Frankfurt am Main, April 04, 2014 -- Moody's Investors Service has today upgraded to Aaa from Aa1 the ratings
of the public-sector covered bonds (Oeffentliche Pfandbriefe) and
the mortgage covered bonds (Hypothekenpfandbriefe) issued by Commerzbank
AG (the issuer/Commerzbank, deposits Baa1 stable, standalone
bank financial strength rating D+/adjusted baseline credit assessment
ba1).
RATINGS RATIONALE
Today's rating action concludes the reviews for upgrade initiated on 12
March 2014 when Moody's updated its rating methodology for covered bonds.
For further information please refer to "Moody's updates methodology approach
for rating covered bonds" published on 12 March 2014.
As part of the updated methodology, Moody's reference point
for determining the probability that Commerzbank will cease making payments
under the covered bond programmes, the covered bond (CB) anchor,
has changed from the senior unsecured rating (SUR) to SUR +1 notch,
given that Commerzbank's debt ratio is 5%-10%.
Moody's upgraded the ratings of the public-sector covered bonds
and the mortgage covered bonds following confirmation from the issuer
that it will support the covered bonds with over-collateralisation
(OC) levels consistent with the upgraded Aaa ratings. The OC level
consistent with the Aaa ratings on the mortgage covered bonds is 12.0%,
while the OC level consistent with the Aaa ratings on the public-sector
covered bonds is 3.5% (both levels on a present value basis).
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 cover pool losses for each programme is an estimate of the losses
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.
The cover pool losses for the public-sector covered bond programme
stand at 5.5%, with market risk of 3.5%
and collateral risk of 2.0%. The collateral score
is 4.0%. The present value OC in this cover pool
is 29.7%, of which 2.0% is the statutory
minimum. The minimum OC level that is consistent with the Aaa rating
target is 3.5% in present value terms.
The cover pool losses for the mortgage covered bond programme stand at
15.4%, with market risk of 12.0% and
collateral risk of 3.4%. The collateral score is
5.0%. The present value OC in this cover pool is
70.0%, of which 2.0% is the statutory
minimum. The minimum OC level that is consistent with the Aaa rating
target is 12.0% in present value terms.
These numbers show that Moody's is relying on uncommitted OC in its expected
loss analysis for the Aaa ratings of the public-sector covered
bonds and the Aaa ratings of the mortgage covered bonds.
All numbers in this section derive from Moody's most recent modelling,
based on data as per 30 September 2013 in respect of the public-sector
covered bonds and based on data as per 31 August 2013 in respect of the
mortgage covered bonds. The stated actual OC level of the mortgage
covered bond is the level reported on 11 October 2013, which was
the latest reporting prior to the initial rating assignment date.
For further details on cover pool losses, collateral risk,
market risk, collateral score and TPI Leeway across all covered
bond programmes rated by Moody's please refer to "Moody's Global Covered
Bonds Monitoring Overview", published quarterly.
TPI FRAMEWORK: Moody's assigns a TPI, which 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.
For Commerzbank's public-sector covered bonds and mortgage covered
bonds, Moody's has assigned a TPI of "High".
FACTORS THAT WOULD LEAD TO A DOWNGRADE OF THE RATING:
The CB anchor is the main determinant of a covered bond program's
rating robustness. 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 TPIs of "High" for both covered bond programmes,
there is a TPI Leeway of one notch. This implies that if Moody's
downgrades the issuer rating by two notches, the rating agency might
also downgrade the covered bonds because of a TPI cap, all other
variables being equal.
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 2014.
Please see the Credit Policy 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 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.
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.
Martin Lenhard
Vice President - Senior 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 covered bond ratings of Commerzbank to Aaa
