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TEXT-S&P cuts rtgs on Dexia Kommunalbank Deutschland covered bonds
April 5, 2012 / 9:59 AM / 5 years ago

TEXT-S&P cuts rtgs on Dexia Kommunalbank Deutschland covered bonds

(The following statement was released by the rating agency)

Apr 05 -

OVERVIEW

-- On March 28, 2012, we lowered to ‘BBB/Watch Neg’ from ‘BBB+/Watch Neg’ our long-term rating on Dexia Credit Local, of which we consider Dexia Kommunalbank Deutschland to be a core entity.

-- Our criteria allow Dexia Kommunalbank Deutschland’s covered bond program to achieve a maximum rating uplift of seven notches above our long-term rating on Dexia Credit Local.

-- Today, we have lowered to ‘AA+/Watch Neg’ from ‘AAA/Watch Neg’ our long-term ratings on Dexia Kommunalbank Deutschland’s covered bond program and related issuances, to reflect this uplift.

-- Our ratings on Dexia Kommunalbank Deutschland’s covered bonds remain on CreditWatch negative to reflect the CreditWatch negative placement of the issuer credit rating; any negative rating action on Dexia Credit Local would therefore result in an automatic downgrade of the covered bonds, all else remaining equal.

-- We have assigned these ratings based on our criteria for rating covered bonds. However, the methodologies and assumptions underlying these criteria are under review. The ratings on all outstanding covered bonds in this program may be affected as a result of this review.

Standard & Poor’s Ratings Services today lowered to ‘AA+/Watch Neg’ from ‘AAA/Watch Neg’ its long-term credit ratings on Dexia Kommunalbank Deutschland AG’s (DKD) German “Oeffentliche Pfandbriefe” (OF; public-sector covered bonds) program and related issuances (see list below).

Today’s rating actions follow our March 28, 2012 lowering to ‘BBB/Watch Neg’ from ‘BBB+/Watch Neg’ of the issuer credit rating (ICR) on Dexia Credit Local (DCL; BBB/Watch Neg/A-2), of which we consider DKD to be a core entity (see “Dexia Credit Local Downgraded To ‘BBB’ On Weakened Liquidity And Risk Position; Ratings Remain On Watch Negative”).

We have applied our five-step approach for rating covered bonds, to evaluate the maximum potential rating uplift for the covered bond program, based on the combined assessment of its asset-liability mismatch exposure and categorization (see “Revised Methodology And Assumptions For Assessing Asset-Liability Mismatch Risk In Covered Bonds,” published on Dec. 16, 2009).

We segment covered bond programs into three distinct categories, which consider primarily a program’s jurisdiction and its ability to access external financing or monetize the cover pool. These categories, along with the ALMM percentage, determine a program’s maximum potential rating uplift over our rating on the issuer.

Our assessment of DKD as a covered bonds issuer indicates a current program categorization of “1” and an ALMM classification of “low”; in such circumstances, our criteria allow a maximum rating uplift of seven notches above our ICR on DCL.

In light of our downgrade of DCL, we have lowered our ratings on DKD’s OF program and related issuances, to reflect this uplift.

These ratings remain on CreditWatch negative, to reflect the risk that any further downgrade of DCL would result in an automatic downgrade of DKD’s OF (all else remaining equal), and that our rating on DCL is currently on CreditWatch negative, where we placed it on Dec. 9, 2011 (see “Ratings On Dexia Kommunalbank Deutschland’s Covered Bonds Placed On CreditWatch Negative After Bank Downgrade,” Dec. 9, 2011).

We aim to resolve our CreditWatch negative placement of the ratings on DKD’s OF shortly after we have resolved our CreditWatch negative placement of the ICR on DCL, and based on our reassessment of credit and cash flow risks and the level of overcollateralization of the cover pool that DKD maintains. Our analysis as of December 2011 results in a difference between the available and target credit enhancement that, if not remedied, could result in a further downgrade of DKD’s OF by up to two notches.

POTENTIAL EFFECTS OF PROPOSED CRITERIA CHANGES

We have taken today’s rating actions on these covered bonds based on our criteria for rating covered bonds (see “Revised Methodology And Assumptions For Assessing Asset-Liability Mismatch Risk In Covered Bonds,” published on Dec. 16, 2009). As part of our cash flow analysis, we used Standard & Poor’s Covered Bond Monitor to calculate the target credit enhancement for the covered bonds. However, the assumptions and methodologies used in this cash flow analysis are under review (see “Advance Notice Of Proposed Criteria Change: Methodologies And Assumptions For Rating Certain Covered Bonds And CDOs,” published on Aug. 5, 2010).

This review may result in further changes to the criteria. As a result, our future assumptions and methodologies used in our Covered Bond Monitor model may differ from our current criteria. The criteria change may affect the ratings on all outstanding covered bonds in this program. Until such time that we adopt new criteria for rating covered bonds, we will continue to rate and surveil these covered bonds using our existing criteria (see “Related Criteria And Research”).

RELATED CRITERIA AND RESEARCH

-- Global Covered Bond Characteristics And Rating Summary Q1 2012, March 29, 2012

-- Dexia Credit Local Downgraded To ‘BBB’ On Weakened Liquidity And Risk Position; Ratings Remain On Watch Negative, March 28, 2012

-- European Structured Finance Scenario And Sensitivity Analysis: The Effects Of The Top Five Macroeconomic Factors, March 14, 2012

-- Ratings On Dexia Kommunalbank Deutschland’s Covered Bonds Placed On CreditWatch Negative After Bank Downgrade, Dec. 9, 2011

-- Global Structured Finance Scenario And Sensitivity Analysis: The Effects Of The Top Five Macroeconomic Factors, Nov. 4, 2011

-- Nonsovereign Ratings That Exceed EMU Sovereign Ratings: Methodology And Assumptions, April 8, 2011

-- Principles Of Credit Ratings, Feb. 16, 2011

-- Advance Notice Of Proposed Criteria Change: Methodologies And Assumptions For Rating Certain Covered Bonds And CDOs, Aug. 5, 2010

-- Revised Methodology And Assumptions For Assessing Asset-Liability Mismatch Risk In Covered Bonds, Dec. 16, 2009

-- Ratings On Dexia Kommunalbank Deutschland’s Covered Bonds Placed On CreditWatch Negative After Bank Downgrade, Dec. 6, 2009

-- Use Of CreditWatch And Outlooks, Sept. 14, 2009

-- European Legal Criteria For Structured Finance Transactions, Aug. 28, 2008

RATINGS LIST

Rating

Program/ To From

Country: Covered bond type

Ratings Lowered And Remaining On CreditWatch Negative

Dexia Kommunalbank Deutschland AG

AA+/Watch Neg AAA/Watch Neg

Germany: Public-Sector Covered Bonds (Oeffentliche Pfandbriefe)

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