provided below please find on the ratings
tab of the issuer page at www.moodys.com, for each
of the ratings covered, Moody's disclosures on the lead rating
analyst and the Moody's legal entity that has issued each of the
ratings.
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 downgrades HSH's and DKB's Pfandbriefe
