Madrid, February 23, 2012 -- Moody's Investors Service has today lowered the highest achievable covered
bond ratings in (i) Italy, to Aa2 from Aaa; (ii) Portugal,
to Baa1 from A2; and (iii) Spain, to Aa2 from Aaa. Moody's
notes that the covered bonds issued by Cassa Depositi e Prestiti SpA continue
to be rated Aa1 and remain on review for downgrade for the reasons described
below.
Today's rating actions are in addition to those previously announced
last week --following the rating actions on various European
sovereigns -- and also follow Moody's lowering of
the highest achievable ratings for structured debt issued in the affected
countries.
Following these limitations, in summary, Moody's has
taken today the following rating actions:
-- Downgraded 17 covered bonds by between one and two notches;
-- Placed on review for downgrade 8 covered bonds out of
the 17 downgrades
Please click on this link http://www.moodys.com/viewresearchdoc.aspx?docid=PBS_SF277316
for the List of Affected Credit Ratings. This list is an integral
part of this Press Release and identifies each affected transaction.
RATINGS RATIONALE
The lowering of these highest achievable covered bond ratings was prompted
by the downgrade of the ratings of those sovereigns on 13 February 2012
(please see "Moody's adjusts ratings of 9 European sovereigns to capture
downside risks" for more information) and also follows the announcement
to limit the highest achievable structured finance ratings in these countries.
For further details please refer to "Moody's lowers the highest
achievable structured finance ratings in Italy, Portugal and Spain
following the recent sovereign rating actions" published on 17 February
2012. The link is http://www.moodys.com/research/Moodys-lowers-the-highest-achievable-structured-finance-ratings-in-Italy--PR_238109.
Whilst the highest achievable ratings remain several notches above the
rating of the sovereign, the rating uplift covered bonds may achieve
over a sovereign rating might now be curtailed. The rating limitations
reflect our assumptions regarding the uncertain environment that bondholders
might face following the default of the sovereign in whose jurisdiction
the covered bond programme is established.
A simultaneous decline in a government's fiscal position and in the strength
of its banking system can contribute to (i) significant deterioration
in asset performance; (ii) increased market-value risk;
(iii) reduced financing availability; and (iv) a decrease in the
number of viable transaction counterparties in covered bonds transactions.
Moody's has applied one exception: the covered bonds issued
by Cassa Depositi e Prestiti SpA will continue to be rated Aa1 and remain
on review for downgrade. During the review, Moody's
will assess the rating implications of the existing cash-collateralisation
mechanism, following both the exercise of the voluntary programme
termination in November 2011 and the conclusion of the tender offer announced
early February 2012.
KEY RATING ASSUMPTIONS/FACTORS
The ratings assigned by Moody's address 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.
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 (i)
a function of the issuer's probability of default (measured by the
issuer's rating); and (ii) the stressed losses on the cover
pool assets following issuer default.
- 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 credit
strength of the underlying issuer. A multi-notch downgrade
of the covered bonds might occur in certain limited circumstances,
such as (i) a sovereign downgrade that negatively affects both the issuer's
senior unsecured rating and the TPI; (ii) a multi-notch downgrade
of the issuer; or (iii) a material reduction of the value of the
cover pool.
As noted in Moody's Special Comment entitled "Rising Severity of
Euro Area Sovereign Crisis Threatens Credit Standing of All EU Sovereigns"
(28 November 2011), the risk of sovereign defaults or the exit of
countries from the euro area is rising. As a result, Moody's
could potentially lower the maximum achievable rating for covered bonds
transactions in some countries, which could result in rating downgrades.
The principal methodology used in these ratings was "Moody's
Approach to Rating Covered Bonds", published in March 2010.
Please see the Credit Policy page on www.moodys.com for
a copy of this methodology.
REGULATORY DISCLOSURES
Please click on this link http://www.moodys.com/viewresearchdoc.aspx?docid=PBS_SF277316
for the List of Affected Credit Ratings. This list is an integral
part of this Press Release and provides, for each of the credit
ratings covered, Moody's disclosures on the following items:
Releasing office
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 ratings have been disclosed to the rated entities or their designated
agent(s) and issued with no amendment resulting from that disclosure.
Information sources used to prepare each of the ratings 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
entities, obligations or credits satisfactory for the purposes of
issuing these ratings.
Moody's adopts all necessary measures so that the information it
uses in assigning the ratings 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 entities of their 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.
The below contact information is provided for information purposes only.
Please see the issuer page on www.moodys.com for Moody's
regulatory disclosure of the name of the lead analyst and the office that
has issued the credit rating.
The relevant Releasing Office for each rating is identified under the
Debt/Tranche List section on the Ratings tab of each issuer/entity page
on moodys.com
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.
Jose de Leon
Senior Vice President
Structured Finance Group
Moody's Investors Service Espana, S.A.
Calle Principe de Vergara, 131, 6 Planta
Madrid 28002
Spain
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 Espana, S.A.
Calle Principe de Vergara, 131, 6 Planta
Madrid 28002
Spain
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's lowers the highest achievable covered bond ratings in Italy, Portugal and Spain following the recent sovereign rating actions
