London, 20 March 2015 -- Moody's Investors Service has today placed on review for upgrade the ratings
of 37 Spanish multi-issuer covered bonds (SMICBs) and one subordinated
loan.
Today's rating actions incorporate the recently published updates to Moody's
covered bond rating methodology and Moody's Spanish Multi-Issuer
covered bonds rating methodology. The rating agency has changed
its reference point - the covered bond (CB) anchor - for
determining the probability that an issuer will cease making payments
under a covered bond programme, before any recourse to the covered
bond collateral. Under the updated methodologies, Moody's
will now use the issuers' Counterparty Risk (CR) Assessment,
when available, as the reference point for the covered bond (CB)
anchor. The revised reports, "Moody's Approach to Rating
Covered Bonds" and "Moody's Approach to Rating Spanish Multi-Issuer
Covered Bonds," are available on www.moodys.com and
can be accessed via the links provided below:
(i) Moody's Approach to Rating Covered Bonds:
http://www.moodys.com/viewresearchdoc.aspx?docid=PBS_SF396210
(ii) Moody's Approach to Rating Spanish Multi-Issuer Covered Bonds:
http://www.moodys.com/viewresearchdoc.aspx?docid=PBS_SF396797
Please click on this link http://www.moodys.com/viewresearchdoc.aspx?docid=PBS_SF399762
for the list of Affected Credit Ratings. This list is an integral
part of this press release and identifies each affected issuer.
RATINGS RATIONALE
The CR Assessment, introduced by Moody's in its global bank
rating methodology released on March 16, 2015 expresses a bank's
default probability on certain types of its obligations and contractual
commitments, including covered bonds. For full details please
see http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_179038
The new CB anchor for cedulas issuers will typically be the CR Assessment
plus one notch.
The ratings of 37 Spanish multi-issuer covered bonds (SMICBs) and
one subordinated loan are placed on review for upgrade because we expect
that the vast majority of CB anchors derived from the CR Assessments of
the issuers will end above the current CB anchor after the review process.
Today's rating actions also take into account the rating constraints
imposed by Spain's Aa2 country ceiling and the timely payment indicators
(TPI) framework for SMICBs.
Although Moody's will assign the CR Assessments to financial institutions
over time, the rating agency will immediately start using approximations
for CR Assessments as inputs into its credit analysis for covered bonds.
The approximate values will be used up to the point when Moody's
assigns a CR Assessment. Moody's uses internal guidance on
the CR Assessments to assess the rating impact on outstanding covered
bonds. The internal guidance is in line with the guidance published
in its updated bank rating methodology and its responses to frequently
asked bank methodology related questions.
Moody's expects to conclude the review of these SMICBs in the first half
of 2015, the timeline for completion being dependent on the assignment
of CR assessments to Spanish issuers.
Key Rating Assumptions/Factors:
The ratings assigned by Moody's address the expected loss posed to investors.
SMICBs can be considered as a repackaging of a pool of Spanish covered
bonds. Each SMICB is backed by a group of Spanish covered bonds
(Cédulas Hipotecarias, CHs) that are bought by a Fund,
which in turn issues SMICBs. Moody's rating for any SMICB is determined
after applying a three-step process:
First step: Calculating the Expected Loss (EL) for the Cédulas
backing the SMICB
The main driver of an SMICB's EL is the credit strength of the Cédulas
backing the SMICB. If the Cédulas perform, the SMICBs
will be fully repaid. Cédulas are rated according to our
published "Moody's Approach to Rating Covered Bonds".
Second step: Calculating the EL for the SMICBs.
In the absence of any credit support (for example, such as a reserve
fund), the EL of the SMICB is determined directly from the weighted-average
EL (weighted by their outstanding amounts) of the Cédulas backing
the SMICB. Where the SMICB benefits from a reserve fund,
the SMICB may achieve a lower EL than the weighted-average EL of
the Cédulas backing the SMICB. The EL of the SMICB is the
average EL of the single tranche ranking senior to the subordinated loan
which originally funded the reserve fund. The loss distribution
is determined by a single factor model which is numerically solved through
a Monte Carlo simulation.
Third step: Calculating the probability of default for the SMICB
or assessing the sufficiency of the Liquidity Facility (LF) for the SMICB.
Under the SMICB rating approach, Moody's gives value to two
primary liquidity support mechanisms, which improve the probability
of timely payment if any Cédula backing the SMICB fails to make
a payment on a scheduled payment date. These are: i) the
maturity extension on the SMICB, which should ensure that a period
of at least two years is available following any default on the Cédula.
This period would be available to realise the value of the assets backing
the Cédulas; and ii) a LF that is available to cover interest
payments on the SMICB. Under the SMICB rating method, the
LF for an SMICB is sized to improve the timely payment of the SMICB to
a level commensurate with the rating of the SMICBs. The size of
the LF is primarily determined by: i) the probability of default
of the Cédulas backing the SMCIB; ii) the correlation between
these Cédulas; and iii) the level of concentration to the
different Cédulas backing the SMCIB. However, regardless
of the size of the LF, Moody's would limit the maximum rating
of the SMICB by applying its Timely Payment Indicator (TPI) methodology
for covered bonds. The TPI framework limits the rating uplift that
SMICBs may achieve over the weighted average CB anchor of the underlying
Cédulas' issuers and may constrain the final covered bond
rating to a lower level than the maximum potential rating under the EL
Model. The TPI used to assess the maximum rating uplift over the
weighted average CB anchor of the underlying Cédulas' issuers
for each SMICB is typically two levels above the one assigned to the underlying
Cédulas.
Factors that would lead to an upgrade or downgrade of the ratings:
The robustness of a structured multi-issuer covered bond rating
largely depends on the underlying issuers' credit strength as reflected
in their CB anchors, and the support provided by the liquidity facility
and reserve fund, if any.
A multiple-notch downgrade of the SMICBs might occur in certain
limited circumstances, such as (i) a sovereign downgrade negatively
affecting the issuers' CB anchor and the TPI; (ii) a multiple-notch
lowering of the CB anchor or (iii) a material reduction of the value of
the cover pool.
Methodologies Underlying the Rating Action:
The methodologies used in these ratings were "Moody's Approach to Rating
Covered Bonds" published in March 2015, and "Moody's Approach to
Rating Spanish Multi-Issuer Covered Bonds" published in March 2015.
Please see the Credit Policy page on www.moodys.com for
a copy of these methodologies.
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 receive or take into account a third party assessment
on the due diligence performed regarding the underlying assets or financial
instruments related to the monitoring of these transactions in the past
six months.
Moody's did not use any models, or loss or cash flow analysis,
in its analysis.
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.
The below contact information is provided for information purposes only.
Please see the ratings tab of the issuer page at www.moodys.com,
for each of the ratings covered, Moody's disclosures on the lead
analyst and the Moody's legal entity that has issued the ratings.
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.
Hemal Shah
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
Ian Perrin
Senior Vice President/Manager
Structured Finance Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Raja Iyer
Vice President - Senior Analyst
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 on review for upgrade 38 Spanish multicedulas transactions
