Announcement follows review of the issuer's and parent bank's ratings
London, 03 July 2012 -- Moody's Investors Service has today placed the Aaa-rated mortgage
covered bonds issued by Abbey National Treasury Services plc (Abbey) on
review for downgrade. This announcement is prompted by Moody's
review for downgrade of Abbey's A2 long-term senior unsecured rating.
Abbey is the underlying institution supporting these covered bonds.
RATINGS RATIONALE
Moody's placed the A2 senior debt ratings of Abbey on review for downgrade,
prompted by the review of Santander UK's ratings announced on 27
June 2012. For further information please refer to "Moody's places
Santander UK's A2/P-1/C- ratings on review for downgrade"
published on 27 June 2012. For additional information on bank ratings,
please refer to the webpage containing Moody's related announcements:
http://www.moodys.com/bankratings2012.
During the review of the covered bonds, Moody's will consider the
negative rating impact in two steps:
(a) Expected Loss
As the credit strength of the issuer is incorporated into Moody's expected
loss methodology, any downgrade of the issuer's ratings will increase
the expected loss on the covered bonds. Moody's notes that the
issuer may be able to offset any deterioration in the expected loss analysis
by adding further collateral to its programme.
The cover pool losses for this programme are 15.7%.
This is an estimate of the losses Moody's currently models in the event
of issuer default. Cover pool losses can be split between market
risk of 10.7% and collateral risk of 4.9%.
Market risk measures losses as a result of refinancing risk and risks
related to interest-rate and currency mismatches (these losses
may also include certain legal risks).
Collateral Risk measures losses resulting directly from the credit quality
of the assets in the cover pool. Collateral risk is derived from
the collateral score which for this programme is 7.3%.
The over-collateralisation in the cover pool is 52.2%,
of which 30.4% is provided on a "committed" basis.
The minimum over-collateralisation level that is consistent with
the Aaa rating target is 15.5%, of which 15.5%
should be provided in a "committed" form. These numbers show that
Moody's is not relying on "uncommitted" over- collateralisation
in its expected loss analysis.
All numbers in this section are based on the most recent Performance Overview
reporting as of 07 February 2012.
(b) TPI
The TPI framework will limit the covered bond ratings if any of the senior
unsecured ratings of the issuers are downgraded below a certain level.
Based on the current TPI of "Probable", if Abbey's senior unsecured
long-term rating (A2) is downgraded by more than one notch,
the covered bond ratings would also be downgraded.
Moody's expects to maintain the review pending (i) the final rating action
on, or confirmation of, the issuer's rating; and (ii)
a determination of over-collateralisation levels consistent with
any downgraded issuer rating, in conjunction with the issuers' willingness
to provide further over-collateralisation where applicable.
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 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.
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. These figures
are based on the most recent cover pool information provided by the issuer
to Moody's and are subject to change over time.
As the euro area crisis continues, the ratings of covered bonds
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 impact the ratings of covered bonds. For more information
please refer to the Rating Implementation Guidance published on 13 February
2012 "How Sovereign Credit Quality May Affect Other Ratings". Furthermore,
as discussed in Moody's special report "Rating Euro Area Governments Through
Extraordinary Times -- An Updated Summary," published
in October 2011, Moody's is considering reintroducing individual
country ceilings for some or all euro area members, which could
affect further the maximum structured finance rating achievable in those
countries. Moody's is also continuing to consider the impact of
the deterioration of sovereigns' financial condition and the resultant
asset portfolio deterioration in covered bond transactions.
RATINGS METHODOLOGY
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
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 reviews.
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.
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.
Julie?Ng
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
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 reviews Abbey's covered bond ratings for downgrade
