Actions conclude review
London, 21 May 2014 -- Moody's Investors Service has today downgraded to A1 from Aa3 the ratings
of the mortgage covered bonds issued by Hypothekenbank Frankfurt AG (Baa3,
deposits; bank financial strength rating E/adjusted baseline credit
assessment ba2, outlooks stable). At the same time,
Moody's has confirmed the Aa3 rating assigned to Hypothekenbank's
public-sector covered bonds. The covered bonds are governed
by the German Pfandbrief Act. This rating action concludes the
review of covered bonds ratings.
RATINGS RATIONALE
Today's rating action follows clarification about the future levels
of over-collateralisation (OC) held in the programmes:
-- MORTGAGE PFANDBRIEFE
Hypothekenbank Frankfurt's mortgage Pfandbriefe were downgraded
to A1. The OC of 3.6% on a present value basis (as
per 31 March 2014 ) is not sufficient for a Aa3 rating. The OC
consistent with a Aa3 rating is 4.5%, and according
to Moody's understanding the OC cannot be expected to reach that
threshold going forward.
-- PUBLIC-SECTOR PFANDBRIEFE
The Aa3 rating assigned to the public-sector Pfandbriefe has been
confirmed. The OC consistent with a Aa3 rating is 2.0%,
which is equal to the minimum OC of 2.0% required by the
German Pfandbrief Act.
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.
The CB anchor for both programmes is SUR plus one notch given that the
debt ratio is above 10%.
For both programmes below, 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.
Moody's derives collateral risk from the collateral score.
-- MORTGAGE PFANDBRIEFE
The cover pool losses are 16.9%, split between market
risk of 8.4% and collateral risk of 8.4%.
The collateral score for this programme is currently 12.6%.
As of 31 March 2014 the OC in the mortgage pool is 7.7%
on a nominal and 3.6% on a net present value basis,
of which Hypothekenbank Frankfurt provides 2.0% on a "committed"
basis. The minimum OC level consistent with the A1 rating target
is 0.0%. These numbers show that Moody's is
not relying on "uncommitted" OC in its expected loss analysis.
-- PUBLIC-SECTOR PFANDBRIEFE
The cover pool losses are 12.2%, split between market
risk of 10.2% and collateral risk of 2.1%.
The collateral score for this programme is currently 4.1%.
As of 31 March 2014, the OC in the public-sector pool is
2.2% on a nominal and 8.7% on a net present
value basis, of which Hypothekenbank Frankfurt provides 2.0%
on a "committed" basis. The minimum OC level consistent
with the Aa3 rating target is 2.0%. 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 Overviews,
with the exception of (1) the OC consistent with the A1 rating of the
mortgage Pfandbriefe that is based on Moody's most recent modelling
based on data as of 31 December 2013; and (2) current OC figures
that are as of 31 March 2014.
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.
For Hypothekenbank's mortgage and public-sector covered bonds,
Moody's has assigned a TPI of High.
FACTORS THAT WOULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATING:
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 the mortgage
covered bonds is 2-3 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.
Based on the current TPI of High, the TPI Leeway for the public-sector
covered bonds is 1-2 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 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 these ratings was "Moody's
Approach to Rating Covered Bonds" published in March 2014.
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 Hypothekenbank Frankfurt's mortgage Pfandbriefe to A1; public-sector Pfandbriefe confirmed at Aa3
