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Rating Action:

Moody's downgrades to A3 UniCredit Bank Czech Republic and Slovakia's covered bonds

26 Mar 2014

Frankfurt am Main, March 26, 2014 -- Moody's Investors Service has today downgraded to A3 from A2 the ratings of the mortgage covered bonds issued by UniCredit Bank Czech Republic and Slovakia (the issuer/UniCredit Bank, 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 UniCredit Bank will cease making payments under the covered bond programme, the covered bond (CB) anchor, is senior unsecured rating +1 notches, given that UniCredit Bank's debt ratio is between 5% and 10%.

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 54.4%, with market risk of 31.7% and collateral risk of 22.7%. The collateral score is 33.9%. The nominal OC in this cover pool is 128.2%, of which 0% is the statutory minimum. The minimum OC level that is consistent with the A3 rating 2.0% 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 September 2013. 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 UniCredit Bank'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.

Martin Lenhard
Vice President - Senior 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 to A3 UniCredit Bank Czech Republic and Slovakia's covered bonds
No Related Data.
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