Paris, January 06, 2011 -- Substitute tenth paragraph reference to principal methodology with the
following: "The Emergence Offset Notes' ratings were assigned
by evaluating factors believed to be relevant to the credit profile of
the Notes such as (i) the financial strength of Bank of Ireland Life,
(ii) performance of the securitised book of business, (iii) review
of independent actuarial report, including assumptions underlying
projected cash flows, (iv) expected loss and probability of default
estimated via stochastic and deterministic modeling of the cashflows,
focusing principally on equity risk, persistency risk and mortality
risk, and (v) other factors believed to be applicable to the assessment
of the creditworthiness of the transaction, such as a review of
the structural, legal, and regulatory risks."
Revised release follows.
Moody's Investors Service today announced that it has downgraded the long-term
rating of the Class A-1 Emergence Offset Notes (senior tranche),
the life insurance-linked notes issued by Avondale Securities SA,
a special purpose Luxembourg societe anonyme sponsored by Bank of Ireland,
to Baa2 (sf) from A3 s(f). This rating remains under review for
further possible downgrade. The Baa3 (sf) long-term rating
of the Class A-2 Notes (junior tranche) also remains under review
for possible downgrade.
The following rating have been downgraded and placed under review for
further possible downgrade:
- EUR380,000,000 Class A-1 Floating Rate Emergence
Offset Notes due 2032 -- long-term secured rating
at Baa2 (sf) from A3 (sf).
The last rating action on the Class A-1 Emergence Offset Notes
was on March 12, 2009, when Moody's downgraded the notes to
A3 (sf) from A1 (sf).
RATINGS RATIONALE
The downgrade of the Class A-1 Notes reflects the strong linkage
between the ratings of the Notes and the underlying business risk associated
with Bank of Ireland Life. Moody's said that the financial strength
of Bank of Ireland Life has deteriorated following (i) the financial and
economic turmoil in the Irish economy and lower credit quality of Irish
government bonds (as reflected in Moody's downgrade of the Irish government
bond rating to Baa1 with a negative outlook), and the resulting
reduced asset quality and weakened economic capitalisation of the life
company and (ii) the deterioration of the financial strength of Bank of
Ireland (as reflected by Moody's downgrade of Bank of Ireland's BFSR to
D and its long term deposit and senior debt ratings to Baa2 with a negative
outlook) and the implications in terms of capitalisation and financial
flexibility for Bank of Ireland Life, as a 100% owned subsidiary
of the bank.
The review for further possible downgrade on both tranches reflect the
economic uncertainties in the Irish economy, and the uncertain consequences
of the austerity measures implemented by the Irish government, which
could provoke a long term increase in lapse rates and in paid-up
policy rates at Bank of Ireland Life, which would affect the value-in-force
(VIF) of the securitised book of business and more generally the profitability
of Bank of Ireland Life.
Moody's rating of the notes continues to reflect a) the role that Bank
of Ireland, as owner of Bank of Ireland Life and provider of various
support mechanisms and covenants to the transaction, plays within
the issuance, b) the underlying expected loss on the notes,
resulting from the assessment of the expected emergence of the cashflows
from the reference book of policies under a variety of deterministic stress
scenarios, as well as using a Moody's-derived stochastic
model to simulate a wider range of possible outcomes, c) the transaction's
legal structure and d) the financial strength of the various parties to
the transaction, including Bank of Ireland Life, originator
of the securitised book of business.
Moody's mentioned that Bank of Ireland Life's assets portfolio (excluding
unit-linked investments) was exposed to Irish investments.
Therefore, following the financial and economic turmoil in the Irish
economy and lower credit quality of Irish bonds, Moody's expects
that the asset quality and the capitalisation of the insurance company
has weakened. Furthermore, following the downgrade of Bank
of Ireland's Bank Financial Strength and deposit Ratings, Moody's
believes that, as a fully-owned subsidiary, Bank of
Ireland Life faces additional financial and capitalisation pressures.
Moody's review will continue to focus on the assessment of the financial
strength of Bank of Ireland Life, originator of the securitised
book of business, as well as on reviewing the expected loss of each
tranche in the light of the most recent data available, reviewing
especially future developments on lapse rates in the coming months.
Commenting on what could change the rating of the Class A-1 Notes
down, Moody's mentioned either a deterioration of the financial
strength of Bank of Ireland Life, or revised long-term assumptions
(eg higher level of lapses or reduced level of investment returns) driven
by the new economic environment prevailing in Ireland which would negatively
affect the expected loss of the Notes.
The Emergence Offset Notes' ratings were assigned by evaluating factors
believed to be relevant to the credit profile of the Notes such as (i)
the financial strength of Bank of Ireland Life, (ii) historical
performance of the securitised book of business, (iii) review of
independent actuarial report, including assumptions underlying projected
cash flows, (iv) expected loss and probability of default estimated
via stochastic and deterministic modeling of the cashflows, focusing
principally on equity risk, persistency risk and mortality risk,
and (v) other factors believed to be applicable to the assessment of the
creditworthiness of the transaction, such as a review of the structural,
legal, and regulatory risks.
Moody's Investors Service did not receive or take into account a third-party
due diligence report on the underlying assets or financial instruments
related to the monitoring of this transaction in the past six months
REGULATORY DISCLOSURES
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, public information, and confidential
and proprietary Moody's Investors Service information.
Moody's Investors Service considers the quality of information available
on the issuer or obligation satisfactory for the purposes of maintaining
a credit rating.
The rating has been disclosed to the rated entity or its designated agents
and issued with no amendment resulting from that disclosure.
Moody's Investors Service may have provided Ancillary or Other Permissible
Service(s) to the rated entity or its related third parties within the
three years preceding the Credit Rating Action. Please see the
ratings disclosure page www.moodys.com/disclosures on our
website for further information.
Moody's adopts all necessary measures so that the information it uses
in assigning a credit rating is of sufficient quality and from sources
Moody's considers to be reliable including, when appropriate,
independent third-party sources. However, Moody's
is not an auditor and cannot in every instance independently verify or
validate information received in the rating process.
Please see ratings tab on the issuer/entity page on Moodys.com
for the last rating action and the rating history.
The date on which some Credit Ratings were first released goes back to
a time before Moody's Investors Service's Credit Ratings were fully digitized
and accurate data may not be available. Consequently, Moody's
Investors Service provides a date that it believes is the most reliable
and accurate based on the information that is available to it.
Please see the ratings disclosure page on our website www.moodys.com
for further information.
Please see the Credit Policy page on Moodys.com for the methodologies
used in determining ratings, further information on the meaning
of each rating category and the definition of default and recovery.
Moody's Investors Service may have provided Ancillary or Other Permissible
Service(s) to the rated entity or its related third parties within the
three years preceding the Credit Rating Action. Please see the
ratings disclosure page www.moodys.com/disclosures on our
website for further information.
Moody's adopts all necessary measures so that the information it uses
in assigning a credit rating is of sufficient quality and from sources
Moody's considers to be reliable including, when appropriate,
independent third-party sources. However, Moody's
is not an auditor and cannot in every instance independently verify or
validate information received in the rating process.
Please see ratings tab on the issuer/entity page on Moodys.com
for the last rating action and the rating history.
The date on which some Credit Ratings were first released goes back to
a time before Moody's Investors Service's Credit Ratings were fully digitized
and accurate data may not be available. Consequently, Moody's
Investors Service provides a date that it believes is the most reliable
and accurate based on the information that is available to it.
Please see the ratings disclosure page on our website www.moodys.com
for further information.
Please see the Credit Policy page on Moodys.com for the methodologies
used in determining ratings, further information on the meaning
of each rating category and the definition of default and recovery.
London
Simon Harris
MD - Financial Institutions
Financial Institutions Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Paris
Benjamin Serra
Asst Vice President - Analyst
Financial Institutions Group
Moody's France SAS
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's France SAS
96 Boulevard Haussmann
Paris 75008
France
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Correction to Text, Dec. 21, 2010 Release: Moody's downgrades the senior tranche of the Emergence Offset Notes issued by Avondale Securities SA to Baa2 (sf) from A3 (sf)
