Frankfurt am Main, June 23, 2015 -- Moody's Investors Service has today upgraded the ratings of 11 German
covered bonds, by up to two notches, following the assignment
of Counterparty Risk (CR) Assessments to the relevant issuers (see press
releases "Moody's concludes reviews on 9 German public-sector
banks' ratings; takes action on another 6 banks' ratings" and
"Moody's concludes reviews on eight German commercial banking groups'
ratings" published 19 June 2015), concluding their reviews
initiated on 17 March 2015.
Moody's Financial Institutions Group assigned the CR Assessments
in line with the rating agency's revised global Banks methodology,
published 16 March 2015.
Specifically, the rating agency has changed its reference point
--the covered bond (CB) anchor -- for determining
the probability that an issuer will cease making payments under a covered
bond, before any recourse to the covered bond collateral.
Moody's will now use financial institutions' CR Assessments, when
available, as the reference point for the CB anchor.
Please click on this link http://www.moodys.com/viewresearchdoc.aspx?docid=PBS_SF411410
for the list of affected credit ratings. The list is an integral
part of this press release and identifies each affected transaction.
RATINGS RATIONALE
--- Berlin Hyp AG -- Public-Sector Covered
Bonds
With Berlin Hyp AG's CR Assessment of A1(cr) and a CB anchor of
the CR Assessment plus one notch, the TPI framework does not restrict
the public-sector covered bond ratings at a level below Aaa.
With 2% over-collateralisation (OC) on a present value basis,
as required by the German Pfandbrief Act, the expected loss of the
covered bonds is consistent with a Aaa rating. Currently,
the covered bonds benefit from 5.2% OC.
--- Deutsche Hypothekenbank AG - Mortgage
Covered Bonds
With Deutsche Hypothekenbank AG's CR Assessment of A2(cr) and a
CB anchor of the CR Assessment plus one notch, the TPI framework
does not restrict the mortgage covered bond ratings at a level below Aaa.
With 2% OC on a present value basis, as required by the German
Pfandbrief Act, the expected loss of covered bonds is consistent
with a Aa1 rating. To reach a Aaa covered bond rating, the
OC would need to be at least 11.0% (on an uncommitted basis).
Currently, the covered bonds benefit from 7.8% which
restricts the covered bonds to a Aa1 rating.
--- Deutsche Hypothekenbank AG -- Public-Sector
Covered Bonds
With Deutsche Hypothekenbank AG's CR Assessment of A2(cr) and a
CB anchor of the CR Assessment plus one notch, the TPI framework
does not restrict the public-sector covered bond ratings at a level
below Aaa. With 2% OC on a present value basis, as
required by the German Pfandbrief Act, the expected loss of the
covered bonds is consistent with a Aa1 rating. To reach Aaa,
the OC would need to be at least 8.5% (on an uncommitted
basis). Currently the covered bonds benefit from 5.5%
which restricts the covered bonds to a Aa1 rating.
--- Deutsche Kreditbank Mortgage Covered Bonds
Deutsche Kreditbank's CR Assessment is unpublished. The TPI
framework does not restrict the mortgage covered bond ratings at a level
below Aaa. With 2% OC on a present value basis, as
required by the German Pfandbrief Act, the expected loss of the
covered bonds is consistent with a Aa1 rating. The OC consistent
with the Aaa covered bond rating is 11.5% (on an uncommitted
basis). Currently, the covered bonds benefit from 94.2%
OC.
--- Deutsche Kreditbank Public-Sector Covered
Bonds
Deutsche Kreditbank's CR Assessment is unpublished. The TPI
framework does not restrict the public-sector covered bond ratings
at a level below Aaa. With 2% OC on a present value basis,
as required by the German Pfandbrief Act, the expected loss of the
covered bonds is consistent with a Aa1 rating. The OC consistent
with the Aaa covered bond rating is 7.0%. Currently,
the covered bonds benefit from 58.2% OC.
--- Hypothekenbank Frankfurt AG - Mortgage
Covered Bonds
With Hypothekenbank Frankfurt AG's CR Assessment of A3(cr) and a
CB anchor of the CR Assessment plus one notch, the TPI framework
does not restrict the mortgage covered bond ratings at a level below Aaa.
With 2% OC on a present value basis, as required by the German
Pfandbrief Act, the expected loss of the covered bonds is consistent
with a Aa2 rating. To reach a Aaa covered bond rating, the
OC would need to be at least 11.0% (on an uncommitted basis).
To reach a Aa1 covered bond rating, the OC would need to be at least
3.0% (on an uncommitted basis). Currently,
the covered bonds benefit from 4.8% OC; however,
there is uncertainty as to whether the issuer will maintain OC over and
above the minimum OC as required by the German Pfandbrief Act.
--- Hypothekenbank Frankfurt AG - Public-Sector
Covered Bonds
With Hypothekenbank Frankfurt's CR Assessment of A3(cr) and a CB
anchor of the CR Assessment plus one notch, the TPI framework does
not restrict the public-sector covered bond ratings at a level
below Aaa. With 2% OC on a present value basis, as
required by the German Pfandbrief Act, the expected loss of the
covered bonds is consistent with a Aa2 rating. To reach a Aaa covered
bond rating, the OC would need to be at least 19.5%
(on an uncommitted basis). To reach a Aa1 covered bond rating,
the OC would need to be at least 2.5% (on an uncommitted
basis). Currently the covered bonds benefit from 4.9%,
which restricts the covered bonds to a Aa1 rating.
--- HSH Nordbank AG - Ship Covered Bonds
Moody's expected loss modelling restricts the rating of ship covered
bonds at one notch above the CB anchor. With HSH Nordbank AG's
CR Assessment of Baa3(cr) and a CB anchor of the CR Assessment plus one
notch, this leads to a Baa1 rating for HSH Nordbank's covered
bonds.
--- Norddeutsche Landesbank - Girozentrale
- Aircraft Mortgage Covered Bond
Moody's expected loss modelling restricts the rating of the aircraft
covered bonds at one notch above the CB anchor. With NORD/LB's
CR Assessment of A2(cr) and a CB anchor of the CR Assessment plus one
notch, this leads to a Aa3 rating for NORD/LB's aircraft covered
bonds.
--- UniCredit Bank AG Mortgage Covered Bonds
With UniCredit Bank AG's CR Assessment of A1(cr) and a CB anchor
of the CR Assessment plus one notch, the TPI framework does not
restrict the mortgage covered bond ratings at a level below Aaa.
With 2% OC on a present value basis, as required by the German
Pfandbrief Act, the expected loss of the covered bonds is consistent
with a Aa1 rating. The OC consistent with the Aaa covered bond
rating is 8.5%. Currently, the covered bonds
benefit from 52.7% OC.
--- UniCredit Bank AG Public-Sector Covered
Bonds
With UniCredit Bank AG's CR Assessment of A1(cr) and a CB anchor
of the CR Assessment plus one notch, the TPI framework does not
restrict the mortgage covered bond ratings at a level below Aaa.
With 2% OC on a present value basis, as required by the German
Pfandbrief Act, the expected loss of the covered bonds is consistent
with a Aaa rating. Currently, the covered bonds benefit from
40.0% OC.
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 probability that the issuer will
cease making payments under the covered bonds (a CB anchor event);
and (2) the stressed losses on the cover pool assets following issuer
default.
The CB anchor for the programmes is the CR Assessment plus one notch.
The CR Assessment reflects an issuer's ability to avoid defaulting on
certain senior bank operating obligations and contractual commitments,
including covered bonds. Moody's may use a CB anchor of the CR
Assessment plus one notch in the European Union or otherwise where an
operational resolution regime is particularly likely to ensure continuity
of covered bond payments.
The cover pool losses for each programme is an estimate of the losses
that Moody's currently models if a CB anchor event occurs. Moody's
splits cover pool losses between market risks and collateral risks.
Market risks measure losses stemming from refinancing risks and risks
related to interest-rate and currency mismatches (these losses
may also include certain legal risks). Collateral risks measure
losses resulting directly from cover pool assets' credit quality.
Moody's derives the collateral risk from the collateral score.
TPI FRAMEWORK: Moody's assigns a TPI to each covered bond that indicates
the likelihood that the issuer will make timely payments to covered bondholders
following a CB anchor event. The TPI framework limits the covered
bond rating to a certain number of notches above the CB anchor.
Factors that would lead to an upgrade or downgrade of the ratings:
The CB anchor is the main determinant of a covered bond's rating robustness.
A change in the level of the CB anchor could lead to an upgrade or downgrade
of the covered bonds.
The TPI Leeway measures the number of notches by which Moody's might lower
the CB anchor 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 CB anchor and the TPI; (2) a multiple-notch
lowering of the CB anchor; or (3) a material reduction of the value
of the cover pool.
RATING METHODOLOGY
The principal methodology used in these ratings was "Moody's Approach
to Rating Covered Bonds" published in March 2015. Please see the
Credit Policy page on www.moodys.com for a copy of this
methodology.
REGULATORY DISCLOSURES
Please click on this link http://www.moodys.com/viewresearchdoc.aspx?docid=PBS_SF411410
for the List of Affected Credit Ratings. This list is an integral
part of this Press Release and provides, for each of the credit
ratings covered, Moody's disclosures on the following items:
- Covered Bond Programme
- Releasing Office
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.
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.
Patrick Widmayer
Asst Vice President - Analyst
Structured Finance Group
Moody's Deutschland GmbH
An der Welle 5
Frankfurt am Main 60322
Germany
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 Deutschland GmbH
An der Welle 5
Frankfurt am Main 60322
Germany
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's upgrades 11 German covered bond ratings
