Announcement follows actions on German banks
London, 08 June 2012 -- Moody's Investors Service has today downgraded five and confirmed four
ratings of covered bonds issued by five German banks. The mortgage
covered bonds issued by Eurohypo remain on review for downgrade.
These rating actions were prompted by Moody's rating actions taken on
6 June, 2012 on the issuer ratings of the banks supporting the relevant
covered bond programmes.
Please click on this http://www.moodys.com/viewresearchdoc.aspx?docid=PBS_SF287726
for the List of Affected Credit Ratings. This list is an integral
part of this press release and identifies each affected issuer.
For additional information on covered credit ratings, please refer
to the webpage containing Moody's related announcements www.moodys.com/eusovereign.
The mortgage covered bonds issued by SEB AG -- which were
also placed on review for downgrade on 16 February, 2012 --
are not affected by this rating action. Their rating remains on
review whilst Moody's awaits communication from the issuer regarding
its plans to amend its commitment to maintain an amount of over-collateralisation
(OC) consistent with the current Aa1 rating.
For the programmes that are no longer on review, this rating action
concludes the reviews for downgrade, initiated on 16 February,
2012 for DVB and NordLB, on 18 January, 2012 for Eurohypo's
public sector covered bonds, on 18 October, 2011 for Deutsche
Hypothekenbank and 23 November, 2011 in the case of Unicredit Bank.
The reviews initiated on 16 February, 2012 (see "Moody's reviews
for downgrade multiple European covered bonds") were part of Moody's wider
review of European financial institutions, driven in part by (i)
the difficult European operating environment caused by the prolonged euro
area crisis; and (ii) the deteriorating creditworthiness of certain
euro area sovereigns. The other reviews initiated in October and
November, 2011 and January, 2012 were due to bank-specific
reasons.
RATINGS RATIONALE
Today's actions on German covered bonds follows Moody's rating actions
on the relevant issuers' senior unsecured ratings. For more information
on the rating actions taken by Moody's Financial Institutions Group,
see the press release http://moodys.com/research/Moodys-takes-multiple-actions-on-German-banks-ratings-most-outlooks--PR_247330
published on 6 June, 2012.
Deutsche Hypothekenbank's issuer rating has been downgraded to Baa2
from Baa1. Together with the TPI of "High," this
issuer rating restricts the covered bond ratings at Aa1. The ratings
of the mortgage and public-sector covered bonds issued by Deutsche
Hypothekenbank have been downgraded to Aa2 from Aaa. The rating
review of both programmes has concluded, as the form and level of
OC required to maintain the Aa2 rating is already in place. Moody's
notes that these Aa2 ratings are based on "uncommitted" OC.
Moody's would regard OC as committed if the issuer's discretion
to remove the OC is sufficiently restricted.
The ship covered bonds issued by DVB Bank S.E. have been
downgraded to A3 from Aa3; Moody's notes that it currently
rates all ship covered bonds one notch above the respective issuer rating.
The covered bonds are no longer on review because DVB Bank's issuer
rating is no longer on review.
Eurohypo AG's mortgage and public-sector covered bonds have
been downgraded to Aa1. They are now restricted at this rating
level by the TPI framework, as a result of the combination of their
TPI of "High" and the revised issuer rating of Baa2.
The review of the public-sector covered bonds has concluded,
as the form and level of OC required to maintain the Aa1 rating is already
in place; the OC required to achieve Aa1 is currently 10%.
The mortgage covered bonds remain on review whilst Moody's awaits
communication from the issuer regarding its plans to maintain an amount
of over-collateralisation (OC) in a form consistent with the current
Aa1 rating.
Norddeutsche Landesbank's issuer rating has been downgraded to A3
from A2. Together with the TPI of "High", this
issuer rating does not restrict the covered bond ratings. The Aaa
ratings of mortgage and public-sector covered bonds issued by Norddeutsche
Landesbank have been confirmed. The review of both programmes has
concluded, as the form and level of OC required to maintain the
Aaa rating is already in place. For the public-sector covered
bonds, the OC required to achieve Aaa is currently 7.5%.
These Aaa ratings are based on uncommitted over-collateralisation.
UniCredit Bank's issuer rating has been downgraded to A3 from A2.
Together with the TPI of "High", this issuer rating
does not restrict the covered bond ratings. The Aa1 rating of the
mortgage covered bonds and the Aaa rating of the public-sector
covered bonds issued by UniCredit Bank have been confirmed. The
review of both programmes has concluded, as the form and level of
OC required to maintain the ratings is already in place. For the
public-sector covered bonds, the OC required to achieve Aaa
is currently 7%. These ratings are based on uncommitted
over-collateralisation.
Moody's notes that due to the recent update of its RMBS methodology
(see press release "Moody's publishes updated methodology for rating
EMEA RMBS transactions" published 6 June, 2012), the
over-collateralisation levels required to maintain certain rating
levels for mortgage covered bonds are under review. Moody's
will publish these levels with the relevant Performance Overviews during
the next few weeks.
Covered bond ratings are determined after applying a two-step process:
an expected loss analysis and a TPI framework analysis. Please
click the link http://www.moodys.com/viewresearchdoc.aspx?docid=PBS_SF287726 for detailed information on expected loss and
TPI .
(1) Expected Loss Method
Moody's expected loss analysis is negatively affected by the downgrade
of the issuer's rating. As the credit strength of the issuer is
incorporated into Moody's expected loss methodology, any downgrade
of the issuer's ratings 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.
(2) TPI Framework
The TPI framework limits the covered bond ratings to a certain number
of notches above the senior debt ratings of the banks supporting the covered
bonds. For each combination of the issuer's senior debt rating
and the assigned TPI -- which for German mortgage and public-sector
covered bonds is currently "High" -- Moody's TPI table indicates
where the covered bond rating is likely to be positioned. However,
Moody's highlights that there are additional factors that might influence
the final positioning of the rating under the application of TPIs framework,
in particular for sub-investment-grade-rated issuers.
The downgrades of senior debt ratings of the banks supporting the covered
bonds did not lead to a downgrade due to the TPI cap.
KEY RATING ASSUMPTIONS/FACTORS
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. 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 (i) a function
of the issuer's probability of default (measured by the issuer's rating);
and (ii) the stressed losses on the cover pool assets following issuer
default.
- TPI FRAMEWORK: Moody's assigns a 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.
A multi-notch downgrade of the covered bonds might occur in certain
limited circumstances, such as (i) a sovereign downgrade that negatively
affects both the issuer's senior unsecured rating and the TPI; (ii)
a multi-notch downgrade of the issuer; or (iii) a material
reduction of the value of the cover pool.
As the euro area crisis continues, the covered bond ratings 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
affect the ratings of covered bonds. For more information,
please refer to the Rating Implementation Guidance published on 13 February,
2012 entitled "How Sovereign Credit Quality May Affect Other Ratings".
Please also refer to the recent rating actions on banks published on 15
February, 2012, ("Moody's Reviews Ratings for European Banks"
and "Moody's Reviews Ratings for Banks and Securities Firms with Global
Capital Markets Operations" for more information).
The principal methodology used in these ratings 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.
REGULATORY DISCLOSURES
Please click on this link http://www.moodys.com/viewresearchdoc.aspx?docid=PBS_SF287726
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 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 ratings.
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.
In addition to the information provided below please find on the ratings
tab of the issuer page at www.moodys.com, for each
of the ratings covered, Moody's disclosures on the lead rating
analyst and the Moody's legal entity that has issued each of the
ratings.
The relevant Releasing Office for each rating is identified under the
Debt/Tranche List section on the Ratings tab of each issuer/entity page
on moodys.com
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 Rast
Vice President - Senior Analyst
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 takes actions on German covered bonds
