Frankfurt am Main, November 23, 2011 -- Moody's Investors Service has today placed the following covered bonds
on review for downgrade, prompted by the review for downgrade of
UniCredit Bank's A2 long-term and Prime-1 short-term
senior debt ratings, implemented on 16 November 2011:
- Mortgage Pfandbriefe: Aa1 placed on review for downgrade;
previously on 12 December 2005, upgraded to Aa1 from Aa3
- Public-sector Pfandbriefe: Aaa placed on review
for downgrade; previously on 17 June 2008, upgraded to Aaa
from Aa1.
RATINGS RATIONALE
The rating reviews were prompted by Moody's review of the issuer's
A2 long-term and Prime-1 short-term senior debt ratings,
see press release "Moody's reviews Unicredit Bank AG's A2/C- ratings
for downgrade (Germany)", published 16 November 2011. Any
downgrade of the issuer's senior debt rating negatively affects the covered
bonds through their effect on both the expected loss method and the timely
payment indicator (TPI) framework.
EXPECTED LOSS METHOD
As the issuer's credit strength is incorporated into Moody's expected
loss assessment, any downgrade of the issuer's rating will increase
the expected loss on the covered bonds. However, Moody's
notes that issuers may be able to offset any deterioration in the expected
loss analysis if sufficient collateral is held in the cover pool.
Moody's notes that if UniCredit Bank's rating is downgraded to below
A3, the credit that Moody's gives to the collateral held in
the cover pool may be limited, if the collateral is not considered
"committed". Moody's considers overcollateralisation to be "committed"
if the issuer's discretion to remove the collateral is sufficiently restricted.
TPI FRAMEWORK
The current TPI for the mortgage Pfandbriefe is "Probable-High"
whilst the TPI for the public-sector Pfandbriefe is "High".
Given these TPIs, if UniCredit Bank's rating falls below Baa1
the ratings assigned to the covered bonds may be capped at a level lower
than the current ratings.
The current ratings assigned to the existing covered bonds of the above
programmes can be expected to be assigned to all subsequent covered bonds
issued under the relevant programme. Any future rating actions
are expected to affect all covered bonds issued under the programme.
If there are any exceptions to this, Moody's will in each case publish
details in a separate press release.
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 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 a function of the
issuer's probability of default. This is measured by the issuer's
senior unsecured rating and 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 credit
strength of the issuer.
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. The TPI leeway varies with the ratings of the covered
bonds, the nature of the covered bond programme and the rating of
the respective issuer. Please refer to "Moody's EMEA Covered Bonds
Monitoring Overview", published quarterly, for the TPI leeway
of each programme.
A multiple-notch downgrade of the covered bonds might occur in
certain limited circumstances. Some examples might be (i) a sovereign
downgrade negatively affecting both the issuer's senior unsecured rating
and the TPI; (ii) a multiple-notch downgrade of the issuer;
or (iii) a material reduction in the cover pool's value.
For further details on 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 reporting by
the issuer and are subject to change over time.
The principal methodology used in this rating 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.
The rating assigned to the existing covered bonds is expected to be assigned
to all subsequent covered bonds issued by the issuers under these programmes
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.
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 rating has been disclosed to the rated entity or its designated agents
and issued with no amendment resulting from that disclosure.
Information sources used to prepare the rating are the following :
parties involved in the ratings, and public information.
Moody's considers the quality of information available on the rated
entity, obligation or credit satisfactory for the purposes of issuing
this review.
Moody's adopts all necessary measures so that the information it
uses in assigning a rating 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.
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.
Martin Lenhard
Vice President - Senior Analyst
Structured Finance Group
Moody's Deutschland GmbH
An der Welle 5
Frankfurt am Main 60322
Germany
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 Deutschland GmbH
An der Welle 5
Frankfurt am Main 60322
Germany
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's reviews UniCredit Bank AG's Pfandbriefe for downgrade
