Announcement follows actions on Italy's sovereign rating and Italian banks
London, 16 February 2012 -- Moody's Investors Service has today downgraded or placed on review for
downgrade the ratings of various covered bonds issued by Italian banks.
This follows Moody's decision earlier this week to downgrade Italy's
sovereign rating to A3 from A2, and to subsequently initiate reviews
for downgrade of the senior debt ratings of the various Italian banks
supporting the covered bond programmes.
For full details, please refer to the webpage containing all Moody?s
related announcements.
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Please click on this http://www.moodys.com/viewresearchdoc.aspx?docid=PBS_SF276631
for the List of Affected Credit Ratings. This list is an integral part
of this Press Release and identifies each affected issuer.
Moody's notes that the covered bonds issued by Cassa Depositi e Prestiti
SpA continue to be rated Aa1 and remain on review for downgrade.
During the review, Moody's will assess the rating implications
of the cash-collateralisation mechanism of future payment obligations
on the then-outstanding covered bonds, following both the
exercise of the voluntary programme termination in November 2011 and the
conclusion of the tender offer announced early February 2012.
RATINGS RATIONALE
Moody's decision to downgrade selected Italian covered bonds was
prompted by the negative effects on the rating agency's covered
bond analysis stemming from its recent downgrade of Italy's sovereign
rating; while the decision to initiate reviews for downgrade of other
Italian covered bonds was primarily prompted by the negative effects on
the rating agency's covered bond analysis as a result of the recently
initiated reviews for downgrade of the senior debt ratings of the banks
supporting the covered bonds. The review for downgrade will also
assess the impact of the sovereign downgrade on Moody's expected
loss analysis.
The sovereign rating downgrade and reviews for downgrade of the banks
supporting the covered bonds have had the following impact on Moody's
covered bond analysis:
- DOWNGRADE OF SELECTED COVERED BONDS
Following the downgrade of the sovereign rating of Italy to A3 from A2,
Moody's has lowered its timely payment indicator (TPI) for the majority
of mortgage-backed covered bonds to "Improbable" from
"Probable". Accordingly, a number of covered
bond ratings in this country have now been lowered in line with Moody's
TPI framework. Moody's highlights that there are many factors
which may influence the application of TPIs, in particular for sub-investment-grade-rated
issuers and lower-rated countries.
Moody's has lowered the TPIs in line with its assessment that the
declining credit strength of the sovereign means that the government and
financial institutions may be less able and/or willing to provide or obtain
funds to support the refinancing of covered bonds after an issuer default.
- REVIEW FOR DOWNGRADE OF SELECTED COVERED BONDS
Any downgrade of the senior debt ratings of the banks supporting the covered
bonds would negatively affect the covered bonds through their effect on
both the expected loss method and the TPI framework. Furthermore,
the impact of the downgrade of the sovereign may also impact the expected
loss of the covered bonds.
- EXPECTED LOSS METHOD: As the issuer's credit strength is
incorporated into Moody's expected loss assessment, any downgrade
of the issuer's rating will increase the expected loss on the covered
bonds. Furthermore, following the downgrade of the sovereign,
Moody's will reassess: (i) the refinancing margins; and
(ii) in line with the lowering of the TPI, the likelihood that covered
bonds may suffer a late payment following issuer default. 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. Moody's further notes that, if the senior debt rating
of the banks is downgraded below a threshold level in the single-A
category, the credit that Moody's gives to the over-collateralisation
held in the cover pool may be limited, if such over-collateralisation
is not considered "committed". Moody's considers over-collateralisation
to be "committed" if the issuer's discretion to remove the collateral
is sufficiently restricted.
- TPI FRAMEWORK: The TPI framework will limit the covered
bond ratings to a certain number of notches above the senior debt ratings
of the banks supporting the covered bonds. This level is determined
by the relationship between the TPI (currently assessed by Moody's
to be "Improbable" for all Italian covered bonds) and the
senior debt ratings of the banks supporting the covered bonds.
Moody's highlights that there are many factors that may influence
the application of TPIs, in particular for sub-investment-grade-rated
issuers and lower-rated countries.
Moody's expects to maintain the review pending (i) the final rating
action on, or confirmation of, the issuer's rating,
and (ii) a determination of over-collateralisation levels consistent
with any downgraded issuer rating, in conjunction with the issuers'
willingness to provide further over-collateralisation where applicable.
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: expected
loss analysis and 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 timely payment indicator
(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 credit
strength of the underlying issuer. 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 noted in Moody's Special Comment entitled "Rising Severity of
Euro Area Sovereign Crisis Threatens Credit Standing of All EU Sovereigns"
(28 November 2011), the risk of sovereign defaults or the exit of
countries from the euro area is rising. As a result, Moody's
could potentially lower the maximum achievable rating for covered bonds
transactions in some countries, which could result in rating downgrades.
RATING METHODOLOGY
The principal methodology used in these ratings was "Moody's
Rating Approach to 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
agents 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 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.
The below contact information is provided for information purposes only.
Please see the issuer page on www.moodys.com for Moody's
regulatory disclosure of the name of the lead analyst and the office that
has issued the credit rating.
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
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.
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Moody's takes negative rating actions on multiple Italian covered bonds
