(The following statement was released by the rating agency)
Jan 10 -
-- On Dec. 14, 2012, we put our ratings on public-sector covered bonds issued by Erste Europaeische Pfandbrief- und Kommunalkreditbank (EEPK) on CreditWatch negative due to the likelihood that this program would not fully meet our counterparty criteria by Jan. 11, 2013, when the transition period ends.
-- After reviewing this program under our updated criteria, including the bank’s progress in mitigating risks we have identified, we have concluded that account bank and commingling risks remain relevant for the program.
-- We are therefore lowering our ratings on the covered bond program to ‘AA-’ from ‘AAA’. At the same time, we are removing the ratings from CreditWatch.
-- The outlook is negative.
Standard & Poor’s Ratings Services has today lowered to ‘AA-’ from ‘AAA’ its long-term issue ratings on the Lettre de Gage Publiques (public-sector covered bond) of Luxembourg-based Erste Europaeische Pfandbrief- und Kommunalkreditbank AG (EEPK). We have removed the ratings from CreditWatch, where they were placed with negative implications on Dec. 14, 2012. The outlook is negative.
Today’s rating action follows our review of the program’s asset and cash flow information as of Sept. 30, 2012, and the implementation of our updated counterparty criteria framework (see “Counterparty Risk Framework Methodology And Assumptions,” published Nov. 29, 2012, and “Covered Bonds Counterparty And Supporting Obligations Methodology And Assumptions,” published May 31, 2012). In line with our updated counterparty criteria framework, we have identified account bank risk and commingling risk as relevant for this program.
The review encompassed the credit quality of the cover pool, the cash flow structure of assets and liabilities, and likely counterparty risks. Based on additional daily cash flow projections provided by the issuer, we used our worst-case assumptions to estimate the size of account bank and commingling risks.
Since we published the criteria, we have been in regular contact with the issuer to monitor progress on addressing the risks we have identified and on setting up and implementing the action plan to meet the rating criteria.
Under the criteria, using our worst-case assumptions for account bank and commingling risk, the available credit enhancement of 7.30% is not sufficient to cover the target credit enhancement of 11.60% and is only commensurate with a ‘AA-’ rating.
-- Counterparty Risk Framework Methodology And Assumptions, Nov 29, 2012
-- Credit FAQ: What Factors Do We Consider When Analyzing Commingling And Account Bank Risk In Covered Bonds?, Nov. 26, 2012
-- Covered bond Ratings Framework: Methodology And Assumptions, June 26, 2012
-- Covered Bonds Counterparty And Supporting Obligations Methodology And Assumptions, May 31, 2012
-- Assessing Asset-Liability Mismatch Risk In Covered Bonds: Revised Methodology And Assumptions For Target Asset Spreads, April 24, 2012
-- Nonsovereign Ratings That Exceed EMU Sovereign Ratings: Methodology And Assumptions, June 14, 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
-- A Listing Of S&P’s New Actions Aimed At Strengthening The Ratings Process, Feb. 7, 2008
-- CDO Spotlight: Rating Approach To Synthetic CDOs Of Sovereigns Or Local And Regional Governments, May 3, 2006
-- European Legal Criteria for Structured Finance Transactions, March 23, 2005
-- Surviving Stress Scenarios: Assessing Asset Quality of Public Sector Covered Bond Collateral, Sept. 30, 2003
-- Criteria for Rating Luxembourg Lettres de Gage Publiques, Nov. 20, 2001
Downgraded; CreditWatch/Outlook Action
Erste Europaeische Pfandbrief- und Kommunalkreditbank AG
AA-/Negative/-- AAA/Watch Neg/--
Luxembourg: Public-Sector Covered Bonds (Lettres de Gage Publiques)