The ratings rationale states that a covered bond benefits from, on the one hand, the issuerʼs promise to pay interest and principal on the bonds; and on the other hand, following a “covered bond anchor event,” the economic benefit of a collateral pool (the cover pool), according to a press release sent to the Budapest Business Journal.
(The CB anchor event replaces the “issuer default” concept in the methodology, and references the point at which an issuer ceases to make payments on its covered bonds.)
In its analysis of the cover poolʼs value, Moodyʼs considered the credit quality of the assets backing the covered bonds (the mortgage-covered bonds are backed by Hungarian residential mortgage loans), as well as the legal framework, the exposure to market risk, and other factors.
As of December 2017, the total value of the assets included in the cover pool is approximately HUF 123.1 billion, comprising 25,608 residential mortgage loans. The residential mortgage loans have a weighted-average (WA) seasoning of 67 months and a WA loan-to-value (LTV) ratio of 55.8%.
The ratings that Moodyʼs has assigned address the expected loss posed to investors. Moodyʼs ratings address only the credit risks associated with the transaction. Moodyʼs did not address other non-credit risks, but these may have a significant effect on yield to investors, the press release noted.
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