London, 23 November 2020 -- Moody's Investors Service ("Moody's") has placed on review for upgrade
the A3 rating assigned to covered bonds issued by The Co-Operative
Bank plc (("Co-Op" or the issuer, CR Assessment B1(cr),
on watch for possible upgrade) under its Moorland - Mortgage Covered
Bonds programme.
RATINGS RATIONALE
The review of the covered bond rating follows the review for upgrade of
the B1(cr) CR assessment of the issuer. For details please refer
to the press release "Moody's assigns a (P)Caa1 rating to The Co-operative
Bank Finance p.l.c. forthcoming senior notes issuance"
published on 17 November 2020.
KEY RATING ASSUMPTIONS/FACTORS
Moody's determines covered bond ratings using a two-step
process: an expected loss analysis and a TPI framework analysis.
EXPECTED LOSS: Moody's uses its Covered Bond Model (COBOL)
to determine a rating based on the expected loss on the bond. COBOL
determines expected loss as: (1) a function of the probability that
the issuer will cease making payments under the covered bonds (a CB anchor
event); and (2) the stressed losses on the cover pool assets following
a CB anchor event.
The CB anchor for this programme is the CR assessment plus 1 notch.
The cover pool losses for this programme are 16.4%.
This is an estimate of the losses Moody's currently models following a
CB anchor event. Moody's splits cover pool losses between
market risk of 13.1% and collateral risk of 3.3%.
Market risk measures losses stemming from 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 cover pool assets' credit quality. Moody's
derives collateral risk from the collateral score, which for this
programme is currently 5.0%.
The over-collateralisation in the cover pool is 149.5%,
of which the issuer provides 29.0% on a "committed"
basis. Under Moody's COBOL model, the minimum OC consistent
with the A3 rating is 3.0%, of which 3.0%
needs to be in "committed" form to be given full value.
These numbers show that Moody's is not relying on "uncommitted"
OC in its expected loss analysis.
For further details on cover pool losses, collateral risk,
market risk, collateral score and TPI Leeway across covered bond
programmes rated by Moody's please refer to " Covered Bonds Sector Update
", published quarterly.
TPI FRAMEWORK: Moody's assigns a TPI, which is our assessment
of the likelihood of timely payment of interest and principal to covered
bondholders following a CB anchor event. The TPI framework limits
the covered bond rating to a certain number of notches above the CB anchor.
For the covered bonds, Moody's has assigned a TPI of Probable-High.
RATING METHODOLOGY
The principal methodology used in this rating was "Moody's
Approach to Rating Covered Bonds" published in October 2020 and
available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBS_1234823.
Alternatively, please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
FACTORS THAT WOULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATING:
The CB anchor is the main determinant of a covered bond programme's rating
robustness. A change in the level of the CB anchor could lead to
an upgrade or downgrade of the covered bonds. The TPI Leeway measures
the number of notches by which Moody's might lower the CB anchor before
the rating agency downgrades the covered bonds because of TPI framework
constraints.
The TPI assigned to this programme is Probable-High. The
TPI Leeway for this programme is limited, and thus any reduction
of the CB anchor may lead to a downgrade of the covered bonds.
A multiple-notch downgrade of the covered bonds might occur in
certain circumstances, such as: (1) a country ceiling or sovereign
downgrade capping a covered bond rating or negatively affecting the CB
Anchor and the TPI; (2) a multiple-notch downgrade of the
CB Anchor; or (3) a material reduction of the value of the cover
pool.
REGULATORY DISCLOSURES
For further specification of Moody's key rating assumptions and
sensitivity analysis, see the sections Methodology Assumptions and
Sensitivity to Assumptions in the disclosure form. Moody's
Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
Moody's did not use any stress scenario simulations in its analysis.
For ratings issued on a program, series, category/class of
debt or security this announcement provides certain regulatory disclosures
in relation to each rating of a subsequently issued bond or note of the
same series, category/class of debt, security 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 credit rating action on the
support provider and in relation to each particular credit 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 credit rating action,
and whose ratings may change as a result of this credit 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.
The rating has been disclosed to the rated entity or its designated agent(s)
and issued with no amendment resulting from that disclosure.
This rating is solicited. Please refer to Moody's Policy
for Designating and Assigning Unsolicited Credit Ratings available on
its website www.moodys.com.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Moody's general principles for assessing environmental, social
and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.
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.
Martin Rast
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
Client Service: 44 20 7772 5454
Nicholas Lindstrom
Associate Managing Director
Structured Finance Group
JOURNALISTS: 44 20 7772 5456
Client Service: 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
Client Service: 44 20 7772 5454
