Frankfurt am Main, June 23, 2014 -- Moody's Investors Service has today downgraded to Aa1 from Aaa the ratings
on the guaranteed public-sector covered bonds, and to Aa2
from Aa1 the ratings on the unguaranteed public-sector covered
bonds, issued by Hypo Tirol Bank AG (Hypo Tirol, deposits
Baa3 negative; bank financial strength rating E+/adjusted baseline
credit assessment b1).
At the same time Moody's has downgraded to Aa3 under review for
downgrade from Aa2 the public-sector covered bond issued by Kommunalkredit
Austria AG (Kommunalkredit, deposits Ba1 on review for downgrade;
bank financial strength rating E/adjusted baseline credit assessment caa3).
RATINGS RATIONALE
Today's rating action on the guaranteed public-sector covered
bonds of Hypo Tirol is prompted by the downgrade of the issuer's
guaranteed debt rating to Baa2 from Aa2. The rating action on the
unguaranteed public-sector covered bonds of Hypo Tirol is prompted
by the downgrade of the issuer's senior unsecured and deposit ratings
to Baa3 from Baa2.
The rating action on the public-sector covered bonds of Kommunalkredit
is prompted by the downgrade of the issuer's senior unsecured and
deposit ratings to Ba1 from Baa3.
For more details on today's rating actions, please refer to
our press release "Moody's downgrades Austrian banks following change
in systemic support assumptions", published on 20 June 2014.
Moody's notes that the rating action on the covered bonds was not caused
by a deterioration in the credit quality of the cover pool assets backing
the covered bonds. The downgrade of the issuer's senior unsecured
and deposit ratings negatively affected the covered bonds through its
impact on both the timely payment indictor (TPI) analysis and the expected
loss analysis.
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 the guaranteed covered bonds of Hypo Tirol is the Baa2
guaranteed senior unsecured debt rating plus 0 notches. The CB
anchor for Hypo Tirol's unguaranteed covered bonds is the senior
unsecured debt rating plus 0 notches. The CB anchor for Kommunalkredit's
covered bonds is the senior unsecured debt rating plus 0 notches.
Moody's does not provide for an uplift of the CB anchor above the
respective senior unsecured debt ratings given the high systemic uplift
of these ratings above the issuers' adjusted baseline credit assessments.
The cover pool losses for Hypo Tirol's public-sector covered
bonds are 17.9%. This is an estimate of the losses
Moody's currently models following a CB anchor event. Moody's
splits cover pool losses between market risk of 14.8% and
collateral risk of 3.1%. 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, which for this programme is currently 6.2%.
The over-collateralisation in Hypo Tirol's public-sector
cover pool is 707.6 %, of which the issuer provides
9.5% on a "committed" basis. The minimum
OC level consistent with the Aa1 rating target for the guaranteed covered
bonds is 16.0%, of which the issuer should provide
8.5% in a "committed" form. The minimum
OC level consistent with the Aa2 rating target for the unguaranteed covered
bonds is 13.5%, of which the issuer should provide
7.0% 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 Kommunalkredit's public-sector
covered bonds are 26.6%. This is an estimate of the
losses Moody's currently models following a CB anchor event. Moody's
splits cover pool losses between market risk of 20.7% and
collateral risk of 5.9%. 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, which for this programme is currently 11.8%.
The over-collateralisation in Kommunalkredit's public-sector
cover pool is 30.2 %, of which the issuer provides
28.0% on a "committed" basis. The minimum
OC level consistent with the Aa3 rating target is 25.0%,
of which the issuer should provide 19.0% in a "committed"
form. These numbers show that Moody's is 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 Global Covered Bonds
Monitoring Overview", published quarterly. All numbers in
this section are based on the most recent Performance Overview based on
data, as per 31 December 2013.
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 both Hypo Tirol's and Kommunalkredit's public-sector
covered bonds, Moody's has assigned a TPI of "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.
Based on the current TPI of "High" for Hypo Tirol's
covered bonds, the TPI Leeway for both the guaranteed and unguaranteed
covered bonds is 0 notches. This implies that Moody's might
downgrade the covered bonds because of a TPI cap, if it lowers the
CB anchor by 1 notch all other variables being equal.
The TPI assigned to Kommunalkredit's public-sector covered
bonds is "High". The TPI Leeway for this programme
is limited, and thus any reduction of the CB anchor 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.
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.
Patrick Widmayer
Asst Vice President - Analyst
Structured Finance Group
Moody's Deutschland GmbH
An der Welle 5
Frankfurt am Main 60322
Germany
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 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 Hypo Tirol and Kommunalkredit
