EUR7.3 billion of notes affected
London, 28 November 2012 -- Moody's Investors Service has today placed on review for downgrade the A2 ratings of the mortgage covered bonds issued by Banco Popolare Società Cooperativa (the issuer), prompted by Moody's review for downgrade of the issuer's rating, initiated on 27 November 2012. The bonds are governed by the Italian legal framework.
Today's review for downgrade is prompted by the review for downgrade of the issuer's ratings (Baa3 deposits; BFSR D+/BCA ba1; Prime-3, all on review for downgrade). For additional details, please see http://www.moodys.com/research/Moodys-reviews-Banco-Popolares-Baa3P-3-ratings-for-downgrade--PR_260629.
The TPI assigned to this transaction is "Improbable" and the TPI constrains the covered bond ratings at their current level.
KEY RATING ASSUMPTIONS/FACTORS
Covered bond ratings are determined after applying a two-step process: an expected loss analysis and a TPI framework analysis.
EXPECTED LOSS: Moody's determines a rating based on the expected loss on the bond. The primary model used is Moody's Covered Bond Model (COBOL), which determines expected loss as (1) a function of the issuer's probability of default (measured by the issuer's rating); and (2) the stressed losses on the cover pool assets following issuer default.
The cover pool losses for Banco Popolare Società Cooperativa's mortgage covered bonds are 27.4%. This is an estimate of the losses Moody's currently models if Banco Popolare Società Cooperativa defaults. Cover pool losses can be split between market risk of 22.4% and collateral risk of 5%. Market risk measures losses as a result of 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 the credit quality of the assets in the cover pool. Collateral risk is derived from the collateral score, which for this programme is currently 7.5%.
The over-collateralisation (OC) in the cover pool is 42.6%, of which the issuer provides 19.5% on a "committed" basis. The minimum OC level that is consistent with the A2 rating target is 3.6%. Therefore, Moody's is not relying on "uncommitted" 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 "Moody's EMEA Covered Bonds Monitoring Overview", published quarterly. All numbers in this section are based on Moody's most recent modelling (based on data, as per 30 September 2012).
TPI FRAMEWORK: Moody's assigns a "timely payment indicator" (TPI), which indicates the likelihood that timely payment will be made to covered bondholders following issuer default. The effect of the TPI framework is to limit the covered bond rating to a certain number of notches above the issuer's rating.
The robustness of a covered bond rating largely depends on the issuer's credit strength.
The TPI Leeway measures the number of notches by which the issuer's rating may be downgraded before the covered bonds are downgraded under the TPI framework.
The TPI assigned to Banco Popolare Società Cooperativa's mortgage covered bonds is Improbable. The TPI Leeway for this programme is limited, and thus any downgrade of the issuer ratings may lead to a downgrade of the covered bonds.
A multiple-notch downgrade of the covered bonds might occur in certain limited circumstances, such as (1) a sovereign downgrade negatively affecting both the issuer's senior unsecured rating and the TPI; (2) a multiple-notch downgrade of the issuer; or (3) a material reduction of the value of the cover pool.
On 21 August 2012, Moody's released a Request for Comment seeking market feedback on proposed adjustments to its modelling assumptions. These adjustments are designed to account for the impact of rapid and significant country credit deterioration on structured finance transactions. If the adjusted approach is implemented as proposed, the rating of the notes affected by today rating action may be negatively affected. See "Approach to Assessing the Impact of a Rapid Country Credit Deterioration on Structured Finance Transactions", (http://www.moodys.com/research/Approach-to-Assessing-the-Impact-of-a-Rapid-Country-Credit--PBS_SF294880) for further details regarding the implications of the proposed methodology changes on Moody's ratings.
The principal methodology used in this rating was "Moody's Approach to Rating Covered Bonds" published in July 2012. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.
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Elise Savoye Analyst Structured Finance Group Moody's France SAS 96 Boulevard Haussmann Paris 75008 France 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 Ltd. One Canada SquareCanary WharfLondon E14 5FA United Kingdom JOURNALISTS: 44 20 7772 5456 SUBSCRIBERS: 44 20 7772 5454 (C) 2012 Moody's Investors Service, Inc. and/or its licensors and affiliates (collectively, "MOODY'S"). All rights reserved.
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