Madrid, December 13, 2013 -- Moody's Investors Service has today taken multiple rating actions on Spanish
mortgage and public-sector covered bonds, following the rating
agency's raising of its timely payment indicators (TPIs) for all
of these bonds to "Probable" from "Improbable".
Accordingly, a number of covered bond ratings in Spain have now
been upgraded in line with Moody's TPI framework. Covered bonds
previously on review for downgrade because of the review of an issuer
rating have been placed on review with direction uncertain. Covered
bonds currently rated at A3 (the country ceiling) are not affected.
Furthermore, Moody's has confirmed one covered bond rating.
Specifically, Moody's has:
-Upgraded the ratings of 12 Spanish covered bonds by one notch.
-Confirmed the rating of one Spanish covered bond.
-Changed the review placement of two Spanish covered bonds to direction
uncertain from on review from downgrade.
Please click this link http://www.moodys.com/viewresearchdoc.aspx?docid=PBS_SF350641
for the List of Affected Credit Ratings. This list is an integral
part of this press release and identifies each affected issuer.
RATINGS RATIONALE
The raising of the TPIs to "Probable" is underpinned by the
combination of different factors that have lowered the refinancing risk
of the Spanish covered bonds. The lower refinancing risk is prompted
by:
(1) The stabilisation of the Spanish economy, reflected in the change
of Spain's Baa3 government bond rating outlook to stable from negative
(https://www.moodys.com/research/Moodys-changes-outlook-on-Spains-Baa3-government-bond-rating-to--PR_287655).
(2) Stronger market liquidity, reflected in an improvement of funding
conditions for Spanish banks.
(3) The high level of over-collateralisation (OC) maintained by
Spanish issuers, despite the deleveraging of their balance-sheets
and/or transfer of assets by some issuers to Sociedad de Gestión
de Activos procedentes de la Reestructuración (SAREB). High
amounts of OC can compensate for the higher discount prices, if
the insolvency administrator has to sell the assets to meet payments under
the bonds.
(4) Legal improvements that reflect the systemic importance of covered
bonds. Amongst other legal changes, in recent years Moody's
has observed (a) the development of transparency rules on the cover pool
assets; (b) the transfer of underperforming cover pool assets to
SAREB; and (c) a clearer legal framework at the national level that
improves the restructuring and orderly wind-down of Spanish entities.
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 issuer's probability
of default (measured by the issuer's rating); and (2) 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 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 rating.
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.
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 principal methodology used in these ratings 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.
The Credit Ratings of the covered bonds were assigned in line with Moody's
existing Credit Rating Methodology entitled "Moody's Approach to Rating
Covered Bonds", dated July 2012. Moody's notes that on 19
September 2013 it published a Request for Comment (RFC). In the
RFC, 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. Please refer to Moody's Request
for Comment, titled "Approach to Determining the Issuer Anchor Point
for Covered Bonds" for further details regarding the implications of the
proposed Credit Rating Methodology changes on Moody's Credit Ratings.
For further details, please see https://www.moodys.com/research/Approach-to-Determining-the-Issuer-Anchor-Point-for-Covered-Bonds--PBS_SF342448.
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.
This rated entity (Bankia, S.A.) or related third
party 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 entities.
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.
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
Miguel Lopez Patron
Associate Analyst
Structured Finance Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Jose l de Leon
Senior Vice President/Manager
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 takes multiple actions on Spanish covered bonds; raises Spanish TPIs to Probable
