Paris, June 24, 2011 -- Moody's Investors Service has today placed on review for possible downgrade
the covered bonds issued by five Italian programmes:
Mortgaged backed covered bonds programmes:
- Banca Carige S.p.A. Covered Bonds Programme
- Banca Monte dei Paschi di Siena S.p.A. Covered
Bonds (MPS Covered Bond SRL)
- Banco Popolare-Italian Covered Bonds Programme
Public-sector backed covered bonds programmes:
- Cassa depositi e prestiti S.p.A. Covered
Bond Programme Public Sector
- Intesa Sanpaolo - Public Sector Covered Bonds
Today's rating actions follow the negative rating actions taken
on 23 June by Moody's on the banks supporting these covered bonds and
the review for downgrade of the Italian Republic's Aa2 long-term
rating, implemented on 17 June.
Please see ratings tab on the issuers/entities page on Moodys.com
for the last rating actions and the ratings history.
RATINGS RATIONALE
The senior unsecured long-term and short-term ratings of
the issuers of all the above mentioned mortgage backed deals were placed
on review for possible downgrade on 23 June 2011. As a result,
the covered bonds supported by these entities are also placed on review
for downgrade.
Moody's notes that if the issuers' long-term senior unsecured ratings
are downgraded below A3, the Timely Payment Indicator (TPI) framework
could constrain the corresponding covered bond ratings below Aaa.
The rating actions on public-sector backed deals follow both the
reviews of the issuers supporting these programmes and the review of the
Italian sovereign bond rating. The assets in the cover pools backing
these programmes consist of Italian public-sector loans; the
credit quality of these public sector loans are expected to be adversely
affected by any negative rating action on the sovereign.
For further information on the rating actions taken by Moody's Financial
Institutions Group, please refer to " Moody's reassesses Italian
banks' support framework following Italy sovereign review " published
on 23 June 2011, and on the rating action taken by Moody's
Sovereign & Supranational, please refer to "Announcement:
Moody's places Italy's Aa2 ratings on review for possible downgrade"
published on 17 June 2011.
A downgrade of the issuers' and the governments' ratings may affect
the ratings of the covered bonds, in terms of either the expected
loss or the timely payment indicator (TPI).
(1) EXPECTED LOSS
The issuer's credit strength is incorporated into Moody's expected
loss methodology. On an expected loss basis (all else being equal)
a downgrade in the issuer's rating will lead to an increase in the
expected loss of the covered bonds and potentially to a downgrade of the
covered bond ratings. Moody's notes that issuers may be able to
offset any deterioration in the expected loss analysis by adding further
collateral to their programmes.
The over-collateralisation level on a nominal basis differs to
what is considered "committed" by Moody's. However, Moody's
considers the remaining over-collateralisation over and above this
level as voluntary over-collateralisation. In particular,
for Italian issuers rated below A2, Moody's limits the value
it gives to voluntary over-collateralisation in its expected loss
analysis.
In addition, during the review period, Moody's will
analyse the current refinancing margins across the Italian market.
For public-sector backed deals, Moody's will review
whether it should apply specific stresses where the rating of the covered
bonds backed by public-sector assets exceed the sovereign rating
by more than a threshold level. If so, Moody's may
materially increase modelled cover pool losses. Where Moody's
decides not to apply these stresses imposed for exceeding sovereign debt
rating levels, any sovereign downgrade is expected to lower the
credit assessment of the public-sector obligations backing the
public-sector covered bonds, thus increasing their collateral
scores.
(2) TPI
The TPI framework will cap the covered bond ratings if any of the senior
unsecured ratings of the issuers are downgraded below certain level.
Mortgage backed deals: The TPI analysis is the primary reason that
these mortgage backed deals have been placed on review. Under Moody's
methodology, a TPI of "Probable", combined with an issuer
long-term debt rating below A3, would constrain the rating
of the covered bonds to Aa1 or below. For all the programmes placed
under review, the prime-1 rating of banks supporting the
covered bonds have been placed under review.
Public-sector deals: The TPIs assigned to the public-sector
deals will be reviewed if the sovereign rating is downgraded. Whilst
current issuer ratings are Aa2 and Aa3, the TPI cap (the maximum
rating achievable under the TPI framework) would remain at Aaa even if
the TPI is lowered to very improbable. However, Moody's
also notes that these issuer ratings are also both on review, and
a change in both the TPIs and issuers' ratings could affect the
TPI cap.
RATING METHODOLOGY
Moody's rating for any covered bond is determined after applying
a two-step process:
(1) Moody's determines a rating based on the expected loss on the
bond. This is modelled as a function of the issuer's probability
of default and the stressed losses on the cover pool assets following
issuer default; and
(2) 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 is to limit the covered bond rating to a certain
number of notches above the issuer's rating.
TPIs: TPIs range from "Very High" to "Very Improbable".
Higher TPI levels indicate legal, structural, regulatory/systemic
or collateral features of a programme which benefit timely payments.
Lower TPIs indicate uncertainties regarding timely payment, such
as the existence of refinancing risk.
The rating action affecting the existing Covered Bonds is expected to
affect all subsequent Covered Bonds issued by the Issuer under this programme
and any future rating actions are expected to affect all such Covered
Bonds. If there are any exceptions to this, Moody's will
in each case publish details in a separate press release.
The principal methodology used in rating the transaction was Moody's Approach
to Rating Covered Bonds, published in March 2010.
Other methodologies and factors that may have been considered in the process
of rating this issue can also be found on Moody's website. For
regulatory disclosures, please refer to the last rating actions
for the above mentioned covered bonds.
The rating assigned by Moody's addresses 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 and to investors.
Please see ratings tab on the issuer/entity page on Moodys.com
for the last rating action and the rating history.
Paris
Elise Lemaire
Analyst
Structured Finance Group
Moody's France SAS
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Madrid
Juan Pablo Soriano
MD - Structured Finance
Structured Finance Group
Moody's Investors Service Espana, S.A.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's France SAS
96 Boulevard Haussmann
Paris 75008
France
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's places the ratings of five Italian covered bonds programmes on review for downgrade
