ANZ New Zealand, owner of the ANZ and National banks, fund manger OnePath and UDC Finance, has raised 500 million Swiss francs (NZ$662.3 million) through two covered bond issues, secured by New Zealand residential mortgages, to institutional investors.
The covered bond issues were revealed by credit ratings agency Moody's Investors Service, which issued a report assigning its highest possible Aaa rating to the two issues. An ANZ NZ spokesman told interest.co.nz the covered bonds were issued about three weeks ago, in syndicated deals via UBS and Credit Suisse, but settled last night.
The two issues included a 200 million Swiss franc floating rate, three-year issue, and a 300 million Swiss franc fixed rate, six-year issue.
Typical with covered bonds, investors' in ANZ's new issues benefit from two layers of protection in the event of a default by having recourse to both the issuer (ANZ) and a collateral pool of residential mortgages written by the bank. This dual security is why covered bonds are given the highest possible credit ratings.
Moody's says the total value of mortgage loans secured by properties in New Zealand in ANZ's cover pool is about NZ$3.8 billion. The loans have a weighted-average seasoning, or time they've been running, of 28 months and a weighted-average remaining term of 218 months. The weighted-average loan to value (LTV) ratio is 55.24%.
The covered bond issues are ANZ NZ's second and third from a €5 billion (NZ$7.9 billion) programme. The first was a €500 million, five-year issue to European institutional investors last October.
The Reserve Bank currently has consultation open on proposed covered bond legislation. New Zealand banks started issuing covered bonds in 2010. The central bank has imposed, as a condition of bank registration, that banks can't encumber (use as collateral) more than 10% of their total assets to support covered bonds issuance.
See Moody's statement below:
Sydney, February 28, 2012 -- Moody's Investors Service has assigned a definitive long-term rating of Aaa to the Series 2012-1 and Series 2012-2 covered bonds issued by ANZ National (Int'l) Limited (ANZNIL or the issuer), a wholly owned subsidiary of ANZ National Bank Limited (ANZ National, Aa3/Prime-1/C) under the terms of its EUR5 billion Covered Bond Programme. ANZNIL issued CHF 200 million floating-rate Series 2012-1 covered bonds with a 3-year hard-bullet maturity along with CHF 300 million fixed-rate Series 2012-2 covered bonds with a 6-year hard-bullet maturity.
Issuer: ANZ National (Int'l) Limited
....CHF200M Series 2012-1, Definitive Rating Assigned Aaa
....CHF300M Series 2012-2, Definitive Rating Assigned Aaa
RATINGS RATIONALE
The covered bonds are direct, unconditional and senior obligations of ANZ National (Int'l) Limited (ANZNIL) -- a wholly owned subsidiary of ANZ National. The payments of all amounts due in respect of the covered bonds are unconditionally guaranteed by ANZ National. In addition, the covered bonds are secured by eligible assets primarily being a pool of residential mortgage loans originated by ANZ National and eligible substitution assets (the cover pool).
As with all covered bonds, the covered bonds benefit from two layers of protection by having recourse to both the issuer and a collateral pool.
The rating therefore takes into account the following factors:
1) The credit strength of ANZ National, rated Aa3.
2) The value of the cover pool. The covered bonds are primarily backed by residential mortgage loans.
Other key factors:
3) Requirement on ANZ National to maintain a maximum asset percentage of 90%, which translates into a minimum over-collateralisation of around 11.1%. Moody's considers this over-collateralisation to be "committed".
4) Structure created by the transaction documents.
Moody's has assigned a Timely Payment Indicator (TPI) of "Improbable" to the covered bonds.
The total value of the pool of residential mortgage loans within the cover pool as at cut-off date is approximately NZ$3,851,198,795. The cover pool assets are mortgage loans secured by properties in New Zealand. The loans have a weighted-average seasoning of 28 months and a weighted-average remaining term of 218 months. The weighted-average loan to value (LTV) ratio is 55.24%.
The Aaa rating assigned to the above-referenced covered bonds is expected to be assigned to all subsequent covered bonds issued by the issuer under this programme and any future rating actions are expected to affect all such covered bonds. Should there be any exceptions to this, Moody's will in each case publish details in a separate press release.
KEY RATING ASSUMPTIONS/FACTORS
Covered bond ratings are determined after applying a two-step process: expected loss analysis and 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 a function of the issuer's probability of default and the stressed losses on the cover pool assets following issuer default.
The Cover Pool Losses for this programme are 24.34%. This is an estimate of the losses Moody's currently models in the event of issuer default. Cover Pool Losses can be split between Market Risk of 16.74% and Collateral Risk of 7.60%. 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 8.25%.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.
SENSITIVITY ANALYSIS
The robustness of a covered bond rating largely depends on the credit strength of the issuer.
The number of notches by which the issuer's rating may be downgraded before the covered bonds are downgraded under the TPI framework is measured by the TPI Leeway. Based on the current TPI of Improbable the TPI Leeway for this programme is one notch, meaning the issuer rating would need to be downgraded to A2 before the covered bonds are downgraded, all other things being equal.
A multiple notch downgrade of the covered bonds might occur in certain limited circumstances. Some examples might be (a) a sovereign downgrade negatively affecting both the issuer's senior unsecured rating and the
TPI; (b) a multiple notch downgrade of the issuer; or (c) a material reduction of the value of the cover pool.
(Update adds comments from ANZ NZ spokesman).
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