Moody’s re­views cov­ered bonds of Cypriot is­suers for rat­ing cut

The Pak Banker - - Front Page -


Global rat­ing agency Moody’s to­day placed on re­view for down­grade the cov­ered bonds of sev­eral Cypriot banks, prompted by rat­ing ac­tions on the re­spec­tive is­suers. The B2 rat­ings as­signed to the cov­ered bonds backed by Cypriot res­i­den­tial mort­gage loans, is­sued by Bank of Cyprus Pub­lic Com­pany Lim­ited (BoC) and Cyprus Pop­u­lar Bank (CPB) re­spec­tively, have been placed on re­view for down­grade. Fur­ther­more, the B3 rat­ings of the cov­ered bonds is­sued by BoC and CPB, which are backed by Greek res­i­den­tial mort­gage loans, have also been placed on re­view for down­grade.

Cypriot cov­ered bonds backed by Cypriot as­sets are cur­rently rated two notches above the re­spec­tive is­suers’ se­nior un­se­cured rat­ings. Those backed by Greek as­sets are rated one notch above the re­spec­tive is­suers’ rat­ings.

The TPIs as­signed to th­ese trans­ac­tion is Very Im­prob­a­ble. Moody’s TPI frame­work does not cur­rently con­strain the rat­ings. The rat­ings as­signed by Moody’s ad­dress the ex­pected loss posed to in­vestors. Moody’s rat­ings ad­dress only the credit risks as­so­ci­ated with the trans­ac­tions. Other non-credit risks have not been ad­dressed, but may have a sig­nif­i­cant ef­fect on yield to in­vestors.

Cov­ered bond rat­ings are de­ter­mined af­ter ap­ply­ing a twostep process: an ex­pected loss anal­y­sis and a TPI frame­work anal­y­sis. 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.

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