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Rating Action:

Moody's upgrades some Italian and Spanish covered bond ratings

21 Jan 2015

Actions follow raising of respective country ceilings

Madrid, January 21, 2015 -- Moody's Investors Service has today upgraded the ratings of covered bonds issued under 5 Italian and 7 Spanish covered bond programmes, prompted by the raising to Aa2 of Italy's (Baa2 stable) and Spain's (Baa2 positive) country ceilings, from A2 and A1 respectively on 20 January 2015. For further information please see "Moody's publishes updated methodology on country risk ceilings": http://www.moodys.com/viewresearchdoc.aspx?docid=PR_316765. Concurrently, the rating agency upgraded and placed on review for upgrade the rating of the covered bonds issued under one Italian covered bond programme, and placed on review for upgrade the rating of the covered bonds issued under another Italian programme.

The rating actions comprise: (1) 11 upgrades to Aa2; (2) one upgrade to A1; (3) one upgrade to Aa3 and placement on review for upgrade; and (4) one placement on review for upgrade.

Please click on this link http://www.moodys.com/viewresearchdoc.aspx?docid=PBS_SF394170 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.

RATINGS RATIONALE

Today's rating actions reflect Moody's update to its rating methodology for local-currency country risk ceilings in currency unions: https://www.moodys.com/research/Local-Currency-Country-Risk-Ceiling-for-Bonds-and-Other-Local--PBC_178623. As a result of this update, Moody's raised the local-currency country risk ceilings of Italy and Spain to Aa2. Local-currency country ceilings limit the maximum rating that domestic-currency denominated covered bonds can achieve in a given country.

At the same time, Moody's says that it has analysed the credit quality of the affected covered bond programmes' cover pools considering its updated residential mortgage-backed securities (RMBS) rating methodology released on 20 January 2015. For further reference please see Moody's Approach to Rating RMBS Using the MILAN Framework: https://www.moodys.com/research/Moodys-Approach-to-Rating-RMBS-Using-the-MILAN-Framework--PBS_SF392484.

Moody's upgraded the ratings of the covered bonds issued under 11 programmes to Aa2, the rating of the covered bonds issued under one programme to Aa3 and the ratings of covered bonds issued under another programme to A1 because the expected loss was compatible with the new ratings, and their timely payment indicators (TPI) do not constrain the ratings at a lower level. In its review, and to determine the extent of the upgrades, Moody's considered whether the level and/or form of over-collateralisation the issuer holds (or plans to hold) was adequate in light of Moody's methodology.

Following the upgrade to Aa3, the mortgage covered bond programme of Unione di Banche Italiane S.c.p.A. (deposits Baa3 negative, standalone BFSR D+ negative/ adjusted baseline credit assessment ba1) was also placed on review for upgrade, given the potential for these ratings to reach the Aa2 country ceiling. During the review process, Moody's will consider whether the level and form of the over-collateralisation that Unione di Banche Italiane S.c.p.A. plans to hold is compatible with an Aa2 rating.

Likewise, the A2 ratings of public-sector covered bonds issued by Intesa Sanpaolo Spa (Baa2 deposits, stable, BFSR D+ stable/adjusted BCA baa3) were also placed on review for upgrade, pending a review of the level and form of the over-collateralisation that Intesa Sanpaolo Spa plans to hold.

The ratings of the covered bonds issued under Credito Emiliano SpA's (deposits Baa3 negative, bank financial strength rating D+ negative/ adjusted BCA baa3) covered bond programme were upgraded to A1 and are restricted at this level by the timely payment indicator (TPI) framework.

Moody's notes that it has changed to provisional rating of (P)Aa2 the provisional (P)A1 rating assigned to the mortgage covered bonds series ISIN:ES0413211824 to be issued by Banco Bilbao Vizcaya Argentaria, S.A. (deposits Baa2 positive, standalone bank financial strength rating C- stable/ adjusted baseline credit assessment baa2)

The ratings of covered bonds issued in other jurisdictions where the country ceilings rose, such as Portugal (Ba1 stable) or Ireland (Baa1 stable) have been unaffected, mainly because the TPI framework restricts the maximum rating uplift over the covered bond anchor (CB anchor) for those programmes.

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 , TPI leeway and the minimum over-collateralisation consistent with the current covered bond rating.

The ratings that Moody's has assigned address the expected loss posed to investors. Moody's ratings address only the credit risks associated with the transaction. Moody's did not address other non-credit risks, but those risks could have a significant effect on yield to investors.

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 RATINGS:

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.

We published a Request for Comment (RFC) on 8 January 2015. In the RFC, we propose an adjustment to the anchor point we use in our covered bond analysis. If the revised credit rating methodology is implemented as proposed, the credit ratings of the covered bonds may be affected. Please refer to Moody's RFC, titled "Update to Covered Bond Methodology Resulting from New Counterparty Risk Measure" for further details regarding the implications of the proposed credit rating methodology changes on Moody's Credit Ratings https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBS_SF390257.

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 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 some Italian and Spanish covered bond ratings
No Related Data.
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