London, 20 December 2010 -- Moody's Investors Service has today downgraded the following covered bonds
issued by several Irish banks:
- Mortgage covered bonds issued by AIB Mortgage Bank: A2
on review for possible downgrade, previously on 7 October 2010,
Aaa placed on review for possible downgrade
- Mortgage covered bonds issued by Bank of Ireland Mortgage Bank:
A1 on review for possible downgrade, previously on 7 October 2010,
Aaa placed on review for possible downgrade
- Mortgage covered bonds issued by EBS Mortgage Finance:
A2 on review for possible downgrade, previously on 7 October 2010,
Aaa placed on review for possible downgrade
- Mortgage covered bonds issued by Anglo Irish Mortgage Bank:
Baa3 on review for possible downgrade, previously on 27 September
2010, downgraded to A2 on review for possible downgrade from Aaa
on review for possible downgrade
- Mortgage covered bonds issued by Anglo Irish Bank Corporation:
Baa3 on review for possible downgrade, previously on 27 September
2010, downgraded to A2 on review for possible downgrade from Aaa
on review for possible downgrade
RATINGS RATIONALE
Today's rating actions on the covered bonds were prompted by the corresponding
rating actions taken by Moody's Financial Institutions Group on the underlying
institutions supporting these covered bonds. Following the downgrade
of the government bond ratings of Ireland on 17 December to Baa1 (negative
outlook) from Aa2 (on review for possible downgrade), the senior
unsecured ratings of the banks supporting the covered bonds were downgraded.
As a result, Moody's has today downgraded the covered bonds
supported by these banks. For further information on the rating
actions taken by Moody's Financial Institutions Group, and the sovereign
rating action on Ireland, please refer to "Moody's downgrades Irish
Banks further to sovereign downgrade" published on 20 December 2010 and
"Moody's downgrades Ireland to Baa1 from Aa2; outlook negative,"
published on 17 December 2010.
According to Moody's Sovereign Risk Group, the further deterioration
of Ireland's public finances combined with the economy's long-term
growth challenges may have a negative impact on Ireland's financing costs
for some time to come. Accordingly, the Timely Payment Indicators
(TPIs) assigned to the mortgage covered bonds issued by AIB Mortgage Bank,
Bank of Ireland Mortgage Bank and EBS Mortgage Finance have been lowered
to "Improbable" from "Probable". The TPIs assigned
to the mortgage covered bonds issued by Anglo Irish Bank Corporation and
Anglo Irish Mortgage Bank have been lowered to "Very Improbable"
from "Improbable".
The ratings of all Irish mortgage covered bonds are on further review
for possible downgrade due to Moody's anticipation of a further deterioration
in the performance of Irish residential and commercial mortgage loans
(for further details on residential mortgage loans please see the announcement
"Moody's reviews for downgrade remaining top rated Irish structured
finance Deals" published on 2 December 2010). In the light
of weakening collateral performance, Moody's will, as part
of its rating review, re-assess the key performance parameters.
During the review, Moody's will consider the negative rating impact
on the covered bonds in two steps:
a) Expected Loss: On an expected loss basis (all other variables
being equal), further downgrades of the issuers' ratings will increase
the expected loss on the covered bonds and may lead to a downgrade of
the covered bond ratings unless the collateral values of the relevant
cover pools are strengthened by the addition of further over-collateralisation.
Moody's notes that issuers may be able to offset any deterioration in
the expected loss analysis by adding further collateral to their programmes.
b) TPI: Based on Moody's current TPI of "Improbable" and "Very
Improbable" respectively, the TPI framework limits the covered
bonds ratings at the current rating levels for all Irish mortgage covered
bonds. If the issuers' ratings are downgraded further,
the ratings achievable for the covered bonds may be downgraded accordingly.
Concurrently, Moody's has also downgraded the ratings of the
Mortgage Backed Promissory Notes (MBPNs) issued by several Irish banks.
The MBPNs issued by Bank of Ireland Mortgage Bank were downgraded to A3,
whilst those issued by Allied Irish Mortgage Bank, EBS Building
Society, EBS Mortgage Finance and Irish Life & Permanent were
each downgraded to Baa1. The ratings of the MBPNs benefit from
a two-notch uplift from the issuer's senior debt rating.
MBPNs are only eligible to be rated by Moody's, if the issuer
(or its parent) is rated at least Baa2 by Moody's. Hence,
going forward only newly issued MBPNs issued by Bank of Ireland Mortgage
Bank will carry a Moody's rating. MBPNs issued by the other
issuers mentioned above will not be rated by Moody's. Please
refer to the "Framework Agreement in Respect of the issue of Mortgage
Backed Promissory Notes" on www.moodys.com.
RATING METHODOLOGY
Moody's rating for any covered bond is determined after applying a two-step
process:
(1) Moody's determines a rating based on the expected loss on the bond.
This is modelled as a function of the issuer's probability of default
and the stressed losses on the cover pool assets following issuer default;
and
(2) 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 is to limit the covered bond rating to a certain number
of notches above the issuer's rating.
The rating assigned by Moody's addresses 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 and to investors.
The principal methodologies used in this rating were Moody's Rating Approach
to Covered Bonds, published in March 2010, and Assessing Swaps
as Hedges in the Covered Bond Market, published in September 2008.
REGULATORY DISCLOSURES
Information sources used to prepare the credit 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 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 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.
Madrid
Juan Pablo Soriano
MD - Structured Finance
Structured Finance Group
Moody's Investors Service Espana, S.A.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
London
Volker Gulde
Vice President - Senior Analyst
Structured Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
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 downgrades various Irish covered bonds
