London, 30 December 2014 -- Moody's Investors Service has today downgraded to A3 (on review for downgrade)
from A2 the ratings of the mortgage covered bonds issued by Raiffeisenbank,
a.s. (the issuer/ Raiffeisenbank, a.s.,
not publicly rated).
RATINGS RATIONALE
Today's rating action follows Moody's updated assessment of the issuer's
credit strength.
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 update of the assessment of the issuer's
credit strength negatively affected the covered bond ratings through its
impact on both the timely payment indicator (TPI) analysis and the expected
loss analysis.
In particular, the remaining legal uncertainty regarding whether
over-collateralisation (OC) will remain in the cover pool and available
for the benefit of covered bond holders after an insolvency of the issuer
limits the rating uplift available by OC and therefore creates a strong
link between the issuer rating and the covered bonds ratings.
Moody's reference point for determining the probability that Raiffeisenbank
a.s will cease making payments under the covered bond programme,
the covered bond (CB) anchor, is senior unsecured rating +1
notches, given that Raiffeisenbank a.s 's debt ratio is between
5% and 10%.
RATIONALE FOR THE REVIEW
Moody's also placed the covered bonds on review for downgrade since the
issuer's credit strength may be exposed to further deterioration.
During the review of the covered bond ratings, Moody's will consider
the negative rating impact in two steps: an expected loss analysis
and a TPI framework 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 issuer
default.
The cover pool losses for each programme is an estimate of the losses
Moody's currently models if a CB anchor event occurs. Moody's splits
cover pool losses between market risks and collateral risks. Market
risks measure losses stemming from refinancing risks and risks related
to interest rate and currency mismatches. These losses may also
include certain legal risks. Collateral risks measure losses resulting
directly from the cover pool assets' credit quality. Moody's derives
the collateral risk from the collateral score.
The cover pool losses for this programme stand at 45.9%,
with market risk of 38.2% and collateral risk of 7.7%.
The collateral score is 11.5%. The nominal OC in
this cover pool is 365.9%, of which 0% is the
statutory minimum. The minimum OC level that is consistent with
the A3 rating 16.5% in nominal value terms, of which
the issuer should provide 0% in a committed form. These
numbers show that Moody's is not relying on committed OC in its expected
loss analysis for the A3 rating of the covered bonds.
All numbers in this section derive from Moody's most recent modelling,
based on data as per 30 June 2014. For further details on cover
pool losses, collateral risk, market risk, collateral
score and TPI Leeway across all covered bond programmes rated by Moody's
please refer to "Moody's EMEA Covered Bonds Monitoring Overview",
published quarterly.
TPI FRAMEWORK: Moody's assigns a TPI, which indicates the
likelihood that the issuer will make timely payments to covered bondholders
in the event of an issuer default. The TPI framework limits the
covered bond rating to a certain number of notches above the CB anchor.
For Raiffeisenbank a.s 's mortgage covered bonds, Moody's
has assigned a TPI of "Very Improbable".
Factors that would lead to an upgrade or downgrade of the rating:
The CB anchor is the main determinant of a covered bond program's rating
robustness. 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.
The TPI Leeway for this programme is not public.
A multiple notch downgrade of the covered bonds might occur in certain
limited circumstances, such as (1) a sovereign downgrade negatively
affecting both the CB anchor and the TPI; (2) a multiple-notch
lowering of the CB anchor; or (3) a material reduction of the value
of the cover pool.
RATING METHODOLOGY
The principal methodology used in this rating 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.
Hadrien Rogier
Asst Vice President - Analyst
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 to A3 Raiffeisenbank a.s.'s covered bonds; ratings on review
