Places nine ratings on review for upgrade and confirms three ratings previously on review for downgrade
NOTE: On March 26, 2014, the press release was revised as follows: In the first sentence of the fourth paragraph, the number of transactions was changed from 58 to 55. Revised release follows:
Madrid, March 12, 2014 -- Moody's Investors Service has today upgraded by one notch the ratings
of covered bonds issued under 15 European programmes. Concurrently,
the rating agency placed nine ratings on review for upgrade and confirmed
three ratings, which were previously on review for downgrade.
Today's rating actions follow Moody's update of its covered
bond rating methodology. The rating agency has adjusted its reference
point, the covered bond (CB) anchor, for determining the probability
that an issuer will cease making payments under a covered bond programme.
Please click on this link http://www.moodys.com/viewresearchdoc.aspx?docid=PBS_SF359934
for the list of affected credit ratings. The list is an integral
part of this press release. For a list of the disclosures on each
of the credit ratings covered please see the ratings rationale section
of this press release.
Additionally, the covered bonds of a further 55 transactions now
benefit from a CB anchor that is higher than the senior unsecured/deposit
rating (SUR) used prior to the methodology update. Please click
on this link http://www.moodys.com/viewresearchdoc.aspx?docid=PBS_SF359933
for the list of affected programmes. The higher CB anchor reduces
the minimum collateral level which is consistent with the bonds'
current ratings; it also increases the robustness of the covered
bond ratings against any future issuer rating downgrade.
These transactions however did not benefit from a rating upgrade,
largely because they were already Aaa, or were at their respective
sovereign ceilings.
RATINGS RATIONALE
Today's rating actions reflect Moody's update of its rating
methodology for covered bonds. In the European Union and Norway,
Moody's now bases the CB anchor on the higher of (1) the issuer's
adjusted baseline credit assessment (BCA) plus up to two notches;
or (2) the SUR plus up to one notch. For the programmes affected
by these rating actions, the new CB anchor is higher than their
SUR, reflecting a lower probability that the issuer will stop servicing
its payment obligations under the covered bonds.
The CB anchor's level of notching over the issuer's adjusted
BCA or SUR depends on the issuer's debt ratio (i.e.,
0%-5% for zero notches of uplift, 5%-10%
for one notch of uplift or 10%+ for two notches of uplift
over the adjusted BCA only). The debt ratio is the issuer's
bail-in-able debt to total liabilities. Moody's
calculates the level of bail-in-able debt in accordance
with the principles described in Appendix A2 of the methodology.
The debt ratio does not impact the CB anchor in cases where the SUR already
incorporates material levels of government support.
The disclosures on each of the credit ratings affected by today's
rating actions include the CB anchor point, cover pool losses,
collateral risk, market risk, collateral score, TPI
(timely payment indicator), TPI leeway and the minimum over-collateralisation
consistent with the current covered bond rating.
The ratings of covered bonds issued from nine programmes are on review
for upgrade following today's rating actions. Moody's
review employing the updated methodology will take into account additional
information which the issuer may provide. This information may
include the level and/or form of over-collateralisation the issuer
plans to hold, and information relevant to its debt ratio.
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 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.
TPI FRAMEWORK: Moody's assigns a TPI, which indicates the
likelihood that the issuer will make timely payments to covered bondholders
if the issuer defaults. 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 RATING:
The CB anchor is the main determinant of a covered bond'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.
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.
PRINCIPAL 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.
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.
Jose I de Leon
Senior Vice President/Manager
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 ratings of 15 European covered bonds following methodology update
