London, 12 September 2012 -- Moody's Investors Service has placed on review for downgrade the ratings
assigned the following
Irish public sector covered bonds:
• Aaa ratings assigned to the covered bonds issued by EAA Covered
Bond Bank (EAA) under its Irish public sector covered bond programme,
• Aa3 ratings assigned to the covered bonds issued by Depfa ACS Bank
(Depfa) under its Irish public sector covered bond programme.
Both programmes are governed by the Irish Asset Covered Securities Act.
Please click on this link http://www.moodys.com/viewresearchdoc.aspx?docid=PBS_SF297222
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 decision to review these ratings follows Moody's adjustment
of Ireland's local and foreign currency bond and deposit country ceilings
to A3 from Aaa and of the short-term foreign-currency debt
and deposit ceilings to Prime-2 from Prime-1 as well as
the review action on EAA's Aa1 long term deposit rating and P-1
short term rating (for further information please see "Moody's
adjusts Ireland's country ceiling to A3" and "Moody's
reviews EAA CBB (Ireland)'s Aa1/P-1 ratings for downgrade"
on www.moody's.com).
The lower ceiling means that the highest rating that can be assigned to
a domestic issuer in Ireland is now A3. The review action on the
Irish public sector covered bonds is driven by the risk of the covered
bonds being redenominated. Ireland's new country ceiling,
reflects the elevated risk for economic and financial dislocations in
Ireland. The weakness of the economy constitutes a substantial
risk factor to non-government issuers in Ireland because income
and access to liquidity and funding could be sharply curtailed to all
classes of borrowers. The lower ceiling also reflects the risk
of exit and redenomination in the unlikely event of a default by the sovereign.
During the review of the Irish public sector covered bond ratings,
Moody's will focus on the degree to which the risks reflected by
the A3 country ceiling, including redenomination risk, are
potentially mitigated. Moody's will assess if investors in
the Irish public sector covered bonds are sufficiently insulated against
those risks, or if such mitigants might be introduced to the benefit
of the investors.
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.
KEY RATING ASSUMPTIONS/FACTORS
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 (1) a function
of the issuer's probability of default (measured by the issuer's
rating); and (2) 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.
The TPI Leeway measures the number of notches by which the issuer's rating
may be downgraded before the covered bonds are downgraded under the TPI
framework.
A multiple-notch downgrade of the covered bonds might occur in
certain limited circumstances, such as (1) a sovereign downgrade
negatively affecting both the issuer's senior unsecured rating and the
TPI; (2) a multiple-notch downgrade of the issuer; or
(3) a material reduction of the value of the cover pool.
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.
RATING METHODOLOGY
The principal methodology used in these ratings was "Moody's
Approach to Rating Covered Bonds" published in July 2012.
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.
Volker Gulde
VP - Senior Credit Officer
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 EAA's and Depfa's Irish public sector covered bonds for downgrade
