Borgo AB ? Mortgage Covered Bonds -- Moody's assigns definitive Aaa ratings to Borgo AB -- Mortgage Covered Bonds

Rating Action: Moody's assigns definitive Aaa ratings to Borgo AB -- Mortgage Covered BondsGlobal Credit Research - 14 Feb 2022Frankfurt am Main, February 14, 2022 -- Moody's Investors Service ("Moody's") has today assigned definitive Aaa long-term ratings to the mortgage covered bonds ("covered bonds") issued by Borgo AB (the issuer/"Borgo", deposits Baa2 stable; adjusted baseline credit assessment baa3; counterparty risk (CR) assessment A3(cr)), which are governed by the Swedish covered bond act.RATINGS RATIONALEA covered bond benefits from (1) the issuer's promise to pay interest and principal on the bonds; and (2) following a CB anchor event, the economic benefit of a collateral pool (the cover pool). The ratings therefore reflect the following factors:(1) The credit strength of Borgo and a CB anchor of CR assessment plus 1 notch.(2) Following a CB anchor event the value of the cover pool. The stressed level of losses on the cover pool assets following a CB anchor event (cover pool losses) for this transaction is 8.8%.Moody's considered the following factors in its analysis of the cover pool's value:a) The credit quality of the assets backing the covered bonds. The mortgage covered bonds are backed by Swedish residential mortgage loans. The collateral score for the cover pool is 5.0%.b) The legal framework of the programme. Notable aspects of the Swedish covered bond framework include the requirement for the issuer to exclude non-performing assets from coverage tests at 60 days past due. The framework restricts loans backed by commercial property to 10.0% of the cover pool. Issuers must also stress test cover pools against falls of up to 30.0% in mortgaged property values.c) The exposure to market risk, which is 5.5% for this cover pool.d) The over-collateralisation (OC) in the cover pool is 25.8%, of which Borgo provides, as per the legal framework, 2.0% both in present value and nominal terms on a "committed" basis (see Key Rating Assumptions/Factors, below).The TPI assigned to this transaction is Probable-High. Moody's TPI framework does not constrain the rating.At present, the total value of the assets included in the cover pool is approximately SEK 9.4 billion, comprising 6,099 residential mortgage loans (3,134 mortgage loans backed by single family housing and 2,965 mortgage loans backed by tenant owner rights). The residential mortgage loans have a weighted-average (WA) seasoning of 24 months and a WA loan-to-value (LTV) ratio of 58%.KEY RATING ASSUMPTIONS/FACTORSMoody's determines covered bond ratings using a two-step process: an expected loss analysis and a TPI framework analysis.EXPECTED LOSS: Moody's uses its Covered Bond Model (COBOL) to determine a rating based on the expected loss on the bond. COBOL determines expected loss as (1) a function of the probability that the issuer will cease making payments under the covered bonds (such cessation, a CB anchor event); and (2) the estimated losses that will accrue to covered bondholders should a CB anchor event occur. We express the probability of a CB anchor event as a point on our alpha-numeric rating scale (i.e. the CB anchor), which is typically one notch higher than the issuer's CR assessment.The CB anchor for this programme is A2, being the CR assessment of Borgo plus 1 notch.The cover pool losses for this programme are 8.8%. This is an estimate of the losses Moody's currently models following a CB anchor event. Moody's splits cover pool losses between market risk of 5.5% and collateral risk of 3.3%. Market risk measures losses stemming from 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 cover pool assets' credit quality. Moody's derives collateral risk from the collateral score, which for this programme is currently 5.0%.The over-collateralisation in the cover pool is 25.8%, of which the issuer provides 2.0% on a "committed" basis. Under Moody's COBOL model, the minimum OC consistent with the Aaa rating is 6.0%, of which 0% needs to be in "committed" form to be given full value (numbers in nominal value terms). These numbers show that Moody's is relying on "uncommitted" OC in its expected loss analysis.The cover pool losses are an estimate of the losses Moody's currently models following a CB anchor event. Moody's splits cover pool losses between market risk and collateral risk. Market risk measures losses stemming from refinancing risk and risks related to interest-rate and currency mismatches (these losses may also include certain legal risks). Collateral risk is derived from the collateral score, which measures losses resulting directly from the cover pool assets' credit quality.For further details on cover pool losses, collateral risk, market risk, collateral score and TPI Leeway across covered bond programmes rated by Moody's please refer to " Covered Bonds Sector Update", published quarterly.TPI FRAMEWORK: Moody's assigns a "timely payment indicator" (TPI), which is our assessment of the likelihood of timely payment of interest and principal to covered bondholders following a CB anchor event. TPIs are assessed as Very High, High, Probable-High, Probable, Improbable or Very Improbable. The TPI framework limits the covered bond rating to a certain number of notches above the CB anchor.For Borgo's mortgage covered bonds, Moody's has assigned a TPI of Probable-High.RATING METHODOLOGYThe principal methodology used in these ratings was "Moody's Approach to Rating Covered Bonds" published in December 2021 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBS_1307630. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.Factors that would lead to an upgrade or downgrade of the ratings:The CB anchor is the main determinant of a covered bond programme's rating robustness. A change in the level of the CB anchor could lead to an upgrade or downgrade of the covered bonds. The TPI Leeway measures the number of notches by which Moody's might lower the CB anchor before the rating agency downgrades the covered bonds because of TPI framework constraints.Based on the current TPI of Probable-High, the TPI Leeway for this programme is 1 notch. This implies that Moody's might downgrade the covered bonds because of a TPI cap if it lowers the CB anchor by 2 notches all other variables being equal.A 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.REGULATORY DISCLOSURESFor further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.Moody's did not use any stress scenario simulations in its analysis.For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. 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