In assigning the rating to the major bank’s Series 2016-C2 bonds, Moody’s said the credit quality of the assets backing the covered bonds was a major factor.
“The covered bonds are backed by Australian residential mortgage loans. The collateral score for the cover pool is 4.20 per cent,” it said.
The ratings agency said the legal framework of Westpac’s bond program, as well as the cover pool’s exposure to market risk – which is 12.76 per cent – were also considered.
“As at 31 December 2015, the total value of the assets included in the cover pool is $37 billion, comprising $34.8 billion in residential mortgage loans and $2.2 billion in substitute assets,” Moody’s said.
“The residential mortgage loans have a weighted average (WA) seasoning of 56 months and a WA current unindexed loan-to-value ratio of 61.1 per cent,” Moody’s said.
Furthermore, Moody’s said its rating addresses the expected loss posed to investors, which is 15.6 per cent for the cover pool.
“Moody’s splits cover pool losses between market risk of 12.76 per cent and collateral risk of 2.81 per cent,” it said.
“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 program is currently 4.20 per cent.”
[Related: ANZ mortgage bonds assigned AAA rating]