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
