Actions follow methodology update, and introduction of counterparty risk assessment
Madrid, March 17, 2015 -- Moody's Investors Service has today placed on review for upgrade
the ratings of 69 European covered bonds. Concurrently, the
rating agency placed one rating on review for downgrade, one rating
on review with direction uncertain, and confirmed four ratings.
Today's rating actions follow Moody's update of its covered
bond rating methodology. The actions have also taken into account
the rating constraints for each covered bond programme imposed by the
country ceilings and timely payment indicator (TPI) framework.
Specifically, the rating agency has changed its reference point
--the covered bond (CB) anchor -- for determining
the probability that an issuer will cease making payments under a covered
bond, before any recourse to the covered bond collateral.
Under the updated methodology, Moody's will now use financial
institutions' Counterparty Risk (CR) Assessments, when available,
as the reference point for the CB anchor.
Please click on this link http://www.moodys.com/viewresearchdoc.aspx?docid=PBS_SF399587
for the list of affected credit ratings. The list is an integral
part of this press release. For a list of the disclosures on each
of the credit ratings covered please see the Ratings Rationale section
of this press release.
RATINGS RATIONALE
--- UPDATE TO THE RATING METHODOLOGY FOR COVERED
BONDS
The CB anchor will typically be the CR Assessment plus one notch for covered
bonds that fall under either (1) the EU directive on bank resolution and
recovery; or (2) a resolution regime that Moody's believes
provides an equivalent level of protection for covered bonds. Otherwise,
the CB anchor will typically be the CR Assessment.
The ratings of 69 covered bonds were placed on review for upgrade because
Moody's expects their CB anchors to be positioned above the current
CB anchor. The rating agency also expects that it will position
the CB anchor of one covered bond below the current CB anchor levels,
and so placed it on review for downgrade. Moody's might position
the CB anchor of one covered bond either above or below the current CB
anchor level, and so has placed this on review with direction uncertain.
Lastly, the rating agency has confirmed the rating of four covered
bonds out of 23 (only 13 are part of this rating action) on review for
downgrade; the agency expects that the CB anchor of these four covered
bonds will remain at the current level.
The CR Assessments, when available, will typically be used
as the reference point to determine the CB anchor for all jurisdictions.
On 16 March, Moody's introduced the CR Assessment in its revised
Bank Rating Methodology and published an update to its Rating Symbols
and Definitions, which now offers a definition of the CR Assessment
under the section "Input to Ratings Services". Moody's
has also published a Frequently Asked Questions document that sets out
the relative positioning of the CR Assessment relative to credit ratings.
For links to all three of these documents, please refer to "Other
Research" at the end of the Ratings Rationale section of this press
release.
Although Moody's will assign the CR Assessments to financial institutions
over time, the rating agency will immediately start using approximations
for CR Assessments as inputs into its credit analysis for covered bonds.
The approximate values will be used up to the point when Moody's
assigns a CR Assessment.
Moody's uses internal guidance on the CR Assessments to assess the
rating impact on outstanding covered bonds. The internal guidance
is in line with the guidance published in its updated bank rating methodology
and its responses to frequently asked bank methodology related questions.
More specifically, the CR Assessment's position relative to
the financial institution's rated instruments will depend on that
institution's jurisdiction. In the European Union and Norway,
the CR Assessment will generally be at least as high as the deposit rating.
In Switzerland, the CR Assessment will generally be at least as
high as the senior unsecured debt rating.
Outside operational resolution regimes, the CR Assessment will generally
be no lower than the deposit rating.
In all cases, the CR Assessment will be subject to a cap of the
lower of the local-currency deposit ceiling, or the local
government bond rating plus one notch, or plus two notches where
the adjusted baseline credit assessment (BCA) is itself already above
the government bond rating.
Where relevant, the approximate CR Assessment values used in covered
bond credit analysis will factor in guidance on expected changes to the
BCA, and the senior unsecured debt and deposit ratings.
--- TPI FRAMEWORK
Today's rating actions have also taken into account the rating constraints
that the country ceilings and TPI framework impose on each covered bond
programme.
The disclosures on each of the credit ratings affected by today's
rating actions include cover pool losses, collateral risk,
market risk, collateral score, TPI, TPI leeway and the
minimum over-collateralisation consistent with the current covered
bond rating.
Moody's expects to conclude the majority of the covered bond rating
reviews in the first half of 2015. The timeline to resolve these
reviews will depend on the resolution process applied to the financial
institutions' ratings, as well as the assignment of CR Assessments.
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
issuer default.
The cover pool losses is an estimate of the losses Moody's currently
models if a CB anchor event occurs. Moody's splits cover
pool losses between market risks and collateral risks. Market risks
measure losses stemming from refinancing risks and risks related to interest
rate and currency mismatches (these losses may also include certain legal
risks). Collateral risks measure losses resulting directly from
cover pool assets' credit quality. Moody's derives
the collateral risk from the collateral score.
TPI FRAMEWORK: Moody's assigns a TPI to each covered bond
that indicates the likelihood that the issuer will make timely payments
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.
FACTORS THAT WOULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS:
The CB anchor is the main determinant of a covered bond'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.
A multiple-notch downgrade of the covered bonds might occur in
certain limited circumstances, such as (1) a sovereign downgrade
negatively affecting both the CB anchor and the TPI; (2) a multiple-notch
lowering of the CB anchor; or (3) a material reduction of the value
of the cover pool.
RATING METHODOLOGY
The principal methodology used in these ratings was "Moody's
Approach to Rating Covered Bonds" published in March 2015.
Please see the Credit Policy page on www.moodys.com for
a copy of this methodology.
OTHER RESEARCH:
Revised Bank Methodology
http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_179038
Rating Symbols and Definitions
http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_79004
Frequently Asked Questions Document
http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_1002868
Request for Comment: Update to Covered Bond Methodology Resulting
from New Counterparty Risk Measure
https://www.moodys.com/viewresearchdoc.aspx?docid=PBS_SF390257
REGULATORY DISCLOSURES
Please click on this link http://www.moodys.com/viewresearchdoc.aspx?docid=PBS_SF399587
for the List of Affected Credit Ratings. This list is an integral
part of this Press Release and provides, for each of the credit
ratings covered, Moody's disclosures on the following items:
- Releasing office
For further specification of Moody's key rating assumptions and sensitivity
analysis, see the sections Methodology Assumptions and Sensitivity
to Assumptions of the disclosure form.
Moody's did not use any stress scenario simulations in its analysis.
For ratings issued on a program, series or category/class of debt,
this announcement provides certain 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 certain 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 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 rating action, and
whose ratings may change as a result of this 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.
This rated entity (Bankia S.A.) or related third parties
did not participate in the rating process. Moody's was not
provided, for purposes of the rating, access to books,
records and other relevant internal documents of the rated entity or related
third party.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
The below contact information is provided for information purposes only.
Please see the ratings tab of the issuer page at www.moodys.com,
for each of the ratings covered, Moody's disclosures on the
lead analyst and the Moody's legal entity that has issued the ratings.
The relevant office for each credit rating is identified in "Debt/deal
box" on the Ratings tab in the Debt/Deal List section of each issuer/entity
page of the Website.
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.
Jose de Leon
Senior Vice President/Manager
Structured Finance Group
Moody's Investors Service Espana, S.A.
Calle Principe de Vergara, 131, 6 Planta
Madrid 28002
Spain
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 Espana, S.A.
Calle Principe de Vergara, 131, 6 Planta
Madrid 28002
Spain
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's reviews for upgrade 69 European covered bond ratings
