Madrid, December 05, 2019 -- Moody's Investors Service ("Moody's") has upgraded to Aa2 from Aa3 the
ratings assigned to the mortgage covered bonds issued by UniCredit Bank
Czech Republic and Slovakia, a.s. (the issuer).
These covered bonds continue to be subject to the "old" Czech legal framework,
which means they do not benefit from the recent update of the covered
bond law.
RATINGS RATIONALE
Today's rating action follows the improvement of the credit quality of
UniCredit Bank Czech Republic and Slovakia, a.s.,
which does not carry a public rating. As a result of the improvement,
the covered bond (CB) anchor for the mortgage covered bonds is now higher.
The Timely Payment Indicator (TPI) assigned to this covered bond programme
is "Very Improbable". Moody's TPI framework does not constrain
the ratings. However, legal uncertainty remains regarding
whether over-collateralisation (OC) will remain in the cover pool
and available for the benefit of covered bondholders after an insolvency
of the issuer. Thus, Moody's limits the value attributed
to the OC in place, which constrains the covered bond rating to
Aa2.
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 this programme is CR assessment plus 1 notch.
The cover pool losses for this programme are 46.5%.
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 29.8% and collateral risk of 16.6%.
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 24.8%.
The over-collateralisation in the cover pool is 170%,
of which the issuer provides 10% on a "committed" basis.
Under Moody's COBOL model, the minimum OC consistent with
the Aa2 rating is 2.0%, of which 0.0%
needs to be in "committed" form to be given full value.
However, due to legal uncertainty regarding whether over-collateralisation
(OC) will remain in the cover pool and available for the benefit of covered
bondholders after an insolvency of the issuer, Moody's is
not relying on "committed" 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 "Covered Bonds Sector
Update", published quarterly.
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 UniCredit Bank Czech Republic and Slovakia - Mortgage Covered
Bonds, Moody's has assigned a TPI of Very Improbable.
RATING METHODOLOGY
The principal methodology used in these ratings was "Moody's
Approach to Rating Covered Bonds" published in February 2019.
Please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
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.
Based on the current TPI of "Very Improbable", the TPI
Leeway for this programme is 2 notches. This implies that Moody's
might downgrade the covered bonds because of a TPI cap if it lowers the
CB anchor by more than 2 notches 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.
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, category/class of
debt or security this announcement provides certain regulatory disclosures
in relation to each rating of a subsequently issued bond or note of the
same series, category/class of debt, security 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.
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.
Tomas Rodriguez-Vigil
Asst Vice President - 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
Client Service: 44 20 7772 5454
Jose de Leon
Senior Vice President/Manager
Structured Finance Group
JOURNALISTS: 44 20 7772 5456
Client Service: 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
Client Service: 44 20 7772 5454
