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Moodyʼs review for FHB downgrade covered bonds

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Moodyʼs Investors Service has placed on review for downgrade the Ba1 assigned to the covered bonds issued by FHB Mortgage Bank, the ratings agency said in a press release late yesterday. Moodyʼs said it determines covered bond ratings using a two-step process: an expected loss analysis and a TPI framework analysis. Observers have said the bank is being targeted because its chairman owns media outlets that criticize the government.

The bonds are rated Ba1 by Moodyʼs. On Tuesday Moody’s said FHB mortgage bank came under review for a downgrade due to negative publicity as well as government actions against FHB bank. 

Moody’s Covered Bond Model (COBOL) to determine a rating based on the expected loss on the bond “determines expected loss as (1) a function of the probability that the issuer will cease making payments under the covered bonds (a CB anchor event); and (2) the stressed losses on the cover pool assets following a CB anchor event”, the statement said.

“Q multiple-notch downgrade of the covered bonds might occur in certain circumstances, such as (1) a country ceiling or sovereign downgrade capping a covered bond rating or negatively affecting the CB Anchor and the TPI; (2) a multiple-notch downgrade of the CB Anchor; or (3) a material reduction of the value of the cover pool,” the statement by Moody’s said.

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