EUR8.77 billion of notes affected
London, 23 October 2012 -- Moody's Investors Service has downgraded to Baa1 from A2 the covered bonds
issued by Banca Monte Dei Paschi di Siena (MPS), prompted by Moody's
downgrade of MPS's issuer rating on 18 October to Ba2/Not-Prime
from Baa3/Prime-3. The covered bonds are governed by the
Italian legal framework.
RATINGS RATIONALE
Today's rating action on MPS's covered bonds was prompted by Moody's
downgrade of MPS to Ba2/ Not-Prime. The issuer downgrade
negatively affected the covered bonds through its impact on (1) the Timely
Payment Indicator (TPI) analysis; and (2) the expected loss analysis.
For further information on the rating action taken by Moody's Financial
Institutions Group, please refer to "Moody's downgrades Banca Monte
dei Paschi di Siena to Ba2/NP from Baa3/P-3; outlook negative"
published on 18 October 2012.
The TPI assigned to this transaction is "Improbable",
which constrains the rating of the covered bonds at its current level.
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 MPS's mortgage covered bonds are 28.6%.
This is an estimate of the losses Moody's currently models if MPS defaults.
Cover pool losses can be split between market risk of 23.6%
and collateral risk of 5%. 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 7.5%.
The over-collateralisation (OC) in the cover pool is 56.6%,
of which 20.5% is provided on a "committed"
basis. The minimum OC level that is consistent with the Baa1 rating
target is 12.5%. Therefore, Moody's is
not relying on "uncommitted" OC in its expected loss analysis.
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. All numbers in
this section are based on Moody's most recent modelling (based on
data, as per 30 June 2012).
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.
The TPI assigned to MPS's mortgage covered bonds is Improbable.
The TPI Leeway for this programme is limited, and thus any downgrade
of the issuer ratings may lead to a downgrade of the covered bonds.
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.
On 21 August 2012, Moody's released a Request for Comment seeking
market feedback on proposed adjustments to its modelling assumptions.
These adjustments are designed to account for the impact of rapid and
significant country credit deterioration on structured finance transactions.
If the adjusted approach is implemented as proposed, the rating
of the notes affected by today rating action may be negatively affected.
See "Approach to Assessing the Impact of a Rapid Country Credit Deterioration
on Structured Finance Transactions", (http://www.moodys.com/research/Approach-to-Assessing-the-Impact-of-a-Rapid-Country-Credit--PBS_SF294880)
for further details regarding the implications of the proposed methodology
changes on Moody's ratings.
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
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.
Elise Savoye
Analyst
Structured Finance Group
Moody's France SAS
96 Boulevard Haussmann
Paris 75008
France
JOURNALISTS: 44 20 7772 5456
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Juan Pablo Soriano
MD - Structured Finance
Structured Finance Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
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Moody's downgrades covered bonds of Banca Monte Dei Paschi di Siena to Baa1 from A2
