London, 14 February 2011 -- Moody's Investors Service has today taken the following rating actions
on covered bonds issued by Irish banks:
- Mortgage covered bonds issued by Bank of Ireland Mortgage Bank
(Bank of Ireland): Baa3, on review for further possible downgrade;
previously on 20 December 2010, downgraded to A1 on review for possible
downgrade
- Mortgage covered bonds issued by AIB Mortgage Bank (AIB):
Baa3, on review for further possible downgrade; previously
on 20 December 2010, downgraded to A2 on review for possible downgrade
- Mortgage covered bonds issued by EBS Mortgage Finance (EBS):
Baa3, on review for further possible downgrade; previously
on 20 December 2010, downgraded to A2 on review for possible downgrade
The timely payment indicators (TPIs) of these covered bond programmes
have been lowered to "Very Improbable" from "Improbable".
- Mortgage covered bonds issued by Anglo Irish Bank Corporation
(Anglo Irish) under its UK Covered Bond Programme: Ba3, on
review for further possible downgrade; previously on 20 December
2010, downgraded to Baa3 on review for possible downgrade
- Mortgage covered bonds issued by Anglo Irish Mortgage Bank:
Ba3, on review for further possible downgrade; previously on
20 December 2010, downgraded to Baa3 on review for possible downgrade
The timely payment indicators (TPIs) of these covered bond programmes
remain at "Very Improbable".
The current ratings assigned to the existing covered bonds of the above
programmes can be expected to be assigned to all subsequent covered bonds
issued under the relevant programmes, all other variables being
equal. Any future rating actions are expected to affect all covered
bonds issued under the relevant programmes. If there are any exceptions
to this, Moody's will in each case publish details in a separate
press release.
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 to investors.
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. For its covered bond
analysis in the case of Bank of Ireland, AIB, EBS and Anglo
Irish Mortgage Bank, Moody's uses the rating of the respective
parents as the "issuer rating". The reason for this
is that the covered bond issuers are set-up as unlimited liability
companies. The senior unsecured ratings of the banks supporting
the covered bonds were downgraded on 11 February 2011 and on 20 December
2010, as follows:
- Bank of Ireland (BoI): to Ba1/Not-Prime from Baa2/P-2;
on 20 December 2010 to Baa2 from A1, on review for possible downgrade
- Allied Irish Banks (AIB): to Ba2/Not-Prime from
Baa3/P-3; on 20 December 2010 to Baa3 from A1, on review
for possible downgrade
- EBS Building Society (EBS): to Ba2/Not-Prime from
Baa3/P-3; on 20 December 2010 to Baa2 from A3, on review
for possible downgrade
- Anglo Irish Bank (Anglo Irish): to Caa1 from Ba3.;
on 20 December 2010 to Ba3 from Baa3, on review for possible downgrade
For further information on the rating actions taken by Moody's Financial
Institutions Group, please refer to "Moody's downgrades unguaranteed
senior unsecured debt of Irish banks" published on 11 February 2011,
and "Moody's downgrades Irish banks further to sovereign downgrade"
published on 20 December 2010.
Furthermore, the downgrade of the unguaranteed senior debt rating
of the Irish banks was linked to increasing doubt surrounding the government's
willingness to provide additional support to the banks, beyond that
which it has already provided to date. In turn, this leads
to increased uncertainty over the ability and willingness of the issuers
to provide support to a covered bond programme of any other Irish issuer
if such an issuer defaults, causing the Timely Payment Indicators
for all Irish Covered Bond programmes to be set at "Very Improbable".
The ratings of the covered bonds issued by Bank of Ireland, AIB
and EBS are therefore capped at the current rating level because of the
TPI framework. The covered bonds have now a TPI leeway of two notches
in the case of Bank of Ireland, and one notch in the case of AIB
and EBS. This means that the issuer ratings can be downgraded by
one or two notches, respectively, without the TPIs triggering
another downgrade of the covered bonds.
The ratings of the covered bonds issued by Anglo Irish and Anglo Irish
Mortgage Bank have been lowered to Ba3, which represents the lowest
point in the TPI table. The ratings of all Irish mortgage covered
bonds are on further review for possible downgrade because the issuer
ratings are on review for possible downgrade.
Concurrently, Moody's has also downgraded the ratings of the
Mortgage Backed Promissory Notes (MBPNs) issued by Bank of Ireland Mortgage
Bank to Baa2 on review for possible downgrade, whilst those issued
by KBC Bank Ireland were downgraded to Baa1. This downgrade is
due to the downgrade of KBC Bank Ireland's senior debt rating to
Baa3 from Baa2 on 11 February 2011. 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, newly issued MBPNs 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.
KEY RATING ASSUMPTIONS/FACTORS
Moody's Covered bond ratings are determined after applying a two-step
process: an expected loss analysis and a 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 a function of the
issuer's probability of default, measured by the issuer's senior
unsecured debt rating, and the stressed losses on the cover pool
assets following issuer default.
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.
SENSITIVITY ANALYSIS
The robustness of a covered bond rating largely depends on the credit
strength of the issuer.
The number of notches by which the issuer's rating may be downgraded before
the covered bonds are downgraded under the TPI framework is measured by
the TPI Leeway.
Based on the current TPI of "Very Improbable" the TPI Leeway for the covered
bonds issued by Bank of Ireland is two notches, meaning that the
issuer ratings would need to be downgraded to B1 before the covered bonds
are downgraded. For AIB and EBS, the TPI leeway is one notch,
meaning that the issuer ratings would need to be downgraded to B1 before
the covered bonds are downgraded, all other variables being equal.
The ratings of the covered bonds issued by Anglo Irish and Anglo Irish
Mortgage Bank are not subject to restriction due to the TPI.
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 in the cover pool's value.
For further details on TPI Leeway across all covered bond programmes rated
by Moody's please refer to "Moody's EMEA Covered Bonds Monitoring Overview",
published quarterly. These figures are based on the reporting by
the issuer and are subject to change over time.
The principal methodology used for these ratings is Moody's Rating Approach
to European Covered Bonds published in March 2010.
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
