Actions follow sovereign rating announcement
Madrid, October 25, 2012 -- Moody's Investors Service has today maintained the review for downgrade
placements of 51 Spanish multi-issuer covered bonds covered bonds
(SMICBs) and confirmed the rating of one series. At the same time,
Moody's has downgraded nine series and has placed 12 series on review
with direction uncertain.
Today's actions follow (1) the conclusion of the rating reviews of several
Spanish issuers' unsecured ratings; and (2) Moody's confirmation
on 16 October of Spain's government bond rating at Baa3 (negative)
from Baa3 (on review for downgrade).
Please click this link http://www.moodys.com/viewresearchdoc.aspx?docid=PBS_SF304339
for the List of Affected Credit Ratings. This list is an integral
part of this press release and identifies each affected issuer.
For further details on the confirmation of Spain's sovereign rating,
please refer to the special comment published on 16 October 2012 (http://www.moodys.com/research/Moodys-confirms-Spains-government-bond-rating-at-Baa3PP-3-assigns--PR_257500).
For more information on the rating actions taken by Moody's Financial
Institutions Group, see the press release published on 24 October
2012. (http://www.moodys.com/research/Moodys-concludes-rating-reviews-on-majority-of-Spanish-banks-after--PR_256561?WT.mc_id=BankRatings2012).
For additional information on covered bond ratings, please refer
to the webpage containing Moody's related announcements http://www.moodys.com/eusovereign.
RATINGS RATIONALE
Moody's has maintained the review for downgrade placements of 51 SMICBs,
following the maintenance of the review for downgrade placements of some
of the participating underlying issuers' unsecured ratings in those
series.
The confirmation of one series follows the confirmation of the ratings
of all of the underlying participants in that series.
Moody's has downgraded nine series and kept them on review for downgrade.
This follows the deterioration of the credit strength and subsequent downgrade
of some of the underlying participants since Moody's last review
in June 2012.
Moody's has decided to place certain series on review with direction
uncertain in instances where the expected loss of the series has improved
since Moody's last review, mainly due to the absorption of
weaker participants with stronger names. Moody's notes that
in these cases, some of the underlying participants' rating
remain on review for downgrade.
Following the confirmation of Spain's sovereign, Spain's
country ceiling remains at A3. As a result, the highest achievable
rating for Spanish covered bond also remains at A3.
KEY RATING ASSUMPTIONS/FACTORS
SMICBs can be considered as a repackaging of a pool of Spanish covered
bonds. Each SMICB is backed by a group of Spanish covered bonds
(Cédulas Hipotecarias, CHs) that are bought by a Fund,
which in turn issues SMICBs. Moody's rating for any SMICB is determined
after applying a two-step process:
--- FIRST STEP: MOODY'S DETERMINES A RATING
BASED ON THE EXPECTED LOSS ON THE SMICB
The main driver of the expected loss (EL) of a SMICB is the credit strength
of the CHs backing the SMICBs. If the CHs perform, the SMICBs
will be fully repaid. CHs are rated according to Moody's published
covered bond methodology. In the absence of any other support (for
example, such as a reserve fund), the EL of the SMICB is determined
directly from the weighted-average EL (weighted by their outstanding
amounts) of the CHs backing the SMICB.
The primary model used is Moody's Covered Bond Model (COBOL), which
determines EL as a function of (1) the issuer's probability of default
(measured by its long-term rating); and (2) the stressed losses
on the cover pool assets, following issuer default.
--- SECOND STEP: A SECONDARY RATING TARGET
FOR SMICBs IS THE TIMELY PAYMENT
Under the SMICB rating approach, Moody's gives value to two primary
liquidity supports that improve the probability of timely payment if any
CH backing the SMICBs fails to make a payment on a scheduled payment date.
These are (1) the maturity extension on the SMICBs, which should
ensure that a period of at least two years is available following any
default on the CH (this period would be available to realise the value
of the assets backing the CH); and (2) a liquidity facility (LF)
that is available to cover interest payments on the SMICBs. Under
the SMICB rating method, the LF benefiting any SMICB can be sized
to improve the timely payment of the SMICB to a level commensurate with
the SMICBs' ratings.
Irrespective of the size of the reserve or the liquidity facility,
Moody's limits the maximum rating uplift of an SMICB over and above the
ratings of the weakest issuers within a series. As a result of
the downgrade of some of the underlying participating issuers, the
SMICBs ratings have been negatively affected.
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.
SENSITIVITY ANALYSIS
The robustness of a covered bond rating largely depends on the underlying
issuer's credit strength.
A multiple-notch downgrade of the covered bonds might occur in
certain limited circumstances, such as (1) a sovereign downgrade
negatively affecting the issuers' senior unsecured rating; (2) a
multiple-notch downgrade of the issuers or downgrade to low sub-investment
grade; or (3) a material reduction of the value of the cover pool.
On 21 August 2012, Moody's released a Request for Comment seeking
market feedback on proposed adjustments to its modelling assumptions.
These adjustments are designed to account for the impact of rapid and
significant country credit deterioration on structured finance transactions.
If the adjusted approach is implemented as proposed, the rating
of the notes affected by today rating action may be negatively affected.
See "Approach to Assessing the Impact of a Rapid Country Credit Deterioration
on Structured Finance Transactions", (http://www.moodys.com/research/Approach-to-Assessing-the-Impact-of-a-Rapid-Country-Credit--PBS_SF294880)
for further details regarding the implications of the proposed methodology
changes on Moody's ratings.
RATING METHODOLOGY
The methodologies used in these ratings were "Moody's Approach
to Rating Covered Bonds" published in July 2012, and "Moody's
Approach to Rating Spanish Multi-Issuer Covered Bonds" published
in September 2009. Please see the Credit Policy page on www.moodys.com
for a copy of these methodologies.
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 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 did not receive or take into account a third-party
assessment on the due diligence performed regarding the underlying assets
or financial instruments related to the monitoring of these transactions
in the past six months.
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.
Jose de Leon
Senior Vice President
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 takes multiple actions on Spanish multi-cedulas
