Madrid, December 30, 2013 -- Moody's Investors Service has today placed on review for downgrade
the Ba1 rating assigned to the covered bond programme issued by NCG Banco
S.A. (deposits B3 on review for downgrade; BFSR E/BCA
caa2). Moody's review was initiated following the conditional
sale of NCG Banco to Banco Etcheverria, part of the Venezuelan Banesco
Group (both entities are unrated).
RATINGS RATIONALE
Today's rating action on the covered bonds is prompted by Moody's
decision to place NCG Banco's B3 long-term deposit rating
on review for downgrade; the bank's standalone E bank financial
strength rating (BFSR) and baseline credit assessment (BCA) of caa2 are
not subject to the review of the issuer ratings.
The rating review follows the Spanish Fund for Orderly Bank Restructuring's
(FROB) resolution to sell NCG Banco to a division of the Venezuelan banking
group Banesco. The review also takes into account the risk that
a lower probability of systemic support -- as a consequence of the
exit of the FROB from the capital of NCG Banco -- will not be fully
outweighed by the provision of support from its new parent company.
For further information on the rating actions taken by Moody's,
please refer to "Moody's places NCG Banco's B3 ratings
on review for downgrade", published 30 December 2013.
KEY RATING ASSUMPTIONS/FACTORS
Moody's determines covered bond ratings using a two-step
process: an expected loss analysis and a timely payment indicator
(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 issuer's probability
of default (measured by the issuer's rating); and (2) the stressed
losses on the cover pool assets following issuer default.
The cover pool losses for NCG Banco's mortgage covered bonds are
36.3%; this metric is an estimate of the losses Moody's
currently models if NCG Banco defaults. The rating agency splits
cover pool losses between market risk of 20.8% and collateral
risk of 15.5%. 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 the credit quality
of cover pool assets. Moody's derives collateral risk from
the collateral score, which for this programme is currently 23.1%.
The over-collateralisation (OC) in the cover pool is 127.3%,
of which NCG Banco provides 25% on a "committed" basis.
The minimum OC level consistent with the current rating target is 7%,
of which the issuer should provide 0% in a "committed"
form. These figures show that Moody's is not relying on "uncommitted"
OC in its expected loss analysis.
All figures in this section are based on the most recent Performance Overview
(based on data, as per end-September 2013).
TPI FRAMEWORK: Moody's assigns a "timely payment indicator"
(TPI), which indicates the likelihood that the issuer will make
timely payments to covered bondholders if the issuer defaults.
The TPI framework limits the covered bond rating to a certain number of
notches above the issuer's long-term deposit rating.
For NCG Banco's mortgage covered bonds, Moody's has
assigned a TPI of 'Probable'.
Factors that would lead to an upgrade or downgrade of the rating
The issuer's credit strength is the main determinant of a covered
bond rating's robustness. The TPI Leeway measures the number
of notches by which Moody's might downgrade the issuer's rating
before the rating agency downgrades the covered bonds because of TPI framework
constraints.
The TPI assigned to NCG Banco mortgage covered bonds is 'Probable'.
The TPI Leeway for this programme is limited, and thus any downgrade
of the issuer ratings may lead to a downgrade of the covered bonds.
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.
The credit ratings of the covered bonds were assigned in line with Moody's
existing credit rating methodology: "Moody's Approach
to Rating Covered Bonds", published July 2012. On 19
September 2013, Moody's published a Request for Comment (RFC)
in which the rating agency proposes an adjustment to the anchor point
it uses in its covered bond analysis. If the revised credit rating
methodology is implemented as proposed, the credit ratings of the
covered bonds may be affected. For further details regarding the
implications of the proposed Credit Rating Methodology changes on Moody's
Credit Ratings, please refer to Moody's Request for Comment:
"Approach to Determining the Issuer Anchor Point for Covered Bonds"
-- please see https://www.moodys.com/research/Approach-to-Determining-the-Issuer-Anchor-Point-for-Covered-Bonds--PBS_SF342448.
RATING METHODOLOGY
The principal methodology used in this rating 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 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.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
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.
Tomas Rodriguez-Vigil
Analyst
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 mortgage covered bonds of NCG Banco for downgrade
