London, 19 June 2015 -- Moody's Investors Service announced today that following the assignment
of Counterparty Risk (CR) Assessments to the majority of issuers of the
underlying cedulas, it has upgraded the ratings of twenty eight
series of Spanish multi-issuer covered bonds (SMICBs) and confirmed
the ratings of seven series. Moody's has also upgraded the
rating of one subordinated loan.
Please click this link for the list of affected credit ratings http://www.moodys.com/viewresearchdoc.aspx?docid=PBS_SF410997.
This list is an integral part of this press release and identifies each
affected issuer.
Today's actions conclude the review of SMICB ratings that Moody's initiated
on 20 March 2015 (see "Moody's places on review for upgrade 38 Spanish
multicedulas transactions").
RATINGS RATIONALE
Today's rating actions on the SMICBs follow Moody's assignment of a new
CR Assessment for the issuers of the underlying cedulas (see "Moody's
concludes reviews on 20 Spanish banks' ratings"). The CB anchor
for these issuers is the CR Assessment plus one notch. With the
assignment of the CR Assessment, the CB anchor for the majority
of affected issuers is now higher than before.
Please refer to https://www.moodys.com/viewresearchdoc.aspx?docid=PR_327965.
For four participating issuers, there is no CR Assessment,
and their credit quality has been assessed either through private monitored
ratings or credit estimates. Two of these issuers participate in
only one series each with less than 6% exposure. For the
other two issuers which participate in more than one series, additional
details are provided below.
The CB anchor for one issuer has been assessed through a credit estimate.
This issuer participates in twenty five series with an average exposure
of 14.8% and a maximum exposure of 30.8%.
As part of its base case, Moody's has stressed large concentrations
of single obligors bearing a credit estimate as described in "Updated
Approach to the Usage of Credit Estimates in Rated Transactions",
published in October 2009 and available at http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_120461.
The CB anchor for another issuer has been assessed through a private monitored
rating. This issuer participates in three series with an average
exposure of 29.4% and a maximum exposure of 39.2%.
This private rating is under review, and given the size of the issuer's
participation, the conclusion of this rating review may impact the
rating of the related SMICBs.
Today's actions also take into account updated information on the underlying
mortgage pools of participating issuers.
Moody's has upgraded the rating of twenty nine series (including one subordinated
loan) because of an improvement in the expected loss of the SMICBs (as
defined below) since Moody's last review.
Moody's has confirmed the rating of seven series where there is no change
in the expected loss. Of these, three series have exposures
to a participant whose private rating is on review as noted above.
Factors that would lead to an upgrade or downgrade of the ratings:
The robustness of a structured multi-issuer covered bond rating
largely depends on the underlying issuers' credit strength as reflected
in their CB anchors, and the support provided by the liquidity facility
and reserve fund, if any.
A multiple-notch downgrade of the SMICBs might occur in certain
limited circumstances, such as (i) a sovereign downgrade negatively
affecting the issuers' CB anchor and the TPI; (ii) a multiple-notch
lowering of the CB anchor or (iii) a material reduction of the value of
the cover pool.
Loss and Cash Flaw analysis:
The ratings assigned by Moody's address the expected loss posed to investors.
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
(Cedulas Hipotecarias, CHs) that are bought by a Fund, which
in turn issues SMICBs.
Moody's rating for any SMICB is determined after applying a three-step
process:
First step: Calculating the Expected Loss (EL) for the Cedulas backing
the SMICB.
The main driver of an SMICB's EL is the credit strength of the Cedulas
backing the SMICB. If the Cedulas perform, the SMICBs will
be fully repaid. Cedulas are rated according to our published "Moody's
Approach to Rating Covered Bonds".
Second step: Calculating the EL for the SMICBs.
In the absence of any credit 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 Cedulas backing the
SMICB. Where the SMICB benefits from a reserve fund, the
SMICB may achieve a lower EL than the weighted-average EL of the
Cedulas backing the SMICB. The EL of the SMICB is the average EL
of the single tranche ranking senior to the subordinated loan which originally
funded the reserve fund. The loss distribution is determined by
a single factor model which is numerically solved through a Monte Carlo
simulation.
Third step: Calculating the probability of default for the SMICB
or assessing the sufficiency of the Liquidity Facility (LF) for the SMICB.
Under the SMICB rating approach, Moody's gives value to two
primary liquidity support mechanisms, which improve the probability
of timely payment if any Cédula backing the SMICB fails to make
a payment on a scheduled payment date. These are: i) the
maturity extension on the SMICB, which should ensure that a period
of at least two years is available following any default on the Cédula.
This period would be available to realise the value of the assets backing
the Cedulas; and ii) a LF that is available to cover interest payments
on the SMICB. Under the SMICB rating method, the LF for an
SMICB is sized to improve the timely payment of the SMICB to a level commensurate
with the rating of the SMICBs. The size of the LF is primarily
determined by: i) the probability of default of the Cédulas
backing the SMCIB; ii) the correlation between these Cedulas;
and iii) the level of concentration to the different Cedulas backing the
SMCIB. However, regardless of the size of the LF, Moody's
would limit the maximum rating of the SMICB by applying its Timely Payment
Indicator (TPI) methodology for covered bonds. The TPI framework
limits the rating uplift that SMICBs may achieve over the weighted average
CB anchor of the underlying Cedulas' issuers and may constrain the
final covered bond rating to a lower level than the maximum potential
rating under the EL Model. The TPI used to assess the maximum rating
uplift over the weighted average CB anchor of the underlying Cedulas'
issuers for each SMICB is typically two levels above the one assigned
to the underlying Cedulas.
Methodologies Underlying the Rating Action:
The methodologies used in these ratings were "Moody's Approach to Rating
Covered Bonds" published in March 2015, and " Moody's Approach to
Rating Spanish Multi-Issuer Covered Bonds" published in March 2015.
Please see the Credit Policy page on www.moodys.com for
a copy of these 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 describes its loss and cash flow analysis in the section
"Ratings Rationale" of this press release.
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.
The following information supplements Disclosure 10 ("Information
Relating to Conflicts of Interest as required by Paragraph (a)(1)(ii)(J)
of SEC Rule 17g-7") in the regulatory disclosures made at
the ratings tab on the issuer/entity page on www.moodys.com
for each credit rating as indicated:
Moody's was not paid for services other than determining a credit
rating in the most recently ended fiscal year by the person(s) that paid
Moody's to determine this credit rating.
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.
Hemal Shah
Asst Vice President - 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
Ian Perrin
Senior Vice President/Manager
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 multiple rating actions on 36 Spanish multicedulas
