London, 15 June 2012 -- Moody's Investors Service has today placed on review for downgrade the
ratings of 15 Spanish covered bonds and changed the review placement of
three covered bond ratings to direction uncertain from review for upgrade.
The ratings of 19 covered bonds remain under review for downgrade.
Moody's review will assess the degree to which the sovereign downgrade
has the potential to affect the covered bond ratings through both the
expected loss and TPI framework analysis.
Today's rating announcements reflect the weakening of the Spanish government's
creditworthiness, as captured by Moody's downgrade of Spain's government
bond ratings to Baa3 from A3 on 13 June 2012, and the initiation
of a review for further downgrade. For more details on the rationale
for the sovereign downgrade, please refer to the press release (http://www.moodys.com/research/Moodys-downgrades-Spains-government-bond-rating-to-Baa3-from-A3--PR_248236).
Please click on this link http://www.moodys.com/viewresearchdoc.aspx?docid=PBS_SF289119
for the List of Affected Credit Ratings.
This list is an integral part of this press release and identifies each
affected issuer.For additional information on covered bond ratings,
please refer to the webpage containing Moody's related announcements http://www.moodys.com/eusovereign
RATINGS RATIONALE
Today's announcements follow Moody's downgrade of Spain's
sovereign rating to Baa3 on review for downgrade from A3. Following
this sovereign rating action, Moody's has placed or kept on
review for downgrade the ratings of 34 Spanish covered bonds and changed
to review direction uncertain (from review for upgrade) the ratings of
three covered bonds. These actions reflect the potential negative
impact of the sovereign rating on the various components of Moody's analysis
of Spanish covered bonds.
Firstly, the sovereign downgrade and the continued weakness of the
Spanish economy might have a negative effect on Moody's expected loss
analysis of the covered bonds, through amongst other factors (i)
the refinancing margins and (ii) credit-risk deterioration of the
underlying assets. Secondly, the likelihood of timely payment
for the covered bonds could be reduced.
Moody's review will assess whether the sovereign downgrade might
affect the covered bond ratings through:
(1) The Expected Loss
Moody's will take a view on the increased expected loss borne by
the covered bonds, as a consequence amongst other factors of the
following:
(i) The increased funding costs for the sovereign. Therefore,
Moody's will reconsider the refinancing margins it uses in its analysis
of Spanish covered bonds.
(ii) The credit deterioration of the underlying cover pools might accelerate,
especially for public-sector assets, due to the sovereign
downgrade.
However, Moody's notes that issuers may be able to offset any deterioration
in the expected loss analysis if sufficient collateral is held in the
cover pool.
(2) The TPI Framework
As the credit strength of the sovereign declines, the Spanish government
and financial institutions may be less able and/or willing to provide
or obtain funds to support the refinancing of covered bonds, after
an issuer default. Following the downgrade of the sovereign,
Moody's will reassess the rating caps under the TPI framework.
Moody's TPI framework limits a covered bond rating to a certain number
of rating levels above the issuer rating of the relevant bank.
The amount of uplift will depend on the TPI assigned and for all Spanish
covered bonds, Moody's currently assigns a TPI of "Improbable".
The indicative rating uplift for covered bonds based on TPIs can be found
in Moody's published TPI table. However, Moody's notes that
there are many factors that might influence the application of TPIs,
in particular for sub-investment-grade-rated issuers.
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 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 issuer's
credit strength.
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 the euro area crisis continues, the covered bond ratings remain
exposed to the uncertainties of credit conditions in the general economy.
The deteriorating creditworthiness of euro area sovereigns as well as
the weakening credit profile of the global banking sector could negatively
affect the ratings of covered bonds. For more information,
please refer to the Rating Implementation Guidance published on 13 February,
2012 entitled "How Sovereign Credit
Quality May Affect Other Ratings". Please also refer to the recent
rating actions on banks published on 15 February, 2012, ("Moody's
Reviews Ratings for European Banks" and "Moody's Reviews Ratings for Banks
and Securities Firms with Global Capital Markets Operations" for more
information).
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_SF289119
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 or 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.
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.
In addition to the information provided below please find on the ratings
tab of the issuer page at www.moodys.com, for each
of the ratings covered, Moody's disclosures on the lead rating
analyst and the Moody's legal entity that has issued each of the
ratings.
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 Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's places 15 Spanish covered bonds on review for downgrade; three on review uncertain and 19 remain on review for downgrade
