Madrid, June 28, 2016 -- Moody's Investors Service has today upgraded to A3 from Baa3 the rating
on the covered bonds issued by ABANCA Corporacion Bancaria, S.A.
(ABANCA or the issuer) (deposits B2 positive, adjusted baseline
credit assessment b2; counterparty risk (CR) assessment Ba3(cr)).
RATINGS RATIONALE
This rating action follows Moody's upgrade of ABANCA's Counterparty Risk
(CR) Assessment to Ba3(cr) from B2 (cr) on 27 June 2016. As a result,
the covered bond (CB) anchor for this programme, is now two notches
higher.
The Timely Payment Indicator (TPI) of Probable now restricts the rating
of this covered bonds at A3. The programme holds sufficient over-collateralisation
(OC) to achieve the new rating (please see below Expected Loss section
for more information).
For further details on the rating actions on ABANCA Corporacion Bancaria,
S.A., please refer to Moody's press release (http://www.moodys.com/viewresearchdoc.aspx?docid=PR_351015)
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 a CB anchor
event.
The CB anchor for ABANCA covered bonds is 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.
The cover pool losses for ABANCA covered bonds are 32.6%%.
This is an estimate of the losses Moody's currently models following a
CB anchor event. Moody's splits cover pool losses between market
risk of 18.8% and collateral risk of 13.8%.
Market risk measures losses stemming from refinancing risk and risks related
to interest-rate and currency mismatches (these losses may also
include certain legal risks). Collateral risk measures losses resulting
directly from cover pool assets' credit quality. Moody's derives
collateral risk from the collateral score, which for this programme
is currently 20.5%.
The over-collateralisation in the cover pool is 292.5%
of which ABANCA provides 25% on a "committed" basis. The
minimum OC level consistent with the A3 rating is 23%, of
which the issuer should provide 0% in a "committed" form.
These numbers show that Moody's is not relying on "uncommitted" OC in
its expected loss analysis.
For further details on cover pool losses, collateral risk,
market risk, collateral score and TPI Leeway across covered bond
programmes rated by Moody's please refer to "Moody's Global Covered Bonds
Monitoring Overview", published quarterly. All numbers in
this section are based on the most recent Performance Overview (based
on data, as of end March 2016).
TPI FRAMEWORK: Moody's assigns a "timely payment indicator" (TPI),
which measures the likelihood of 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.
For the ABANCA covered bonds, Moody's has assigned a TPI of Probable.
Factors that would lead to an upgrade or downgrade of the ratings:
The CB anchor is the main determinant of a covered bond programme'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.
The TPI assigned to ABANCA covered bonds is Probable. The TPI Leeway
for this programme is 0 notches. This implies that Moody's might
downgrade the covered bonds because of a TPI cap if it lowers the CB anchor
by one notch, all other variables being equal.
A multiple-notch downgrade of the covered bonds might occur in
certain circumstances, such as (1) a country ceiling or sovereign
downgrade capping a covered bond rating or negatively affecting the CB
Anchor and the TPI; (2) a multiple-notch downgrade 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 August 2015. Please see the
Ratings Methodologies page on www.moodys.com for a copy
of this 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 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 credit rating action on the support provider and in relation to
each particular credit 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 credit rating action,
and whose ratings may change as a result of this credit 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.
Moody's considers a rated entity or its agent(s) to be participating
when it maintains an overall relationship with Moody's. On
this basis, the rated entity or its agent(s) is considered to be
a participating entity. The rated entity or its agent(s) generally
provides Moody's with information for the purposes of its ratings
process.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
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.
Miguel Lopez Patron
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
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 upgrades ABANCA mortgage covered bonds ratings
