London, 20 December 2013 -- Moody's Investors Service has today taken rating actions on the following
ratings of Irish covered bonds, prompted by the downgrade of the
relevant issuer's senior unsecured ratings:
- Mortgage covered bonds issued by AIB Mortgage Bank, a wholly
owned unlimited subsidiary of Allied Irish Banks p.l.c.
(senior unsecured rating B1; baseline credit assessment b2):
Baa2, placed on review for downgrade;
- Mortgage covered bonds issued by Bank of Ireland Mortgage Bank,
a wholly owned unlimited subsidiary of Bank of Ireland (senior unsecured
rating Ba3; baseline credit assessment b1): Baa2, placed
on review for downgrade; and
- Mortgage covered bonds issued by EBS Mortgage Finance,
a wholly owned unlimited subsidiary of EBS Ltd (senior unsecured rating
B1; baseline credit assessment b2): Baa3, placed on review
for downgrade.
The review will take into account the final form in which the proposals
under the Request for Comment (RFC) published on 19 September 2013 (see
Rating Methodology section) are implemented.
RATINGS RATIONALE
Today's rating actions are prompted by the downgrade of the three issuing
banks' senior unsecured ratings on 17 and 19 December 2013 respectively.
For further information on the rating actions taken by Moody's Financial
Institutions Group, please see "Moody's downgrades Bank
of Ireland's deposit rating to Ba2, senior debt ratings to
Ba3; outlook remains negative" and "Moody's downgrades
Allied Irish Banks' deposit rating to Ba3, senior debt ratings to
B1; outlook changed to stable" on Moodys.com.
Moody's review of the covered bond ratings will incorporate all
available information, including the recent ECOFIN proposals.
Until Moody's completes its analysis of the available information
and the proposal, the rating agency intends to leave the above covered
bond ratings on review.
The "Timely Payment Indicators" (TPI)s assigned to the affected covered
bond programmes remain "Improbable". Moody's TPI framework may
constrain the final rating of these covered bond programmes following
its review.
The Credit Ratings of the covered bonds from AIB Mortgage Bank,
Bank of Ireland Mortgage Bank Covered Bond Programme and EBS Mortgage
Finance Covered Bond Programme were assigned in line with Moody's existing
Credit Rating Methodology entitled "Moody's Approach to Rating Covered
Bonds", published in July 2012.
Moody's notes that on 19 September 2013 it published a Request for Comment
( RFC ). In the RFC, the rating agency proposes an adjustment
to the anchor point it uses in its covered bond analysis. If the
revised Credit Rating Methodology is implemented as proposed, the
Credit Ratings of the covered bonds from AIB Mortgage Bank, Bank
of Ireland Mortgage Bank Covered Bond Programme and EBS Mortgage Finance
Covered Bond Programme may be impacted relative to application of the
existing Credit Rating Methodology. Please refer to Moody's Request
for Comment, titled "Approach to Determining the Issuer Anchor Point
for Covered Bonds" for further details regarding the implications of the
proposed Credit Rating Methodology changes on Moody's Credit Ratings https://www.moodys.com/research/Approach-to-Determining-the-Issuer-Anchor-Point-for-Covered-Bonds--PBS_SF342448.
The rating that Moody's has assigned addresses the expected loss posed
to investors. Moody's ratings address only the credit risks associated
with the transaction. Moody's did not address other non-credit
risks, but these may have a significant effect on yield to investors.
KEY RATING ASSUMPTIONS/FACTORS
Moody's determines covered bond ratings using a two-step process:
an expected loss analysis and a TPI framework analysis.
EXPECTED LOSS: Moody's uses its Covered Bond Model (COBOL) to determine
a rating based on the expected loss on the bond. COBOL determines
expected loss as (1) a function of the issuer's probability of default
(measured by the issuer's rating); and (2) the stressed losses on
the cover pool assets following issuer default.
The cover pool losses are an estimate of the losses Moody's currently
models if the relevant issuer defaults. Moody's splits cover pool
losses between market risk and collateral risk. Market risk measures
losses stemming from 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 cover pool
assets' credit quality. Moody's derives collateral risk from the
collateral score.
For each programme below, once the rating review concludes,
Moody's will reassess the minimum level of over-collateralisation
(OC) required for the aforementioned programmes to meet the maximum rating
achievable.
--- AIB MORTGAGE BANK
The cover pool losses are 34.4%, with market risk
of 27.7% and collateral risk of 6.7%.
The collateral score for this programme is currently 10.0%.
The OC in this cover pool is 92.3% on a nominal basis and
51.1% on a prudent market value (PMV) basis. The
issuer provides 5% PMV OC on a "committed" basis.
--- BANK OF IRELAND MORTGAGE BANK COVERED BOND PROGRAMME
The cover pool losses are 35.3%, with market risk
of 26.2% and collateral risk of 9.1%.
The collateral score for this programme is currently 13.6%.
The OC in this cover pool is 74.2% on a nominal basis and
37% on a PMV basis. The issuer provides 5% PMV OC
on a "committed" basis.
--- EBS MORTGAGE FINANCE COVERED BOND PROGRAMME
The cover pool losses are 36.9%, with market risk
of 30.2% and collateral risk of 6.7%.
The collateral score for this programme is currently 10.0%.
The OC in this cover pool is 83% on a nominal basis and 37%
on a PMV basis. The issuer provides 5% PMV OC on a "committed"
basis.
The OC numbers are as of 30 September 2013.
For further details on cover pool losses, collateral risk,
market risk, collateral score and TPI Leeway across covered bond
programmes rated by Moody's please refer to "Moody's EMEA Covered Bonds
Monitoring Overview", published quarterly. All numbers in
this section are based on the most recent Performance Overviews.
TPI FRAMEWORK: Moody's assigns a TPI, which indicates the
likelihood that the issuer will make timely payments to covered bondholders
if the issuer defaults. The TPI framework limits the covered bond
rating to a certain number of notches above the issuer's rating.
The TPIs assigned to these transactions remain at "Improbable".
FACTORS THAT WOULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
The issuer's credit strength is the main determinant of a covered bond
rating's robustness. The TPI Leeway measures the number of notches
by which Moody's might downgrade the issuer's rating before the rating
agency downgrades the covered bonds because of TPI framework constraints.
Currently, the TPI Leeways of AIB Mortgage Bank and EBS Mortgage
Finance Covered Bond Programme are limited, and thus any downgrade
of the issuer ratings may lead to a downgrade of the covered bonds.
The TPI Leeway for Bank of Ireland Mortgage Bank Covered Bond Programme
is 1 notch.
A multiple-notch downgrade of the covered bonds might occur in
certain limited circumstances, such as (1) a sovereign downgrade
negatively affecting both the issuer's senior unsecured rating and the
TPI; (2) a multiple-notch downgrade of the issuer; or
(3) a material reduction of the value of the cover pool.
RATING METHODOLOGY
The principal methodology used in these ratings was "Moody's Approach
to Rating Covered Bonds" published in July 2012. Please see the
Credit Policy page on www.moodys.com for a copy of this
methodology.
Please note that on 19 September 2013, Moody's released a
Request for Comment, requesting market feedback in which it proposes
an adjustment to the anchor point it uses in its covered bond analysis.
If the revised Credit Rating Methodology is implemented as proposed,
the Credit Ratings of the covered bonds may be affected. Please
refer to Moody's Request for Comment, titled "Approach to Determining
the Issuer Anchor Point for Covered Bonds" for further details regarding
the implications of the proposed Credit Rating Methodology changes on
Moody's Credit Ratings https://www.moodys.com/research/Approach-to-Determining-the-Issuer-Anchor-Point-for-Covered-Bonds--PBS_SF342448.
REGULATORY DISCLOSURES
For further specification of Moody's key rating assumptions and
sensitivity analysis, see the sections Methodology Assumptions and
Sensitivity to Assumptions of the disclosure form.
Moody's did not use any stress scenario simulations in its analysis.
For ratings issued on a program, series or category/class of debt,
this announcement provides certain 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 certain 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 certain 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.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this rating action, and
whose ratings may change as a result of this rating action, the
associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
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.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Volker Gulde
VP - Senior Credit Officer
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 reviews several Irish mortgage covered bond ratings for downgrade
