Announcement follows actions on Italian banks
London, 14 May 2012 -- Moody's Investors Service has today downgraded six, affirmed one
and confirmed three ratings of various covered bonds issued by Italian
banks. This announcement was prompted by Moody's decision on 14
May 2012 to downgrade the senior debt ratings of the banks supporting
the relevant covered bond programmes. This also concludes the review
of Banca Popolare di Milano's covered bonds ratings, initiated
on February 16, 2012.
Please click this link http://www.moodys.com/viewresearchdoc.aspx?docid=PBS_SF284035
for the list of affected covered bond ratings.
For additional information on covered bond ratings, please refer
to the webpage containing Moody's related announcements http://www.moodys.com/eusovereign.
RATINGS RATIONALE
Today's covered bond downgrades and announcements follow Moody's rating
actions on the relevant issuers' senior unsecured ratings.
This also concludes the review of Banca Popolare di Milano's covered
bonds ratings, initiated on February 16, 2012. The
covered bonds of six programmes have been downgraded as a result of the
impact of the senior unsecured downgrades under Moody's Timely Payment
Indicator (TPI) framework. The covered bond rating of one programme
has been affirmed and the covered bonds of three programmes have been
confirmed as, following the senior unsecured downgrades, (i)
the expected loss of the covered bonds remain commensurate with their
current ratings; and (ii) the TPI framework does not constrain the
ratings below their current level. For more information on the
rating actions taken by Moody's Financial Institutions Group,
see the press release http://www.moodys.com/research/Moodys-downgrades-Italian-banks-outlooks-remain-negative--PR_244732
published on 14 May 2012.
The rating actions on the issuers' ratings conclude the review for
downgrade of Italian banks, initiated on 15 February 2012 (see "Moody's
Reviews Ratings for European Banks"). That review was 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.
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_SF284035
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 all Italian covered bonds
is currently "Improbable"-- 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 final positioning of the rating under the application
of TPIs framework , in particular for sub-investment-grade-rated
issuers.
Based on the current "Improbable" TPI for the Italian covered bond programmes,
the combination of the lower issuer ratings and TPIs constrains the covered
bond ratings to the following levels (as indicated by the TPI table):
-- Banca Carige's covered bond ratings capped at A1,
given its Baa2 issuer rating
-- Banca Monte Dei Paschi di Siena's covered bond
ratings capped at A2, given its Baa3 issuer rating
-- Banco Popolare Sociétà Cooperativa's
covered bond ratings capped at A2, given its Baa3 issuer rating
-- Credito Emiliano's covered bond ratings capped
at A1, given its Baa2 issuer rating
-- UBI's covered bond ratings capped at A1,
given its Baa2 issuer rating
Following the downgrade of Banca delle Marche to Ba1, Moody's
downgraded the corresponding mortgage covered bonds to A3, which
is two notches above the Baa2 level indicated by the TPI table.
The higher final rating was driven by a number of factors, including
(i) the issuer's Ba1 rating which is at the high end of the range
indicated by the TPI table for a Baa2 covered bond rating; (ii) high
level of committed over-collateralisation (27%); and
(iii) a four-year extension period for the payment of principal
under the covered bonds.
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 multinotch 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 multinotch 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
"How Sovereign Credit Quality May Affect Other Ratings". Please
also refer to the recent rating actions on banks published on 15 February
2012, (please see "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).
Over and above any TPI consideration, country risk constrains the
CTs' ratings at Aa2. For further information please refer
to "Moody's lowers the highest achievable covered bond ratings in
Italy, Portugal and Spain following the recent sovereign rating
actions", dated 23 February 2012.
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
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 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.
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.
Elise Savoye
Analyst
Structured Finance Group
Moody's France SAS
96 Boulevard Haussmann
Paris 75008
France
JOURNALISTS: 44 20 7772 5456
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Juan Pablo Soriano
MD - Structured Finance
Structured Finance Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Releasing Office:
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Moody's takes multiple actions on Italian covered bonds
