Frankfurt am Main, April 07, 2011 -- Moody's Investors Service has today taken the following rating action
on covered bonds issued under Hungarian law:
- Mortgage covered bonds issued by FHB Mortgage Bank (FHB):
Downgraded to Baa3 from Baa1; previously on 10 December 2010 downgraded
to Baa1 from A3 on review for possible downgrade.
The timely payment indicator (TPI) of this covered bonds programme remains
at "Very Improbable".
The current rating assigned to the existing covered bonds of the above
programme can be expected to be assigned to all subsequent covered bonds
issued under this programme, all other variables being equal.
Any future rating actions are expected to affect all covered bonds issued
under this programme. If there are any exceptions to this,
Moody's will in each case publish details in a separate press release.
The rating assigned by Moody's addresses the expected loss posed to investors.
Moody's ratings address only the credit risks associated with the transaction.
Other non-credit risks have not been addressed, but may have
a significant effect on yield to investors.
RATINGS RATIONALE
Today's rating action on FHB's covered bonds was prompted by the
corresponding rating action taken by Moody's Financial Institutions Group
on the senior unsecured rating of the covered bonds issuer on 5 April
2011:
- FHB Mortgage Bank: to Ba1/Not-Prime from Baa3/P-3;
previously on 7 December 2010 confirmed at Baa3/P-3.
For further information on the rating actions taken by Moody's Financial
Institutions Group, please refer to "Moody's downgrades ratings
of seven Hungarian banks" published on 5 April 2011.
The ratings of the covered bonds issued by FHB are now capped at the current
rating level because of the TPI framework. The covered bonds have
a TPI leeway of two notches. This means that the issuer rating
might be downgraded by one or two notches, respectively, without
the TPI triggering another downgrade of the covered bonds.
KEY RATING ASSUMPTIONS/FACTORS
Moody's 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 a function of the
issuer's probability of default, measured by the issuer's senior
unsecured debt rating, and the stressed losses on the cover pool
assets following issuer default.
TPI FRAMEWORK: Moody's assigns a 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 credit
strength of the issuer.
The number of notches by which the issuer's rating may be downgraded before
the covered bonds are downgraded under the TPI framework is measured by
the TPI Leeway.
Based on the current TPI of "Very Improbable" the TPI Leeway for the covered
bonds issued by FHB is two notches, meaning that the issuer ratings
would need to be downgraded to B1 before the covered bonds are downgraded.
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 in the cover pool's value.
For further details on 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 reporting by
the issuer and are subject to change over time.
The principal methodology used for these ratings is Moody's Rating Approach
to European Covered Bonds published in March 2010.
REGULATORY DISCLOSURES
Information sources used to prepare the credit 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 Investors Service considers the quality of information available
on the issuer or obligation satisfactory for the purposes of maintaining
a credit rating.
The rating has been disclosed to the rated entity or its designated agents
and issued with no amendment resulting from that disclosure.
Moody's Investors Service may have provided Ancillary or Other Permissible
Service(s) to the rated entity or its related third parties within the
three years preceding the Credit Rating Action. Please see the
ratings disclosure page www.moodys.com/disclosures on our
website for further information.
Moody's Investors Service may have provided Ancillary or Other Permissible
Service(s) to the rated entity or its related third parties within the
three years preceding the Credit Rating Action. Please see the
ratings disclosure page www.moodys.com/disclosures on our
website for further information.
Moody's adopts all necessary measures so that the information it uses
in assigning a credit 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.
Please see ratings tab on the issuer/entity page on Moodys.com
for the last rating action and the rating history.
The date on which some Credit Ratings were first released goes back to
a time before Moody's Investors Service's Credit Ratings were fully digitized
and accurate data may not be available. Consequently, Moody's
Investors Service 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 the Credit Policy page on Moodys.com for the methodologies
used in determining ratings, further information on the meaning
of each rating category and the definition of default and recovery.
Frankfurt am Main
Patrick Widmayer
Analyst
Structured Finance Group
Moody's Deutschland GmbH
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Madrid
Juan Pablo Soriano
MD - Structured Finance
Structured Finance Group
Moody's Investors Service Espana, S.A.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
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 covered bonds of FHB Mortgage Bank
