EUR12.35 billion of notes affected
London, 20 December 2011 -- Moody's Investors Service has today confirmed the Baa3 rating of AIB Mortgage
Bank's (AIB) mortgage covered bonds on the back of the recent programme
update and the increase in over-collateralisation, which
brings expected loss levels in line with the Baa3 rating. This
rating action concludes the review for downgrade initiated by Moody's
on 14 February 2011.
RATINGS RATIONALE
Today's rating confirmation follows (i) the recent programme update
of the issuer; and (ii) the issuance of a new covered bond,
which raises the legally committed level of over-collateralisation
to a sufficient position where the expected loss of the covered bonds
is consistent with the Baa3 rating. On 14 February 2011,
Moody's downgraded the covered bonds to Baa3 on review for downgrade,
from A2 on review for downgrade. The ongoing review of the covered
bonds was due to the senior unsecured rating of Allied Irish Banks plc
being on review for further downgrade.
The level of over-collateralisation that the issuer has now committed
under the programme is 12.5% on a prudent market value basis.
Moody's notes that the increase in commitment from 5% to
12% over-collateralisation on a prudent market value basis
has been implemented through the terms and conditions of a new issuance.
Since this bond will be retained by AIB, the commitment per se can
be reversed by the issuer. However, the issuer has confirmed
to Moody's that they do not envisage a reversal of this level of
commitment should this reversal have a negative effect on the rating of
the mortgage covered bonds.
The ratings assigned by Moody's address the expected loss posed to investors.
Moody's ratings address only the credit risks associated with the transaction.
Other non-credit risks have not been addressed, but may have
a significant effect on yield to investors.
KEY RATING ASSUMPTIONS/FACTORS
Covered bond ratings are determined after applying a two-step process:
expected loss analysis and a timely payment indicator (TPI) framework
analysis.
EXPECTED LOSS
Moody's determines a rating based on the expected loss on the bond.
The primary model used is Moody's Covered Bond Model (COBOL),
which determines expected loss as (i) a function of the issuer's
probability of default (measured by the issuer's rating); and
(ii) the stressed losses on the cover pool assets following issuer default.
The cover pool losses for AIB's mortgage covered bonds are 38.7%.
This is based on the most recent performance overview and is an estimate
of the losses Moody's currently models if AIB defaults. Cover pool
losses can be split between market risk of 33.2% and collateral
risk of 5.5%. Market risk measures losses as a result
of 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 the credit quality
of the assets in the cover pool. Collateral risk is derived from
the collateral score, which for this programme is currently 8.2%.
TPI FRAMEWORK
Moody's assigns a TPI, which indicates the likelihood that timely
payment will be made to covered bondholders following issuer default.
The effect of the TPI framework is to limit the covered bond rating to
a certain number of notches above the issuer's rating.
For AIB's mortgage covered bonds, Moody's has assigned a TPI
of Very Improbable.
SENSITIVITY ANALYSIS
The robustness of a covered bond rating largely depends on the credit
strength of the issuer.
The TPI Leeway measures the number of notches by which the issuer's rating
may be downgraded before the covered bonds are downgraded under the TPI
framework.
The TPI assigned to this programme is Very Improbable. The TPI
Leeway for this programme is limited, and thus any downgrade of
the issuer ratings may lead to a downgrade of the covered bonds.
A multiple-notch downgrade of the covered bonds might occur in
certain limited circumstances. Some examples might be (i) a sovereign
downgrade negatively affecting both the issuer's senior unsecured rating
and the TPI; (ii) a multiple-notch downgrade of the issuer;
or (iii) a material reduction of the value of the cover pool.
As noted in Moody's comment "Rising Severity of Euro Area Sovereign
Crisis Threatens Credit Standing of All EU Sovereigns"' (28 November
2011), the risk of sovereign defaults or the exit of countries from
the euro area is rising. As a result, Moody's could lower
the maximum achievable rating for covered bonds transactions in some countries,
which could result in rating downgrades.
RATING METHODOLOGY
The principal methodology used in this rating was Moody's Approach
to Rating Covered Bonds" published in March 2010. Please
see the Credit Policy page on www.moodys.com for a copy
of this methodology.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt,
this announcement provides relevant regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt 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 relevant regulatory disclosures in relation
to the rating action on the support provider and in relation to each particular
rating action for securities that derive their credit ratings from the
support provider's credit rating. For provisional ratings,
this announcement provides relevant 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.
The rating has been disclosed to the rated entity or its designated agent(s)
and issued with no amendment resulting from that disclosure.
Information sources used to prepare the rating are the following :
parties involved in the ratings, parties not involved in the ratings,
public information, and confidential and proprietary Moody's
Investors Service information
Moody's considers the quality of information available on the rated
entity, obligation or credit satisfactory for the purposes of issuing
a rating.
Moody's adopts all necessary measures so that the information it
uses in assigning a 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.
Moody's Investors Service may have provided Ancillary or Other Permissible
Service(s) to the rated entity or its related third parties within the
two years preceding the credit rating action. Please see the special
report "Ancillary or other permissible services provided to entities
rated by MIS's EU credit rating agencies" on the ratings disclosure
page on our website www.moodys.com for further information.
Please see the ratings disclosure page on www.moodys.com
for general disclosure on potential conflicts of interests.
Please see the ratings disclosure page on www.moodys.com
for information on (A) MCO's major shareholders (above 5%)
and for (B) further information regarding certain affiliations that may
exist between directors of MCO and rated entities as well as (C) the names
of entities that hold ratings from MIS that have also publicly reported
to the SEC an ownership interest in MCO of more than 5%.
A member of the board of directors of this rated entity may also be a
member of the board of directors of a shareholder of Moody's Corporation;
however, Moody's has not independently verified this matter.
Please see Moody's Rating Symbols and Definitions on the Rating
Process page on www.moodys.com for further information on
the meaning of each rating category and the definition of default and
recovery.
Please see ratings tab on the issuer/entity page on www.moodys.com
for the last rating action and the rating history. The date on
which some ratings were first released goes back to a time before Moody's
ratings were fully digitized and accurate data may not be available.
Consequently, Moody's 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 www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has
issued the rating.
Volker Gulde
Vice President - Senior Analyst
Structured Finance Group
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Juan Pablo Soriano
MD - Structured Finance
Structured Finance Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Releasing Office:
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's confirms Baa3 ratings of AIB Mortgage Bank's mortgage covered bonds
