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Global Credit Research - 07 Oct 2010
London, 07 October 2010 -- Moody's Investors Service has today placed on review for possible downgrade
the following covered bonds issued by some Irish banks:
- Mortgage covered bonds issued by AIB Mortgage Bank: Aaa
placed on review for possible downgrade, previously on 6 April 2006
- Mortgage covered bonds issued under the Bank of Ireland Mortgage
Bank Covered Bond Programme: Aaa placed on review for possible downgrade,
previously on 22 September 2004 rated Aaa
- Mortgage covered bonds issued by EBS Mortgage Finance Covered
Bond Programme: Aaa placed on review for possible downgrade,
previously on 16 December 2008 rated Aaa
Today's rating actions on the covered bonds were prompted by the corresponding
rating actions taken by Moody's on the underlying institutions supporting
these covered bonds. The senior unsecured ratings of these banks
were yesterday placed on review for possible downgrade and as a result,
the covered bonds have been placed on review for downgrade. The
senior unsecured ratings of the banks were placed on review following
the review for possible downgrade of the government bond ratings of Ireland.
For further information on the rating actions taken by Moody's Financial
Institutions Group, please refer to "Moody's takes action on rated
Irish Banks further to sovereign rating review" published on 6 October
In addition, the recent deterioration of Ireland's public finances
as well as the economy's long-term growth challenges may have a
negative impact on Ireland's fiscal financing costs for some time to come.
Accordingly, the Timely Payment Indicators (TPI) assigned to the
covered bonds issued by these banks have been lowered to "Probable" from
"Probable-High". For further information on the rating action
taken by Moody's Sovereign Risk Group, please refer to "Moody's:
Ireland's Aa2 rating on review for possible downgrade" published on 5
During the review, Moody's will consider the impact on its expected
loss analysis of:
(i) Any issuer rating changes. As the credit strength of the issuer
is incorporated into Moody's expected loss methodology, any
downgrade of the issuer's ratings will increase the expected loss
on the covered bonds;
(ii) Any rating change on the sovereign. The risk of sovereign
default is captured in Moody's analysis where the rating of the
covered bonds exceeds the sovereign debt rating by more than a number
of notches. If this threshold is exceeded, Moody's
may apply higher stress scenarios when modelling the collateral backing
the covered bonds, in order to account for losses in the event of
a sovereign default; and
(iii) The refinancing environment in Ireland. Moody's will
look at resizing refinancing margins to account for the increased funding
costs in the market.
Moody's notes that issuers may be able to offset the deterioration in
the expected loss analysis by increasing the collateral in their programmes.
Based on Moody's current TPI of "Probable" for the Irish covered bond
programmes, the TPI framework will limit the covered bonds ratings
below Aaa if any of the senior unsecured ratings of the issuers are downgraded
Moody's rating for any covered bond is determined after applying a two-step
(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;
(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 rating these transactions 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. These can be found on www.moodys.com
in the Rating Methodologies sub-directory under the Research &
Ratings tab. Other methodologies and factors that may have been
considered in the process of rating this issue can also be found in the
Rating Methodologies sub-directory on Moody's website. In
addition, Moody's publishes a weekly summary of structured finance
credit, ratings and methodologies, available to all registered
users of our website, at www.moodys.com/SFQuickCheck.
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
Structured Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's Investors Service Ltd.
Moody's places various Irish covered bonds on review for possible downgrade
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London E14 5FA
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