Hypo NOE's mortgage and public-sector covered bonds remain on review for downgrade
London, 11 May 2015 -- Moody's Investors Service has today downgraded to Aa1 from Aaa the rating
on the mortgage covered bonds issued by Hypo NOE Gruppe Bank AG (Hypo
NOE, not publicly rated). The rating agency also confirmed
the ratings assigned to the mortgage and public-sector covered
bonds of Hypo Tirol Bank AG (Hypo Tirol, senior unsecured Ba1 negative,
adjusted baseline assessment (BCA) ba3, counterparty risk (CR) assessment
Baa3(cr)) and Vorarlberger Landes- und Hypothekenbank AG (Hypo
VBG, senior unsecured Baa1 negative, adjusted BCA baa3,
CR assessment A3(cr)).
Today's rating action concludes the review of the covered bonds
issued by Hypo Tirol and Hypo VBG. Hypo NOE's covered bonds
remain on review pending the decision of the issuer to post over-collateralisation
(OC) in form and amount necessary to support the current ratings of Aa1
on the mortgage covered bonds and Aaa on the public-sector covered
bonds.
RATINGS RATIONALE
--Hypo NOE mortgage covered bonds
Hypo NOE does not carry a public rating. The CB anchor for the
mortgage covered bonds is the CR assessment plus one notch. This,
with a TPI of Probable, restricts the rating of the mortgage covered
bond at Aa1, hence the one-notch downgrade. However,
the OC in the programme is currently only sufficient for a Aa2 rating.
For a Aa1 rating, 21.5% OC would be necessary,
of which 14.5% should be in committed form. For a
Aa2 rating, 14.5% of OC is sufficient, of which
1.5% should be in committed form. Therefore,
Moody's extended its review in order to provide time to clarify
the issuer's plans regarding the implementation of committed OC.
--Hypo NOE public-sector covered bonds
The CB anchor for the public-sector covered bonds is the CR assessment
plus one notch. This, with a TPI of High, allows the
public-sector covered bond to achieve a Aaa rating. However,
the OC in the programme is currently only sufficient for a Aa1 rating.
For a Aaa rating, 20.5% OC would be necessary,
of which 20.5% should be in committed form. For a
Aa1 rating, 12.0% of OC is sufficient, of which
1.0% should be in committed form. As with the mortgage
covered bonds, Moody's extended its review in order to provide
time to clarify the issuer's plans regarding implementing committed
OC.
--Hypo Tirol mortgage and public-sector covered bonds
The CB anchor for both the mortgage and public-sector covered bonds
issued by Hypo Tirol is the CR assessment plus one notch. After
assigning a CR assessment of Baa3(cr), the CB anchor has not changed.
Therefore, Moody's has confirmed the ratings assigned to both
covered bonds.
--Hypo VBG mortgage and public-sector covered bonds
The CB anchor for both the mortgage and public-sector covered bonds
issued by Hypo VBG is the CR assessment plus one notch. After assigning
a CR assessment of A3(cr), the CB anchor has not changed.
Therefore, Moody's has confirmed the ratings assigned to both
covered bonds.
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
event); and (2) the stressed losses on the cover pool assets following
a CB anchor event.
-- HYPO NOE GRUPPE BANK AG --
The CB anchor for the mortgage and the public-sector programme
is the 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 the 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.
For both mortgage and public-sector covered bonds, cover
pool losses are an estimate of the losses Moody's currently models following
a CB anchor event. Moody's splits cover pool losses between
market risk and collateral risk. 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 and Moody's derives collateral risk from the collateral
score.
The cover pool losses for the mortgage covered bonds are 27.0%,
split between market risk of 18.6% and collateral risk of
8.4%. The collateral score for this programme is
currently 12.5%.
The OC in the mortgage cover pool is 122.6%, of which
Hypo NOE provides 2.0% on a "committed" basis.
The minimum OC level consistent with the Aa1 rating target is 21.5%,
of which the issuer should provide 14.5% in a "committed"
form. These numbers show that Moody's is relying on "uncommitted"
OC in its expected loss analysis.
The cover pool losses for the public-sector covered bonds are 18.6%
split between market risk of 16.3% and collateral risk of
2.4%. The collateral score for this programme is
currently 3.6%.
The OC in the public-sector cover pool is 48.8%,
of which Hypo NOE provides 2.0% on a "committed"
basis. The minimum OC level consistent with the Aaa rating target
is 20.5%, of which the issuer should provide 20.5%
in a "committed" form (numbers in present value terms).
These numbers show that Moody's is relying on "uncommitted"
OC in its expected loss analysis.
All numbers in this section are based on Moody's most recent modelling
(based on data, as per 31 December 2014).
The TPI assigned to the mortgage covered bonds is "Probable",
and that for the public-sector covered bonds is "High".
-- HYPO TIROL BANK AG --
The CB anchor for the mortgage and the public-sector programme
is the CR assessment plus one notch. The guaranteed senior unsecured
ratings are lower than the CR assessment; therefore the CB anchor
of the CR assessment plus one notch also applies to these guaranteed covered
bonds.
The cover pool losses for the mortgage covered bonds are 27.5%,
split between market risk of 19.6% and collateral risk of
7.9%. The collateral score for this programme is
currently 11.8%.
The OC in the mortgage cover pool is 486.1%, of which
Hypo Tirol provides 6.0% on a "committed" basis.
The minimum OC level consistent with the Aa3 rating target is 11.5%,
of which the issuer should provide 0.5% in a "committed"
form. These numbers show that Moody's is relying on "uncommitted"
OC in its expected loss analysis.
The cover pool losses for the public-sector covered bonds are 15.6%,
split between market risk of 12.8% and collateral risk of
2.8%. The collateral score for this programme is
currently 5.7%.
The OC in the public-sector cover pool is 85.1%,
of which Hypo Tirol provides 9.5% on a "committed"
basis. The minimum OC level consistent with the Aa1 rating target
is 12.5%, of which the issuer should provide 4.5%
in a "committed" form. These numbers show that Moody's
is relying on "uncommitted" OC in its expected loss analysis.
All numbers in this section are based on Moody's most recent modelling
(based on data, as per 31 March 2014 for the mortgage covered bonds
and 31 December 2014 for the public-sector covered bonds).
The TPI assigned to the mortgage covered bonds is "Probable",
and that for the public-sector covered bonds is "High".
-- VORARLBERGER LANDES- UND HYPOTHEKENBANK AG--
The CB anchor for the mortgage and the public-sector programme
is the CR assessment plus one notch. The cover pool losses for
the mortgage covered bonds are 31.7%, split between
market risk of 22.7% and collateral risk of 9.0%.The
collateral score for this programme is currently 13.4%.
The OC in the mortgage cover pool is 262.8%, of which
Hypo VBG provides 2.0% on a "committed" basis.
The minimum OC level consistent with the Aaa rating target is 30.5%.
To pass at this rating level, the issuer does not need to provide
OC in a "committed" form. These numbers show that Moody's
is relying on "uncommitted" OC in its expected loss analysis.
The cover pool losses for the public-sector covered bonds are 33.1%,
split between market risk of 29.4% and collateral risk of
3.7%. The collateral score for this programme is
currently 6.8%.
The OC in the public-sector cover pool is 99.5%,
of which Hypo VBG provides 2.0% on a "committed"
basis. The minimum OC level consistent with the Aaa rating target
is 36.0%. To pass at this rating level, the
issuer does not need to provide OC in a "committed" form. These
numbers show that Moody's is relying on "uncommitted"
OC in its expected loss analysis.
All numbers in this section are based on Moody's most recent modelling
(based on data, as per 31 December 2014).
The TPI assigned to the mortgage covered bonds is "Probable",
and that for the public-sector covered bonds is "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.
-- HYPO NOE GRUPPE BANK AG --
The TPI Leeways for Hypo NOE Gruppe Bank's covered bonds are not published.
-- HYPO TIROL BANK AG --
The TPI Leeway for the mortgage covered bonds is zero notches.
This implies that Moody's might downgrade the covered bonds because of
a TPI cap if it lowers the CB anchor, all other variables being
equal.
Based on the "High" TPI, the TPI Leeway for the public-sector
covered bonds is zero notches. This implies that Moody's might
downgrade the covered bonds because of a TPI cap if it lowers the CB anchor,
all other variables being equal.
-- VORARLBERGER LANDES- UND HYPOTHEKENBANK AG--
Based on the "Probable" TPI, the TPI Leeway for the mortgage covered
bonds 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 "High" TPI, the TPI Leeway for the public-sector
covered bonds 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 three
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 March 2015.
Please see the Credit Policy 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 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 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 rating action, and
whose ratings may change as a result of this 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
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 Hypo NOE's mortgage covered bonds to Aa1; confirms covered bonds issued by Hypo Tirol and Vorarlberger Landes- und Hypothekenbank
