Moody`s - Presale report

International Structured Finance
Pre-Sale Report
Europe, Middle East, Africa
GCE Covered Bonds
Covered Bonds / France
This pre-sale report addresses the structure and
characteristics of the proposed transaction
based on the information provided to Moody’s
as of [16 May 2008]. Investors should be aware
that certain issues concerning this transaction
have yet to be finalised. Upon conclusive review
of all documents and legal information as well
as any subsequent changes in information,
Moody’s will endeavour to assign definitive
ratings to this transaction. The definitive ratings
may differ from the provisional ratings set forth
in this report. Moody’s will disseminate the
assignment of definitive ratings through its
Client Service Desk. This report does not
constitute an offer to sell or a solicitation of an
offer to buy any securities, and it may not be
used or circulated in connection with any such
offer or solicitation.
Estimated Conversion Date
June 2008
Contacts
Quentin Rutsaert
+44 20 7772-5611
[email protected]
PROVISIONAL (P) RATINGS
Series
Coupon
Legal Final
Maturity
Rating
Issuance
Serie 1
[•] %
[•]
(P)Aaa
EUR [•] billion
The ratings address the expected loss posed to investors. Moody’s ratings address only the credit risks
associated with the transaction. Other non-credit risks have not been addressed, but may have a significant
effect on yield to investors.
TRANSACTION SUMMARY
Moody’s has assigned a provisional long-term rating of (P)Aaa to the covered bonds
(the “Covered Bonds”) to be issued by GCE Covered Bonds (the “Issuer”) shortly after
the date hereof under the terms of a €25 billion covered bonds programme (the
“Programme”) established by it.
The covered bond investors will benefit from:
1.
The credit strength of the Caisse Nationale des Caisses d’Epargne et de
Prévoyance (the “Sponsor Bank” or “CNCE” rated Aa2; Prime-1). Moody’s
believes that the structure of the Programme enables the Issuer to benefit from
the credit strength of the Sponsor Bank whose involvement in and commitment to
the Programme is evidenced by the several roles and functions carried out by it in
the context of such Programme;
2.
A pool of assets (the “Cover Pool”) indirectly backing the outstanding Covered
Bonds, comprising loans granted by 18 regional Caisses D’Epargne (each a
“Collateral Provider”) to borrowers for the funding of residential real property
located in France (each a “Home Loan”). The repayment obligations of the
borrowers under the terms of the Home Loans will be either secured by a
mortgage or guaranteed by a third party guarantee company (“société de
cautionnement”); and
3.
8.1% minimum contractual nominal over-collateralisation.
Massimo Catizone
+44 20 7772-5428
[email protected]
Client Service Desk
London: +44 20 7772-5454
[email protected]
New York: +1 212 553-1653
Monitoring
[email protected]
Website
www.moodys.com
As is the case with other covered bonds, Moody’s considers the credit strength of the
transaction to be linked to that of certain parties, in particular the Sponsor Bank.
Should such credit strength deteriorate, all other things being equal, the credit
strength of the Covered Bonds is expected to be negatively affected.
20 May 2008
OPINION
Strengths of the Transaction
−
−
−
−
−
−
Sponsor Bank. The following structural features enable the Programme to benefit
from the credit strength of the Sponsor Bank:
•
The Sponsor Bank assumes several roles and functions in the context of the
Programme, such as Borrower under the facility granted by the Issuer, as
Administrator, Collateral Security Agent and Issuer Calculation Agent. The
Sponsor Bank will also be responsible for ensuring that the Programme’s
hedging strategy is complied with at all times.
•
The obligation of the Sponsor Bank to request and the obligation of the
Collateral Providers to add additional eligible assets to the Cover Pool by way
of granting a collateral security (“garantie financière”) over such assets for
the benefit of the Issuer. In the event that the asset cover ratio is lower than
1 in respect of any Asset Cover Test calculation period additional collateral
in an amount sufficient to achieve a ratio of 1 or above shall be transferred
prior to the immediately following asset cover test date.
Credit Quality of the Cover pool: The holders of the Covered Bonds will have the
benefit of the support provided by the Cover Pool. As of the date of this report,
the Cover Pool is well-seasoned (the average seasoning being 37 months) and
has an average unindexed loan-to-value of 69.86% (the indexed LTV being
58.1%). The quality of the Cover Pool is reflected in its collateral score of around
5.4%, which is better than the average collateral score of more than 7%
calculated over all mortgage-backed covered bond transactions rated by Moody’s.
Strong income underwriting standards. All the Home Loans have been checked
to confirm that borrowers can, based on their income at time of origination, afford
to repay the loan over its life. This check is carried out on a more conservative
basis than is generally the case across Europe. Further income is in all cases
verified, and this verification does not rely on borrowers’ self-certification.
8.1% of committed over-collateralisation. The Cover Pool should continue to
offer substantial value up until Sponsor Bank Default due to the Asset Cover Test
which may adjust the level of assets required to be placed in the Cover Pool
based on the evolution of house prices, and the level of losses and arrears in the
Cover Pool.
Refinancing Risk. Provisions to allow for a principal refinancing period of 180
business days or to automatically extend the maturity date of the Covered Bonds
should in the event of a Sponsor Bank Default: 1) improve the sales value of the
Cover Pool; 2) increase chances of timely principal payments.
Market Risk: Initially there will be no currency risk in this transaction.
Mismatches between the Cover Bonds and Cover Pool will hedged pursuant to a
hedging strategy as of the loss of A2 or P-1 by the Sponsor Bank. The payments
under the swaps rank prior to the payments of the interest and principal under
the Covered Bonds, reducing the risk of early termination due to a failure to pay
by the Issuer. A strength of this swap is that the failure by the Issuer to make a
payment in full or in part under the swap shall not allow during the grace period
the swap counterparty (i) to terminate the swap on the basis of such failure or (ii)
to withhold in full or in part any payment to be made to the Issuer.
Weaknesses and Mitigants
−
2 • Moody’s Investors Service
Sponsor Bank: As with most covered bonds, until Sponsor Bank Default the
Sponsor Bank has the ability to materially change the nature of the Programme.
For example, new assets may be added to the Cover Pool, new bonds issued with
varying promises and new hedging arrangements entered into. These changes
could impact the credit quality of the Cover Pool, refinancing risk and market
risks. Mitigant: the rating of Sponsor Bank, rated Aa2.
GCE Covered Bonds
−
GCE Covered Bonds
Credit Quality of the Cover Pool:
•
Substitution risk: As in most covered bond frameworks there are few
restrictions on the future composition of the Cover Pool and hence
substitution risk exists. Mitigants: the (i) Cover Pool assets are subject to
eligibility criteria (please see below), (ii) the Asset Cover Test should ensure
there is a Cover Pool appropriately sized to cover the obligations under the
Covered Bonds.
•
Valuation: As is typically the case in France, valuations are based on
purchase price. Mitigant: this is taken into account in Moody’s analysis of
the Cover Pool.
•
Quality of the underlying security: The Home Loans are secured through
either (i) a first ranking mortgage, or a second ranking mortgage, but only in
the event that the Sponsor Bank is also the beneficiary of the first ranking
mortgage, or (ii) with respect to about 65% of the Cover Pool, a guarantee
provided by Saccef. Saccef is (indirectly) wholly-owned by Natixis, which on
its turn is held for about 34.5% by the Sponsor Bank and another 34.5% is
held by Banque Federale des Banques Populaires. Accordingly, there is some
degree of correlation between the credit strength of the Sponsor Bank and
SACCEF’s own credit strength. Hence, the quality of the guarantee securing
the borrowers’ payment obligations may be gradually adversely affected as
the credit quality of the Sponsor Bank deteriorates. Mitigant: (A) In the
scenario of a combined default of the Sponsor Bank and SACCEF, at loss of
A3 a reserve fund will be funded according to the mechanics described below
on p. 9 (Credit quality of the Cover Pool), which the Sponsor Bank can
exclusively use for entering into additional guarantee arrangements with a
guarantor guaranteeing the commitments of SACCEF under the SACCEFguaranteed Home Loans. The amount credited to the reserve will be subject
to a floor equal to 2% of the outstanding principal amount of the Home
Loans Guaranteed by SACCEF. Following the occurrence of a Sponsor Bank
Event of Default and provided that the Issuer is unable to find a substitute
guarantor guaranteeing the relevant SACCEF commitments, the cash
standing to the credit of such reserve, which is part of the Collateral
Security, will be transferred to the Issuer who could in particular use it to
register mortgages as appropriate. (B) Once the Sponsor Bank has lost
Baa2, the Covered Bondholders should benefit from the support of an
additional guarantee or re-insurance commitment with respect to the
commitments of SACCEF under the relevant Home Loans. (C) In addition to
the 5.4% collateral score, Moody’s has assumed 1% losses due to the risk
that the Substitute Home Loan Guarantee Reserve would not be sufficient to
establish a replacement security of the Home Loans guaranteed by SACCEF.
−
Quality of over-collateralisation. Covered Bonds are only issued against the
portion of loans with an LTV up to 80%. However, over-collateralisation may also
be made up of the portion of the Home Loan with an LTV in excess of 80%. Such
collateral is of lower quality. Mitigants: Moody’s factors into its analysis the
quality of the “over-collateralisation” when determining required overcollateralisation levels.
−
Refinancing risk: In common with most covered bonds, following Sponsor Bank
Default Covered Bondholders may rely on proceeds being raised through the sale
of, or borrowing against, assets in the Cover Pool. Following a Sponsor Bank
Default the market value of these assets may be subject to substantial volatility.
Mitigants: 1) the rating of the Sponsor Bank; 2) the principal refinancing period
of 180 business days as built in the pre-maturity test or the automatically
extended maturity date in case of soft bullet Covered Bonds; 3) the stressed
refinance margins applied by Moody’s.
−
Market risk: The counterparty for the Issuer Hedging Agreements may be
affiliated to the Sponsor Bank Group, so prior to Sponsor Bank Default a swap
replacement would have to be found for the swap to continue to support the
transaction post Sponsor Bank Default. Mitigants: collateral posting provisions
Moody’s Investors Service • 3
should provide material support until Sponsor Bank Default, and replacement
triggers may protect bondholders following Sponsor Bank Default.
−
4 • Moody’s Investors Service
Time Subordination: After Sponsor Bank Default, later maturing Covered Bonds
are subject to time subordination. Principal cash collections may be used on a
first-come-first-served basis, paying earlier-maturing Covered Bonds prior to latermaturing Covered Bonds. This could lead to over-collateralisation being eroded
away before any payments are made to later paying Covered Bonds. Mitigant:
the Amortisation Test.
GCE Covered Bonds
STRUCTURE SUMMARY (see page 6 for more details)
Issuer:
GCE Covered Bonds (not rated)
Sponsor Bank:
CNCE (Aa2/P-1)
Structure Type:
Covered Bonds
Issued under Covered Bonds Law:
No
Applicable Covered Bonds Law:
n/a
Main Seller/Originator:
(remove accordingly)
18 Regional Caisses d’Epargne and Crédit Foncier de France
Main Servicer:
18 Regional Caisses d’Epargne and Crédit Foncier de France
Intra group Swap Provider
No info
Monitoring of Cover Pool:
PricewaterhouseCoopers Audit
Trustees:
Issuer Security Agent (Natixis)
Timely Payment Indicator
Probable
COVERED BONDS SUMMARY (for more details see section “Moody’s rating methodology”)
Total Covered bonds Outstanding
0
Currency of covered bonds:
First issuance is expected to be in € (100%)
Extended Refinance Period:
Hard and soft bullets can be issued ([first issuance will be hard bullet)
Principal Payment Type
First issuance will be hard bullet ([100]%)
Interest Rate Type:
[ ]% fix / [ ] % floating
COLLATERAL SUMMARY (see page 8 for more details)
Size of Cover Pool:
€8.8 billion
Main collateral type in Cover Pool:
100% secured residential loans
Main Asset Location:
100% in France
Loans Count:
159,698
Currency:
€ (100%)
Concentration of 10 biggest borrowers:
Not relevant
WA Current LTV:
58.1%
WA Seasoning:
3 years
WA Remaining Term:
15.5 years
Interest Rate Type:
87% fixed assets (including floating with cap at 1% or less above current rate) and 13%
of floating assets (with no cap or with a cap that is more than 1% above current rate)
“Committed” Over Collateralisation:
8.1%
Collateral Score:
5.4%
Further details:
See Appendix 1
Pool Cut-off Date:
February 2008
5 • Moody’s Investors Service
GCE Covered Bonds
STRUCTURAL AND LEGAL ASPECTS
Chart 1:
Structure Chart
Issuer Security
Covered Bonds
Investors
Covered Bonds
Proceeds
Interest and principal payment
under the Covered Bonds
Issuer
Security Agent
Issuer
(GCE Covered Bonds)
Collateral Security
Sponsor Bank
Advances
Interest and
principal payment
Sponsor Bank
(CNCE)
Facility
Collateral Providers
(Various Group
Entities)
The Issuer
The Issuer is a regulated
bankruptcy-remote SPV.
The Issuer was incorporated on 7 August 2007. It is a French societe anonyme à conseil
d’administration. It is a subsidiary of the Sponsor Bank and is licensed as a credit
institution with limited and exclusive purpose by the French Comité des établissements de
crédit et des entreprises d’investissements (“CECEI”).
As a special purpose vehicle its objects and purpose will to the extent possible be
restricted to those activities necessary to carry out its obligations under the Programme.
The Issuer does not have and will not have any employees, nor will it own or lease any
premises. It will undertake not to engage in unrelated business activities or incur any
material liabilities other than those contemplated under the Programme.
In its relations with the parties to the Programme the Issuer benefits from limited
recourse and non-petition clauses, which provide among others that amounts payable by
the Issuer under the Programme shall be recoverable only from and to the extent of the
amount of the available funds.
The Issuer is intended to be a ring-fenced, bankruptcy remote entity that will be
unaffected by the insolvency of the Sponsor Group (“GCE”). Under French law, Issuer’s
assets would only be caught in insolvency proceedings of any other member of the
Sponsor Group if either (i) there is commingling of its assets (confusion de patrimoine)
with the assets of that member of the Sponsor Group or (ii) the Issuer is a “fictious”
entity (societe fictive).
Pursuant to a Shareholder Letter the Sponsor Bank will undertake in favour of the
Covered Bondholders of all Series to be issued (i) not to take any steps for the voluntary
winding-up, dissolution or reorganisation of the Issuer, (ii) to procure that the Issuer will
at all times comply with its undertakings and other obligations as set forth in the banking
license of the Issuer or in the related application form filed with the CECEI, (iii) not to
permit any amendments to the Programme Documents otherwise than as permitted
under the Programme Documents, (iv) not to permit that the Issuer cease to be
consolidated with CNCE as head of tax group, (v) not to dispose of the whole or any part
of the shares of the Issuer it owns and (vi) to take necessary steps to remain majority
shareholder of the Issuer.
GCE Covered Bonds
Moody’s Investors Service • 6
The Issuer shall have independent
director.
The Board of Directors consists of 5 directors who are also employees of the Sponsor
Bank and of one director which is independant from the Issuer, its shareholders or its
management.
The Security Package
The Collateral Providers will grant
collateral security over residential
loans.
The proceeds from the issuance of the Covered Bonds will be used by the Issuer to fund
Sponsor Bank Advances to be made available to the Sponsor Bank. The Sponsor Bank
will on its turn make advances to the participating Collateral Providers. Each participating
Collateral Provider shall benefit from advances in the same proportion as it has
contributed to the Cover Pool.
The Collateral Providers will grant Eligible Assets as collateral Security for the benefit of
the Issuer in order to secure the payment obligations owed by the Sponsor Bank. The
collateral security shall not entail any transfer of title with respect to the relevant Eligible
Assets until enforcement.
As long as no Sponsor Bank Event
of Default has occurred, the Asset
Cover Test will be applied at least
once a month.
As long as no Sponsor Bank Event of Default has occurred and been enforced, the
Collateral Security Agent shall monitor the collateral security assets so as to ensure
compliance with the asset cover test, the details of which are reproduced under Appendix
3.
The Pre-Maturity Test mitigates
refinancing risk.
As no Sponsor Bank Event of Default has occurred and been enforced, the Sponsor Bank
shall fund the Cash Collateral Account up to an amount sufficient so as to ensure
compliance with a pre-maturity test. According to this test, for each Series of hard bullet
Covered Bonds, during the period of 180 business days preceding the final maturity
thereof, and upon downgrading of the Sponsor Bank below P-1 (short-term rating), the
Sponsor Bank, as cash collateral provider, shall fund the cash collateral account so as to
ensure that with respect to each relevant Series of hard bullet Covered Bonds, the
amount of cash funded into the cash collateral amount is equal to the costs and the
amount of principal scheduled to be redeemed at the final maturity of the relevant
Series.
Upon enforcement of the Collateral Security following the occurrence of a Borrower Event
of Default, the amortisation test ensures that the total amount or value of transferred
assets is equal or higher than the aggregate Covered Bond outstanding principal amount.
This test is applied at least once a month following the enforcement of a Sponsor Bank
event of default. One single failure of the test constitutes a Non-Compliance of the test,
while two consecutive failures will constitute a Breach of Amortisation Test, which also
constitutes an Issuer Event of Default.
Commingling risk is mitigated
mainly by the Collection Loss
Reserve Account.
Following the service of a Sponsor Bank Enforcement Notice and the transfer of title over
the Home Loans to the Issuer, the Covered Bondholders will be exposed to the risk that:
(i) payment continue to the made to the Collateral Providers instead of being paid to the
Issuer directly; and (ii) the collections standing to the credit of the Collection Accounts
are not capable of being identified or are not transferred to the Issuer in a timely
manner. This may translate in a potential liquidity shortage or, in the event that the
collections have not been properly earmarked, in a credit issue. Moody’s believes that
the above risks are mitigated by (i) the Collection Loss Reserve Account (which must be
funded at loss of P-1 by the Sponsor Bank) and could be mitigated by the extended grace
period under the swaps (9 calendar months in favour of the Sponsor Bank instead of 3
business days as provided under the ISDA Master 1992).
A list of trigger events and a description of the Sponsor Bank Enforcement Notice and
Issuer Enforcement Notice are provided under Appendix 4.
Eligibility Criteria
The Cover Pool shall be comprised of investments in short term instruments with low
risks, the various accounts of the Issuer (among which the cash collateral account),
receivables under eligible loan agreements, the credit standing on the Collection Loss
Reserve Account and the Substitute Home Loan Guarantee Reserve. Here are some of
the eligibility criteria applicable to the Home Loans:
GCE Covered Bonds
−
the customary lending procedures of the originator were satisfied before the
inclusion of the related Home Loan into the Cover Pool;
−
the Home Loan is a residential loan;
Moody’s Investors Service • 7
−
the underlying property is located in France; it is governed by French law;
−
all sums under the Home Loan are secured by a fully effective security (see more
details below);
−
the Home Loan is not in arrears of payments;
−
its is either monthly or quarterly amortising;
−
the underlying borrower does not benefit from a contractual right of set-off and the
opening by the borrower under the Home Loan of a bank account dedicated to
payment due under the Home Loan is not provided for in the relevant contractual
arrangements as a condition precedent to the originator of the Home Loan.
MOODY’S RATING METHODOLOGY
Credit Strength of the Issuer
The Sponsor Bank (CNCE) is rated
Aa2; Prime-1.
The proceeds of the Covered Bond issuances will be on-lent by the Issuer to the Sponsor
Bank by way of Sponsor Bank Advances under a multicurrency term facility agreement
(the “Facility”). The Sponsor Bank, which is responsible for the refinancing of the
Sponsor Bank Group’s network, shall use the on-lent funds to make advances to the
participating Collateral Providers. The terms and conditions of the Sponsor Bank
Advances shall mirror the Final Terms of the Covered Bond, it being provided that the
interest to be paid by the Sponsor Bank under a Sponsor Bank Advance shall be the
financing costs of the Issuer under the Covered Bonds funding increased by a margin
fixed by the Issuer and agreed by the Sponsor Bank. As a consequence, the entire
amount of interest and principal due under the Covered Bonds will be full recourse
against the Sponsor Bank, which is rated Aa2.
Each payment obligation of the
Issuer under the Covered Bonds
will be mirrored by an obligation of
the Sponsor Bank under the
Facility granted by the Issuer.
Moody’s believes that (i) the obligations imposed on the Sponsor Bank to ensure that a
minimum amount of over-collateralisation in the Cover Pool is maintained; and (ii) the
Sponsor Bank’s commitment to the Programme evidenced by the several functions
carried out by it in the context of such Programme, enable the Issuer to benefit from the
credit strength of the Sponsor Bank.
For more information on the fundamental credit quality of the Sponsor Bank, please see
the latest Moody’s bank credit report on CNCE and GCE.
The Credit Quality of the Cover Pool
The Home Loans in the Cover Pool are residential loans only. Each Home Loan in the
Cover Pool has to satisfy the Eligibility Criteria.
The Cover Pool is comprised of
prime residential secured loans.
The total loan balance as of the date of this report was approximately €8.8 billion. The
Cover Pool is well seasoned (37 months), has an average unindexed loan-to-value of
69.86% (the indexed LTV being 58.1%)] and is characterised by some degree of
geographical concentration (with almost 20% of the Home Loans originated in the
Département of Ile de France). 13% of the Home Loans in the Cover Pool are floating rate
and 87% are fixed rate (the latter percentage also includes the 3% of the pool comprised
of floating rate loans with a cap that is not more than 1% above the current rate of each
Home Loan. 94% of the properties are owner-occupied, 4% are buy-to-let and 2% are
second homes. The income of each borrower has been verified by the relevant Caisse
d’Epargne.
All the above factors were incorporated into Moody’s analysis of the Programme.
Moody’s calculates a Collateral Score based on the characteristics of the Home Loans
registered in the Cover Pool, using a scoring model in order to assess the credit quality
of the Cover Pool. The collateral score for this Programme is 5.4%. In addition to the
5.4% collateral score, Moody's has modelled 1% losses related to the risk that the
Substitute Home Loans Guarantee Reserve would not be sufficient to establish a
replacement security of the Home Loans guaranteed by SACCEF.
As with most covered bonds in Europe, there are few restrictions or limitations on the
future composition of the Cover Pool. This may have the effect of creating substitution
risk. Mitigants to the substitution risk which should protect the quality of the Cover Pool
over time include the following:
8 • Moody’s Investors Service
GCE Covered Bonds
The Home Loans are secured by a
mortgage or by a SACCEF
guarantee.
The correlation between the
Sponsor Bank and SACCEF is
mitigated by the Home Loan
Guarantee Triggers:
At loss of A3: a Reserve must be
funded.
At loss of Baa2: a guarantor rated
A3 or above must be appointed to
guarantee SACCEF’s commitments
under the SACCEF-guaranteed
loans.
−
The Eligibility Criteria;
−
If the Asset Cover Test detects a deterioration of the assets, the Sponsor Bank shall
ensure that more collateral is added in order to satisfy the Asset Cover Test; and
−
The Cover Pool composition will be monitored by Moody’s.
−
The Home Loan Security
An important aspect of the quality of the Cover Pool lies in the quality of the security
guaranteeing each loan in the Cover Pool. The Home Loans included in the Cover Pool
may be secured through either (i) a first ranking mortgage, or a second ranking mortgage,
but only in the event that the relevant Caisse d’Epargne is also the beneficiary of the first
ranking mortgage, or (ii) a guarantee provided by SACCEF or another eligible guarantor.
At the time of the first issuance it is expected that approximately 35% of the pool will be
secured by a mortgage, while about 65% will be secured by a guarantee granted by
SACCEF. The proportion of guaranteed loans is expected to grow over time. SACCEF is
100%-owned by Natixis Guaranties, whose parent company – Natixis – is jointly held by
the Sponsor Bank group and by the Groupe Banques Populaires, each holding
approximately 34,5%. Moody’s considers that it is not excluded that a weakening of the
credit strength of the Sponsor Bank would have a significant impact on the credit
strength of SACCEF. Accordingly, the quality of the guarantee securing the receivables of
the relevant Caisses d’Epargne under a Home Loans secured by SACCEF could be
gradually adversely affected as the credit quality of the Sponsor Bank deteriorates. This
is mitigated by the fact that at loss of A3 by the Sponsor Bank, a Substitute Guarantee
Home Loan Reserve in an amount equal to the higher of (x) 2 % of the outstanding
principal amount of the Home Loans then guaranteed by SACCEF and (y) an amount
determined by the Issuer on the basis of firm offers from at least 3 potential eligible
SACCEF guarantors to guarantee SACCEF’s commitments with respect to the Home
Loans guaranteed by SACCEF. The Failure to establish the Substitute Guarantee Home
Loan Reserve within 30 days of the loss of A3 shall constitute a Sponsor Bank Event of
Default. Further, at loss of Baa2 by the Sponsor Bank, a guarantor rated A3 or above
must have accepted to guarantee the commitments of SACCEF under the SACCEFguaranteed Home Loans within 60 calendar days. If no substitute guarantee is entered
into within 90 days of the loss of Baa2, the SACCEF-guaranteed Home Loans will account
for 0 under the Asset Cover Test.
Refinancing Risk
After Sponsor Bank Default, the
Cover Pool may be subject to
volatility.
Following Sponsor Bank Default, where the “natural” amortisation of the Cover Pool
assets alone cannot be relied on to repay principal, Moody’s assumes that funds must
be raised against the Cover Pool at a discount if covered bondholders are to receive
timely principal payment. After a Sponsor Bank Default the market value of these assets
may be subject to substantial volatility. Examples of the stressed refinance margins used
by Moody’s for different types of prime quality assets are published in Moody’s method
piece (“European Structured Covered Bonds: Moody’s Rating Approach”, 7 June 2005 –
SF21457).
Aspects specific to this programme that are refinancing positive include:
The Covered Bonds will benefit
from liquidity support
−
The Covered Bonds will benefit from the liquidity obtained via the automatic
extension of the maturity with respect to soft bullet Covered Bonds and from the
liquidity support provided through the Pre-Maturity Test.
−
The Covered Bonds will benefit from the liquidity support provided by the grace
period contained in the swap
Aspects specific to this programme that are refinancing negative include:
GCE Covered Bonds
−
In the scenario of a combined default of the Sponsor Bank and of SACCEF, the
refinancing cost of the Home Loans that have lost their guarantee and which as a
consequence have become unsecured loans, cannot be estimated on the basis of
historic data since such société de cautionnement (such SACCEF) has never been
subject to bankruptcy.
−
The Issuer will not have the possibility to assign liabilities under the Covered Bonds
together with the transfer of Home Loans.
Moody’s Investors Service • 9
Market Risk
Hedging Strategy: while the
Sponsor Bank is rated A2( or
above) and P-1, any market risk
will be hedged in accordance with
the Sponsor Bank’s existing
internal hedging policies.
For so long as the Sponsor Bank is rated A2 (or above) and P-1, any market risk in
respect of the Cover Pool will be hedged pursuant to the terms of the Sponsor Bank’s
internal hedging policies. As of the date of this report, the Sponsor Bank Advances, the
assets in the Cover Pool and the Covered Bonds are expected to be denominated in
Euro. Any interest risk will be mitigated in accordance with the Sponsor Bank’s internal
hedging policies.
The hedging strategy provides that
the specific swaps to cover
interest and currency risk will be
entered into at loss of A2 or loss
of P-1 by the Sponsor Bank.
Under the terms of the hedging strategy contemplated by the Programme upon the loss
of A2 or P-1 by the Sponsor Bank, swap agreements at the Issuer level and swap
agreements at the Sponsor Bank level will be entered into. Each of such swaps will be
entered into not later than 30 days from the date on which such a downgrade has
occurred. Failure to do so will constitute an Issuer Event of Default. Payments under the
swaps (except any termination payment) will rank immediately after the payment of taxes
under the various waterfalls of the Programme. Following provisions, which are positive in
our analysis (as compared to the ISDA master documentation), will be included (i)
standard substitution rating-based triggers, (ii) restriction of the ISDA bankruptcy events
in respect of the Sponsor Bank qualifying as Event of Default and (iii) extension of the
grace period from 3 business days to 9 calendar months.
The hedging strategy can be described as follows:
As long as the title over the Cover
Pool has not been transferred to
the Issuer, a back-to-back swap
will be in force between the
Sponsor Bank and the Issuer.
−
For as long as the pool of eligible loans has not been transferred to the Issuer
following an enforcement of the security rights granted to the Issuer, the obligations
of the Issuer under the Covered Bonds will be hedged by the Retail Banks according
to their usual and current strategies and practices, which have not been reviewed by
Moody’s for the purpose of this transaction. Mitigant: The high rating of the Sponsor
Bank is not only a reflection of its credit strength, but also of its competence in
managing risk;
There is a risk that the swaps
provided for by the hedging
strategy will not be in place.
−
Upon the loss of A2 or loss of P-1by the Sponsor Bank, hedging in respect of the
Cover Pool must be in place at the level of the Sponsor Bank in order to hedge
interest rate and currency risks which would arise after enforcement by the Issuer of
the pledge over the Eligible Assets. There is no reassurance that such hedging
arrangements will be entered into in a timely manner. Mitigants: (i) the failure by
the Sponsor Bank to enter into a compliant swap would trigger an Issuer Event of
Default and a Borrower Event of Default; and (ii) the trigger for entering into a
compliant swap has been set relatively conservatively.
LINKAGE
The rating of the Covered Bonds is
linked to the strength of the
Sponsor Bank.
All Covered Bonds are linked to a sponsor bank.
The probability of default on the
Covered Bonds may diverge from
what is expected for a Aaa senior
unsecured debt instrument;
however, Moody’s primary rating
target is expected loss.
As a result the covered bonds will come under increasing rating stress as the sponsor
bank’s credit strength deteriorates. Reasons for this include:
Moody's covered bond ratings are primarily determined by the expected loss posed to
investors. However, these ratings may also be constrained by the issue of "linkage" to
the underlying sponsor bank, i.e. the risk of a late payment of either interest or principal
on the covered bond following sponsor bank default.
− Refinancing risk: Following sponsor bank default, if principal receipts from collections
of the cover pool are not sufficient to meet the principal payment on a covered bond,
funds may need to be raised against the cover pool. However, the fact that the Issuer
has defaulted may negatively impact the ability to raise funds against the cover pool.
− The exposure of the programme to the choices of the sponsor bank: In the context of
this transaction for example, prior to Sponsor Bank Default, the Sponsor Bank may add
new assets to the Cover Pool, take out certain assets (provided the Asset Cover Test is
complied with) or ask the Sponsor Bank to issue further Covered Bonds; in addition the
Sponsor Bank can enter into new hedging arrangements and issue bonds or other debt
instruments. Each of these actions could negatively impact the value of the Cover Pool.
More generally, the rating of covered bonds is linked to the sponsor bank default by the
incorporation of the strength of the sponsor bank in Moody’s rating method.
10 • Moody’s Investors Service
GCE Covered Bonds
As a result of this linkage, the probability of default of the Covered Bonds may be higher
than expected for Aaa-rated senior unsecured debt. However, Moody’s primary rating
target is the expected loss, which also takes into account severity of loss, which in this
case is consistent with a Aaa rating.
The TPI determines the maximum
rating a covered bond programme
can achieve.
Moody's Timely Payment Indicators ("TPIs") (see Moody’s report “Timely Payment in
Covered Bonds following Sponsor Bank Default” dated 13 March 2008) assess the
likelihood that a timely payment will be made to covered bondholders following Sponsor
Bank Default. They thus determine the maximum rating a covered bond programme can
achieve with its current structure while allowing for the addition of a reasonable amount
of over-collateralisation.
Aspects specific to this programme that are TPI positive include:
−
The Pre-Maturity Test and the extendable maturity of the Covered Bonds
−
The swaps at Issuer level provide for a long grace period (9 calendar months) to the
benefit to the Issuer.
Aspects specific to this programme that are TPI negative include:
−
There is no assurance that swaps will be entered into with counterparties that are
external to the Sponsor Bank group.
−
In case of default of SACCEF after enforcement of the collateral security, Moody’s
expects that the Issuer might need more time to claim his rights in court.
Moody’s has assigned a TPI of Probable to the Programme.
MONITORING
Moody’s will monitor the transaction on an ongoing basis to ensure that it continues to
perform in the manner expected, including checking all supporting ratings and reviewing
the assets on an ongoing basis. Any subsequent changes in the rating will be publicly
announced and disseminated through Moody’s Client Service Desk.
RELATED RESEARCH
For a more detailed explanation of Moody’s approach to this type of transaction as well
as similar transactions please refer to the following reports:
Rating Methodology:
−
European Structured Covered Bonds: Moody’s Rating Approach, 7 June 2005
(SF21457)
Special Reports:
−
European Covered Bond Legal Frameworks: Moody’s Legal Checklist, December
2005 (SF66418)
−
Timely Payment in Covered Bonds following Sponsor Bank Default, March 2008
(SF109992)
Credit Opinion:
−
Caisse Nationale des Caisses d’Epargne Prevoyance,March 2008
Credit Analysis:
−
Groupe Caisse D’Epargne, December 2007 (105857)
To access any of these reports, click on the entry above. Note that these references are current as of the date of
publication of this report and that more recent reports may be available. All research may not be available to all clients.
GCE Covered Bonds
Moody’s Investors Service • 11
APPENDIX 1: COVER POOL INFORMATION
Table 1:
Residential Assets
Overview
Specific Loan and Borrower characteristics
Collateral Score:
5.40%
Loans benefiting from a guarantee:
8,750,980,414
Asset balance:
Average loan balance:
65.0%
Interest Only Loans:
54,797
0.0%
Loans for second homes / Vacation:
1.9%
159,698
Buy to Let loans / Non owner occupied properties:
3.9%
Number of borrowers:
150,290
Limited income verified
0.0%
Number of properties:
152,495
Adverse Credit Characteristics(**):
0.0%
Number of loans:
WA Remaining Term (in months):
186.28
WA Seasoning (in months):
36.09218446
Performance
Details on LTV
Loans in arrears ( ≥ 2months - < 6months):
0.0%
Loans in arrears ( ≥ 6months - < 12months):
0.0%
WA current LTV (*):
69.9%
Loans in arrears ( > 12months):
0.0%
WA Indexed LTV:
58.1%
Loans in a foreclosure procedure:
0.0%
Valuation type:
Market Value
LTV threshold:
80%
Multi-Family Properties
Junior ranks:
0.0%
Loans to tenants of tenant-owned Housing Cooperatives:
n/a
Prior ranks:
0.0%
Other type of Multi-Family loans (****)
n/a
(*) Based on original property valuation
(**) Refers to Borrowers with previous missed payments, Borrowers with a previous personal bankruptcy or Borrowers with record of court claims against them at time of origination
(***) n/d : information not disclosed by Issuer
(****) This "other" type refers to loans directly to Housing Cooperatives and to Professional Landlords
Chart A:
Balance per LTV-band
Original LTV
40%
Chart B:
Cover Pool Composition
Indexed LTV
Residential
assets
100%
36.8%
35%
30%
22.6%
25%
20%
12.2%
15%
12.1%
10.5%
13.1%
6.6%
8.5%
10%
14.7%
4.3%
5%
11.1%
10.9%
10.6%
9.4%
6.6%
3.5%
1.4%
1.0%
0%
0
0-4
%
50
40-
%
70
60-
%
60
50-
%
80
70-
%
85
80-
%
90
85-
%
%
100
95-
%
95
90-
0.0%1.0%
5
-10
100
%
0.0%
5
-11
105
3.2%
%
Chart C:
Seasoning
Chart D:
Interest Rate Type
30%
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
24%
20%
20%
20%
19%
17%
10%
0%
2
<1
87%
13%
0%
s
n th
mo
Flo
g
atin
Fix
ed
y
<2
set
, re
0%
ed
Fix
set
, re
in
y
2 -5
Chart E:
Regional Distribution
30%
19.8%
20%
11.6%
10.3%
10%
7.6%
5.6%
5.0%
4.1%
3.8%
3.8%
3.7%
3.7%
3.5%
2.6%
2.5%
2.1%
1.7%
1.7%
1.6%
1.5%
1.3%
0%
Ile-
F
de-
ran
ven
P ro
ce
Al
c e-
pes
.
d'A
C.
n
Rhô
e-A
No
s
lpe
P as
rd -
-de
a
Cal
s
on
n ée
sill
y ré
ou s
i-P
c-R
o
Mid
d
gue
L an
is
12 • Moody’s Investors Service
ta
Bre
gne
ita
Aqu
ine
t
Cen
re
s
P ay
de
o i re
la L
Lo r
rain
e
Pic
a rd
ie
r
Bou
e
ne
ndi
go g
rma
-No
e
t
Hau
Als
ac e
seBas
e
ie
es
enn
and
en t
rm
Ard
har
No
n eu-C
g
o
t
a
i
Po
mp
Cha
er
Auv
gne
e
nch
F ra
-Co
mté
GCE Covered Bonds
APPENDIX 2: INCOME UNDERWRITING AND VALUATION
1. Income Underwriting
Yes.
For employed borrowers, income is always checked on the basis
of the 3 most recent monthly salary slips, the most recent tax
statement and the 3 most recent monthly bank statements.
For self-employed borrowers, income is always checked on the
basis of the most recent financial statement, the most recent
tax statement and the 3 most recent monthly bank statements.
No loans are granted to unemployed person.
No loans are granted to applicants on a probation period.
Applicants with a duration of their employment with current
employer less than 1 year, fixed-term contracts and temporary
employees are subject to tighter underwriting criteria from GCE.
No.
1.1
Is income always checked?
1.2
Does this check ever rely on income stated by
borrower (“limited income verification”) income stated
by the borrower?
1.3
Percentage of loans in Cover Pool that have limited
income verification
None
1.4
If limited income verification loans are in the Cover
Pool, describe what requirements lender has in place
for these loans.
Not applicable
1.5
Does income in all cases constrain the amount lent
(for example through some form of Income Sufficiency
Test (“IST”).
1.6
If not, what percentage of cases are exceptions.
Yes
With respect to the income sufficiency test (“IST”), the main
criteria used by the Caisse d’Epargne are the Debt-to-Income
ratio and the available income per family member (“Family
Ratio” or “Quotient Familial”). The Family Ratio is determined
pursuant to a table specifying the minimum amount of income
after tax which must be available per person for a single
person, a couple, a family with 1 child, with 2 children, etc.
These tables may change slightly from one Caisse d’Epargne to
the next.
As a matter of rule for some Caisse d’Epargne, when the
relevant Debt-To-Income ratio required limit (usually 33%) is
exceeded or the Family Ratio is lower than the relevant
minimum required limit, the underwriting decision will be taken
by a higher authority than the relationship manager.
With respect to CFF, the approval procedures are based on
different studies carried out at each authorisation levels at
which loans are analysed, such levels depending on loan
amount, loan purpose (owner occupied or buy to let) and credit
risk. As a matter of rule, the underwriting decision takes into
account the loan amount, the Basel II rating and the CFF score.
The CFF score combines an expert system and a statistical
scoring system based on historical performance of the CFF
portfolios. Even though an income sufficiency test is not directly
used by CFF, the expert score takes into account the Debt-ToIncome ratio.
N/A
For the purposes of any IST
1.7
Is it confirmed income after tax is sufficient to cover
both interest and principal.
GCE Covered Bonds
Yes, there are no interest-only loans in the cover pool and it is
part of the underwriting procedure to verify that there is
sufficient income after tax available on the basis of the Family
Ratio.
Moody’s Investors Service • 13
1. Income Underwriting
1.8
If so over what period is it assumed principal will be
paid (typically on an annuity basis)? Any exceptions?
Payment of principal is considered over life of the loan.
1.9
Does the age of the borrower constrain the period over
which principal can be amortised?
No.
1.10 Are any stresses made to interest rates when carrying
out the IST? If so when and for what type of products?
1.11 Are all other debts of the borrower taken into account
at point loan made?
1.12 How are living expenses of the borrower calculated?
And what is the stated maximum percentage of income
(or income multiple if relevant) that will be relied on to
cover debt payments. (specify if income is pre or post
tact)
When interest rate on loan is floating, IST may be based on
stressed interest rate depending on the Caisse d’Epargne. In
such case, the stressed interest rate is the highest applicable
interest rate according to the contractual cap of such rate.
Interest rate on fixed rate loans is fixed over the life of the loan
and there is no need to stress these loans.
Yes, whatever consumer loans, revolving loans, mortgages or
child maintenance paid, are taken into account.
Expenses are taken into account in the Debt-To-Income
percentages. Besides the IST, the decision is taken by an
underwriter on the basis of other criteria such as the specific
profile of the applicant.
Other comments
14 • Moody’s Investors Service
GCE Covered Bonds
2. Valuation
With respect to the Caisse d’Epargne, the initial property
valuations are based on the purchase price. An independent
appraiser may be subsequently used in case the loan is
transferred to the recovery department.
With respect to CFF, the initial property valuations are either an
expert’s valuation of the property, a desktop valuation or the
acquisition price.
Property values set out in CFF’s files are updated on a yearly
basis by applying an index determined by Foncier Expertise on
the basis of both the place of location of the property and the
type of property (flat/house, newly built/old one).
N/A
2.1
Are valuations based on market or lending values?
2.2
Are all or the majority of valuations carried out by
external (with no direct ownership link to any company
in the Sponsor Bank group) valuers?
2.3
How are valuations carried out where external valuer
not used?
N/A
2.4
What qualifications for external valuers require?
N/A
2.5
What qualifications do internal valuers require?
N/A
2.6
Do all external valuations include an internal
inspection of a property?
N/A
2.7
What exceptions?
No Exceptions
2.8
Do all internal valuations include an internal inspection
of a property?
N/A
2.9
What exceptions?
N/A
Other comments
GCE Covered Bonds
Moody’s Investors Service • 15
APPENDIX 3: ASSET COVER TEST, PRE-MATURITY TEST
AND AMORTISATION TEST
1
The Asset Cover Test
The following terms shall have the following definitions:
"Asset Cover Test Date" means each Selection Date and each issuance date of a
Series or a Tranche of Covered Bonds.
"Asset Cover Test Calculation Period" means, in relation to any Asset Cover Test Date,
each period starting on, and including, the immediately preceding Asset Cover Test Date,
and ending on, and excluding such Asset Cover Test Date.
"Selection Date" means, at the latest, the last calendar day of each calendar month, it
being provided that the Collateral Security Agent and the Collateral Providers shall use
their best effort so that such date occurs on, or as soon as possible as from the twentyfifth (25th) day of each calendar month.
Compliance with the Asset Cover Test requires compliance with the asset cover ratio R
specified below (the "Asset Cover Ratio"). Such compliance is tested by the Issuer
Calculation Agent from time to time subject to, and in accordance with, the relevant
terms of the Collateral Security Agreement and the Calculation Services Agreement.
The Asset Cover Ratio (R)
"R" means the following ratio which shall be at least equal to one (1) at each Asset
Cover Test Date:
⎡
⎤
Adjusted Aggregate Asset Amount (AAAA)
⎢
⎥
Aggregate
Covered
Bond
Outstandin
g
Principal
Amount
⎦
R =⎣
whereby:
"Aggregate Covered Bond Outstanding Principal Amount" means, at any Asset
Cover Test Date, the aggregate amount of principal (in euro or euro equivalent
with respect to Covered Bonds denominated in a Specified Currency)
outstanding at such date under all Covered Bonds.
"Adjusted Aggregate Asset Amount (AAAA)" means, at any Asset Cover Test
Date:
(AAAA) = A + B + C + D – (Y + Z)
whereby:
"A" means the lower of "A1" and "A2".
"A1" is equal to the sum of all Adjusted Home Loan Outstanding Principal Amounts of all
Home Loans granted as Collateral Security and excluding the Home Loans which have
become Ineligible Home Loans (see "The Collateral Security" for a description of the
Home Loans Eligibility Criteria) during the applicable Asset Cover Test Calculation Period
(the "Relevant Home Loan"), as such Adjusted Home Loan Outstanding Principal
Amounts under Borrower Facility will be calculated on the relevant Asset Cover Test Date,
whereby:
"Adjusted Home Loan Outstanding Principal Amount" means, with respect to each
Relevant Home Loan granted as Collateral Security, the lower of:
(i)
the Home Loan Outstanding Principal Amount of such Relevant Home Loan minus
the Applicable Deemed Reductions; and
(ii) the LTV Cut-Off Percentage of the Indexed Valuation relating to such Relevant Home
Loan minus the Applicable Deemed Reductions;
"Applicable Deemed Reductions" means the aggregate sum of the financial losses
incurred by the Collateral Providers with respect to the Relevant Home Loans to the
extent that such financial losses have been incurred as a direct result of a material
1
This Appendix 3 is an extract of the draft prospectus dated 9 May 2008. the defined terms used herein are defined in the prospectus, where
the Sponsor Bank is being referred to as “Borrower”.
GCE Covered Bonds
Moody’s Investors Service • 16
breach of the Servicing Procedures by the relevant Collateral Providers during the
applicable Asset Cover Test Calculation Period (see "The Collateral Security Agreement
– Asset Servicing" for a description of the Servicing Procedures).
"Home Loan Outstanding Principal Amount" means, with respect to each Relevant
Home Loan, the amount of principal outstanding at the relevant Asset Cover Test Date
under such Relevant Home Loan.
"LTV Cut-Off Percentage" means:
(i)
eighty per cent. (80%) for each Relevant Home Loan secured by a Mortgage;
(ii) eighty per cent. (80%) for each Relevant Home Loan secured by a Home Loan
Guarantee issued by Crédit Logement or by SACCEF;
or, as long as the Covered Bonds are rated AAA (S&P) and Aaa (Moody's), any lower
percentage decided by the Collateral Security Agent, subject to prior Rating Affirmation.
"Index" means (i) with respect to properties located in France (except in the Ile de
France's district), the index of increases of prices issued by the INSEE and named
"Indice trimestriel du prix des logements anciens – Province – Appartements / Maisons",
or (ii) with respect to properties located in the Ile de France's district, the index of
increases of prices issued by the INSEE and named "Indice trimestriel du prix des
logements anciens – Ile de France – Appartements / Maisons".
"Indexed Valuation" means at any date in relation to any Relevant Home Loan secured
over any Property:
(i)
where the Original Market Value of that Property is equal to or greater than the Price
Indexed Valuation as at that date, the Price Indexed Valuation; or
(ii) (where the Original Market Value of that Property is less than the Price Indexed
Valuation as at that date, the Original Market Value plus eighty per cent. (80%) of
the difference between the Price Indexed Valuation and the Original Market Value.
"Original Foreclosure Value" in relation to any Property means the purchase price of
such Property or (as applicable) the most recent valuation of such Property, as disclosed
to the relevant Collateral Provider by the relevant debtor under the related Relevant
Home Loan.
"Original Market Value" in relation to any Property means the Original Foreclosure Value
divided by one (1).
"Price Indexed Valuation" in relation to any Property at any date means the Original
Market Value of that Property increased or decreased as appropriate by the increase or
decrease in the Index since the date of the Original Market Value.
"A2" is equal to the sum of all unadjusted Home Loan Outstanding Principal Amounts of
all Relevant Home Loans minus the Applicable Deemed Reductions (as defined above)
multiplied by the applicable Asset Percentage, whereby:
"Asset Percentage" means (i) 92.5 per cent. (92.5%) or (ii) such percentage figure as is
determined on quarterly basis by the Issuer Calculation Agent pursuant to the relevant
terms of the Collateral Security Agreement.
For the purpose of the calculation of the Asset Percentage referred to in (ii) above, the
Issuer Calculation Agent will calculate, on a quarterly basis, the Weighted Average
Frequency of Foreclosure ("WAFF"), and the Weighted Average Loss Severity ("WALS")
(and/or such figures calculated in accordance with such alternative methodologies as
agreed with S&P) for all Relevant Home Loans or for a random sample of the same or as
otherwise agreed by S&P. The WALS (or other relevant figures) so calculated will be
incorporated by the Issuer Calculation Agent into one (1) or more cash flow models
approved by S&P. Such models, which test the credit enhancement required in various
cash flow scenarios, will indicate, on the basis of the latest WAFF and WALS figures (or
other agreed relevant figures), the Asset Percentage needed in order to provide credit
enhancement to cover all such cash flow scenarios. Save where otherwise agreed with
S&P, the Asset Percentage will be adjusted in accordance with the various
methodologies prescribed by S&P provided that the Asset Percentage may not, at any
time, exceed 92.5 per cent. (92.5%).
GCE Covered Bonds
Moody’s Investors Service • 17
"B" is equal to the aggregate amount of cash standing to the credit of the Cash
Collateral Account, as reported by the Collateral Security Agent in the relevant Asset
Report.
"C" is equal to the aggregate value outstanding under all Substitution Assets (the
"Aggregate Substitution Asset Amount (ASAA)") granted as Collateral Security provided
that, the amount of the Aggregate Substitution Asset Amount (ASAA) (whatever such
amount is at any Asset Cover Test Date) shall in any event account only for up to twenty
per cent. (20%) of the Adjusted Aggregate Asset Amount (AAAA) for the purposes hereof.
The Aggregate Substitution Asset Amount (ASAA) shall be reported by the Collateral
Security Agent in the relevant Asset Report. Substitution Assets will be valued on the last
Business Day of the calendar month immediately preceding each Asset Cover Test Date
and be taken into account for their mark-to-market value at a discount based on a
methodology agreed with the Rating Agencies.
"D" is equal to the aggregate value outstanding under all Permitted Investments, as
determined by the Issuer Accounts Bank (or the Administrator on its behalf) and reported
to the Issuer Calculation Agent pursuant to the Issuer Accounts Bank Agreement.
Permitted Investments will be valued on the last Business Day of the calendar month
immediately preceding each Asset Cover Test Date and be taken into account for their
mark-to-market value at a discount based on a methodology agreed with the Rating
Agencies.
"Y" is equal to (i) zero before any Issuer Hedging Agreement shall be entered into by the
Issuer subject to, and in accordance with, the Hedging Strategy and (ii) otherwise, an
amount equal to the payments due under the Issuer Hedging Agreements (plus interest
thereon) within the period of α plus two (2) months preceding the relevant Asset Cover
Test Date where α means the period between two (2) interest payment dates (first day of
such period included and last day of such period excluded) under the relevant Issuer
Hedging Agreements.
"Z" is equal to: WAM * Covered Bond Outstanding Principal Amount * 0.50 per cent.
(0.50%), whereby:
"WAM" means the greater of (i) the weighted average maturity of Series of Covered
Bonds outstanding as at the relevant Asset Cover Test Date, and (ii) one (1) year.
"Covered Bond Outstanding Principal Amount" means, at any Asset Cover Test Date,
the aggregate amount of principal (in euro or euro equivalent with respect to Covered
Bonds denominated in a Specified Currency) outstanding at such date under all Series of
Covered Bonds.
Calculation of the Asset Cover Ratio (R)
On each Asset Cover Test Date, the Asset Cover Ratio (R) shall be calculated by the
Issuer Calculation Agent according to the terms, definitions and calculation formula set
forth above.
No later than three (3) Business Days following any Asset Cover Test Date, the Issuer
Calculation Agent shall inform the Issuer, the Borrower and the Collateral Security Agent
(with a copy to the Rating Agencies and to the Asset Monitor) of its calculation of the
Asset Cover Ratio (R).
Non Compliance with Asset Cover Test
Non compliance with the Asset Cover Test (the "Non Compliance with Asset Cover
Test") would result from the Asset Cover Test Ratio (R) being strictly less than one (1).
Remedies
Upon Non Compliance with Asset Cover Test on any Asset Cover Test Date, the Collateral
Security Agent shall:
(i)
cause the Collateral Providers to grant additional or substitute Eligible Assets as
Collateral Security pursuant to the relevant terms of the Collateral Security
Agreement, on the next following Asset Cover Test Date; and/or
(ii) (cause the Collateral Providers to release Collateral Security Assets from the
Collateral Security pursuant to the relevant terms of the Collateral Security
Agreement, on the next following Asset Cover Test Date,
18 • Moody’s Investors Service
GCE Covered Bonds
in each case, as necessary to cure such Non Compliance with Asset Cover Test.
A Non Compliance with Asset Cover Test will not constitute an Issuer Event of Default or
a Borrower Event of Default. However, it will prevent the Issuer from issuing any further
Series as long as it remains unremedied.
Breach of Asset Cover Test
The failure by the Collateral Security Agent, acting in the name and on behalf of the
Collateral Providers, to cure a Non Compliance with Asset Cover Test occurred on any
Asset Cover Test Date prior to the next following Asset Cover Test Date shall constitute a
"Breach of Asset Cover Test" within the meaning of the Collateral Security Agreement.
The Issuer Calculation Agent will inform promptly the Issuer, the Borrower and the
Collateral Security Agent (with a copy to the Rating Agencies and to the Asset Monitor) of
the occurrence of a Breach of Asset Cover Test.
A Breach of Asset Cover Test will result in a Borrower Event of Default within the meaning
of, and subject to, the relevant terms of the Borrower Facility Agreement.
A Breach of Asset Cover Test will not constitute an Issuer Event of Default but will
prevent the Issuer from issuing any further Series.
The Pre-Maturity Test
Compliance with the Pre-Maturity Test requires compliance with the ratings specified
below with respect to the Borrower within each relevant Pre-Maturity Test Period.
For the purpose hereof:
"Pre-Maturity Test Period" means with respect to any Series of Covered Bonds which is
not a Series of Soft Bullet Covered Bonds, the period starting from, and including, the
one hundred and eightieth (180th) Business Day preceding the Final Maturity Date of
such Series of Covered Bonds and ending on, and excluding, such Final Maturity Date;
"Soft Bullet Covered Bonds" means Covered Bonds with a soft bullet maturity which
allows the Final Maturity Date of the relevant Series to be extended if the Issuer is about
to fail to pay the amount due on the Final Maturity Date, in accordance with, and as
described in, the relevant Final Terms of Covered Bonds.
Pre-Maturity Ratings Required Levels
The required ratings with respect to the Borrower (together, the "Pre-Maturity Ratings
Required Levels") are at least A-1 (short-term) (S&P) and P-1 (short-term) (Moody's).
Pre-Maturity Test
The Issuer Calculation Agent shall test compliance or non compliance by the Borrower
with the Pre-Maturity Ratings Required Level subject to, and in accordance with, the
relevant terms of the Calculation Services Agreement.
Non Compliance with Pre-Maturity Test
Upon downgrading of the Borrower below any of the Pre-Maturity Ratings Required Levels
within a Pre-Maturity Test Period, the Issuer Calculation Agent shall inform the Cash
Collateral Provider of the same within three (3) Business Days from such downgrading by
written notice (the "Non Compliance Notice") delivered to the Cash Collateral Provider
subject to, and in accordance with, the relevant terms of the Cash Collateral Agreement.
The downgrading of the Borrower below any of the Pre-Maturity Ratings Required Levels
will not constitute an Issuer Event of Default nor a Borrower Event of Default.
Remedies
If a Non Compliance Notice is received by the Cash Collateral Provider within a PreMaturity Test Period, the Cash Collateral Provider shall fund the Cash Collateral Account
up to an amount (the "Cash Collateral Required Funding Amount (CCRFA)") calculated
by the Issuer Calculation Agent as being the amount of cash to be funded by the Cash
Collateral Provider into the Cash Collateral Account with respect to the relevant Series of
Covered Bonds (not being Soft Bullet Covered Bonds) so as to ensure that the total
amount of cash funded by the Cash Collateral Provider into the Cash Collateral Account
with respect to such Series of Covered Bonds (the "Cash Collateral Required Total
Amount (CCRTA)") is equal to:
GCE Covered Bonds
Moody’s Investors Service • 19
CCRTA = (Covered Bond Principal Amount + Costs)
whereby:
"Costs" means the aggregate amount of fees, costs, expenses, taxes and other ancillary
sums (excluding interest and principal amounts) scheduled to be payable by the Issuer
within the relevant Pre-Maturity Test Period under the relevant Series of Covered Bonds
(not being Soft Bullet Covered Bonds).
"Covered Bond Principal Amount" means the aggregate amount of principal (in euro or
euro equivalent with respect to Covered Bonds denominated in a Specified Currency)
scheduled to be redeemed at the Final Maturity Date of the relevant Series of Covered
Bonds (not being Soft Bullet Covered Bonds).
The Cash Collateral Provider shall fund the CCRFA in full within thirty (30) Business Days
from the receipt of the Non Compliance Notice.
Breach of Pre-Maturity Test
The failure by the Cash Collateral Provider to fund into the Cash Collateral Account the
relevant Cash Collateral Required Funding Amount (CCFRA) subject to, and in accordance
with, the above described conditions shall constitute a Breach of Pre-Maturity Test within
the meaning of the Cash Collateral Agreement.
A Breach of Pre-Maturity Test will result in a Borrower Event of Default within the meaning
of, and subject to, the relevant terms of the Borrower Facility Agreement. A Breach of PreMaturity Test will not constitute an Issuer Event of Default.
The Amortisation Test
The following terms shall have the following definitions:
"Amortisation Test Date" means, at the latest, the last calendar day of each calendar
month following the enforcement of a Borrower Event of Default, it being provided that
the Administrator and the Issuer Calculation Agent shall use their best effort so that
such date occurs on, or as soon as possible as from the twenty-fifth (25th) day of each
calendar month following the enforcement of a Borrower Event of Default.
"Amortisation Test Calculation Period" means, in relation to any Amortisation Test
Date, each period starting on, and including, the immediately preceding Amortisation
Test Date, and ending on, and excluding such Amortisation Test Date.
Compliance with the Amortisation Test requires compliance with the amortisation ratio
RA specified below (the "Amortisation Ratio (RA)"). Such compliance is tested by the
Issuer Calculation Agent from time to time throughout the period following the
enforcement of a Borrower Event of Default subject to, and in accordance with the
Condition 5 (f) and the Calculation Services Agreement.
The Amortisation Ratio
"RA" means the following ratio which shall be at least equal to one (1) at each
Amortisation Test Date:
RA =
⎡ TAAA' ⎤
⎢ ACBOPA ⎥
⎣
⎦
whereby:
"Aggregate Covered Bond Outstanding Principal Amount (ACBOPA)" means, at any
Amortisation Test Date, the aggregate amount of principal (in euro or euro equivalent
with respect to Covered Bonds denominated in a Specified Currency) outstanding at such
date under all Covered Bonds.
"Transferred Aggregate Asset Amount (TAAA')" means, at any Amortisation Test Date:
(TAAA') = A' + B + C + D + E – Z
whereby:
"A'" is equal to the sum of all Transferred Home Loan Outstanding Principal Amounts of
all Home Loans title to which has been transferred to the Issuer upon enforcement of the
Collateral Security following the enforcement of a Borrower Event of Default (each, a
"Relevant Home Loan"), as such Transferred Home Loan Outstanding Principal Amounts
will be calculated on the relevant Amortisation Test Date, whereby:
20 • Moody’s Investors Service
GCE Covered Bonds
"Transferred Home Loan Outstanding Principal Amount" means, with respect to each
Relevant Home Loan, the Home Loan Outstanding Principal Amount of such Relevant
Home Loan multiplied by M, where for all the Relevant Home Loans that are less than
three (3) months in arrears, M = 1 and for all the Relevant Home Loans that are three (3)
months or more in arrears, M = 0.7.
"Home Loan Outstanding Principal Amount" means, with respect to each Relevant
Home Loan, the amount of principal outstanding at the relevant Amortisation Test Date
under such Relevant Home Loan.
"B", "C", "D" and "Z" have the meaning ascribed to such terms, and shall be
determined, on each relevant Amortisation Test Date, subject to, and in accordance with,
the terms and formula described in "The Asset Cover Test" above.
"E" is equal to the aggregate amount of principal and interest payments, distributions,
indemnities, insurance and other proceeds, payments under any Home Loan Security and
other sums received during the applicable Amortisation Test Calculation Period by the
Issuer from the debtors or other relevant entities under the Collateral Security Assets
whose title has been transferred to the Issuer following enforcement of the Collateral
Security, as the same shall be reported by the Issuer Calculation Agent on each
Amortisation Test Date subject to, and in accordance with, the relevant terms of the
Calculation Services Agreement.
Calculation of the Amortisation Ratio
On each Amortisation Test Date, the Amortisation Ratio (RA) shall be calculated by the
Issuer Calculation Agent according to the terms, definitions and calculation formula set
forth above.
No later than three (3) Business Days following any Amortisation Test Date, the Issuer
Calculation Agent shall inform the Issuer (with a copy to the Rating Agencies and to the
Asset Monitor) of its calculation of the Amortisation Ratio (RA).
Non Compliance with Amortisation Test
A "Non Compliance with Amortisation Test" will result from the Amortisation Ratio (RA)
being strictly less than one (1).
A Non Compliance with Amortisation Test will not constitute an Issuer Event of Default.
However, it will prevent the Issuer from issuing any further Series.
Breach of Amortisation Test
The failure by the Issuer to cure a Non Compliance with Amortisation Test occurred on
any Amortisation Test Date prior to the next following Amortisation Test Date shall
constitute a "Breach of Amortisation Test". The Issuer Calculation Agent will inform
promptly the Issuer, each relevant Representative and the Issuer Security Agent (with a
copy to the Rating Agencies and to the Asset Monitor) of the occurrence of a Breach of
Amortisation Test.
A Breach of Amortisation Test will result in an Issuer Event of Default within the meaning
of the Terms and Conditions.
GCE Covered Bonds
Moody’s Investors Service • 21
APPENDIX 4: RATING TRIGGERS AND EVENTS OF DEFAULTS UNDER THE
PROGRAMME
Table 2:
Rating Triggers
Defined Term
Trigger Event
Consequences
Collection Loss Trigger
CNCE loses P-1
The Collection Loss Reserve Account must
be funded (last 3 months of collections)
Hedging Rating Trigger
CNCE loses A2 or P-1
Entering into the Issuer Hedging Agreement
and into the back-to-back Hedging
Agreement.
Administrator Rating Trigger
Administrator loses Baa2
Replacement of the Administrative
Agreement (originally CNCE)
Issuer Accounts Bank Rating Trigger
Issuer Accounts Bank loses P-1
Replacement of the Issuer Accounts Bank
Issuer Security Agent Rating Trigger
Issuer Security Agent loses Baa2
Replacement of the Issuer Security Agent
Collateral Security Agent Trigger
Collateral Security Agent loses Baa2
Replacement of the Collateral Security
Agent (originally CNCE)
Servicing Rating Trigger
Sponsor Bank loses Baa2
Replacement of the Collateral Providers as
servicers
Issuer Calculation Agent Rating Trigger
Administrator loses Baa2
Termination of the Calculation Services
Agreement and appointment by Issuer of a
new calculation agent
Calculation Monitoring Rating Trigger
CNCE, as Issuer Calculation Agent loses
Baa2
The Asset Monitor (PwC) shall test the
calculations of the Issuer Calculation Agent
on each ACT date and Amortisation date.
Pre-Maturity Test
CNCE loses P-1
The Pre-Maturity test will be applied.
Level 1 Home Loan Guarantee Trigger
CNCE loses A3
Substitute Home Loans Guarantee Reserve
Account must be funded (min 2%)
Level 2 Home Loan Guarantee Trigger
CNCE loses Baa2
A Guarantor must be appointed to
guarantee SACCEF’s commitments
Sponsor Bank Enforcement Notice
Sponsor Bank Event of Defaulta
Cancellation and acceleration of the
Sponsor Bank Facility; Issuer will enforce
its rights under the Collateral Security
Issuer Enforcement Notice
Issuer Event of Defaultb
Enforcement of the Issuer Collateral
Security
Events of Default
a. Sponsor Bank Event of Default: Sponsor Bank fails to make payments under the Sponsor Bank Facility; Breach of Asset Cover Test; Breach of Pre-Maturity Test; Breach
of Collection Loss Reserve funding requirement; the Sponsor Bank and the Issuer fail to enter into any Hedging Agreement at the Sponsor Bank level, or the Issuer
fails to enter into any Hedging Agreement at the Issuer level; Insolvency of the Sponsor Bank
b. Issuer Event of Default: Breach of Amortisation test; Failure to pay under the Covered Bonds; Failure to enter into any Hedging Agreement at Issuer level; Insolvency of
the Issuer
22 • Moody’s Investors Service
GCE Covered Bonds
GCE Covered Bonds
Moody’s Investors Service • 23
SF132920isf
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24 • Moody’s Investors Service
GCE Covered Bonds