London, 26 September 2016 -- Moody's Investors Service has today placed on review for upgrade the Aa1
ratings assigned to the mortgage covered bonds issued by AIB Mortgage
Bank (AIBMB) and EBS Mortgage Finance (EBSMF). At the same time,
Moody's has affirmed the Aa1 rating assigned to the mortgage covered
bonds issued by Bank of Ireland Mortgage Bank (BOIMB).
RATINGS RATIONALE
Today's rating actions are prompted by the upgrades of the counterparty
risk (CR) assessments of the issuers' parent entities. For
further details, please see "Moody's takes rating actions
on Irish banks", published on 19 September 2016 (http://www.moodys.com/viewresearchdoc.aspx?docid=PR_355209).
At present, each of the three programmes has a relatively high level
of over-collateralisation (OC). During the review of the
ratings assigned to the covered bonds issued by AIBMB and EBSMF,
Moody's will consider whether OC will be maintained at a level consistent
with a Aaa rating. Moody's has affirmed the Aa1 rating assigned
to BOIMB's covered bonds because looking forward, Moody's
does not expect that OC will be maintained at a level consistent with
a Aaa rating.
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 probability that the
issuer will cease making payments under the covered bonds (a CB anchor
event); and (2) the stressed losses on the cover pool assets following
a CB anchor event.
The CB anchor for each of these programmes is the CR assessment plus 1
notch. The CR assessment reflects an issuer's ability to
avoid defaulting on certain senior bank operating obligations and contractual
commitments, including covered bonds. Moody's may use
a CB anchor of CR assessment plus one notch in the European Union or otherwise
where an operational resolution regime is particularly likely to ensure
continuity of covered bond payments.
The cover pool losses are an estimate of the losses Moody's currently
models following a CB anchor event. 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 is derived from the collateral score, which measures
losses resulting directly from the cover pool assets' credit quality.
- AIB Mortgage Bank
The cover pool losses of this programme are 18.7%,
with market risk of 15.2% and collateral risk of 3.5%.
The collateral score for this programme is currently 5.2%.
The over-collateralisation in this cover pool is 58.6%
on a Prudent Market Value (PMV) basis, of which AIBMB provides 5.0%
on a "committed" basis. The minimum PMV OC level that
is consistent with the Aa1 rating is 10.0%, of which
the issuer should provide 0.0% in a "committed"
form. The minimum PMV OC level that is consistent with a Aaa rating
is 17.0%, of which the issuer should provide 0.0%
in a "committed" form. These numbers show that Moody's
is relying on "uncommitted" OC in its expected loss analysis.
- Bank of Ireland Mortgage Bank
The cover pool losses of this programme are 22.3%,
with market risk of 14.4% and collateral risk of 7.9%.
The collateral score for this programme is currently 11.8%.
The over-collateralisation in this cover pool is 61.9%
on a Prudent Market Value (PMV) basis, of which BOIMB provides 5.0%
on a "committed" basis. The minimum PMV OC level that
is consistent with the Aa1 rating is 9.0%, of which
the issuer should provide 0.0% in a "committed"
form. The minimum PMV OC level that is consistent with a Aaa rating
is 20.5%, of which the issuer should provide 0.0%
in a "committed" form. These numbers show that Moody's
is relying on "uncommitted" OC in its expected loss analysis.
- EBS Mortgage Finance
The cover pool losses of this programme are 16.2%,
with market risk of 12.9% and collateral risk of 3.4%.
The collateral score for this programme is currently 5.0%.
The over-collateralisation in this cover pool is 47.4%
on a Prudent Market Value (PMV) basis, of which EBSMF provides 5.0%
on a "committed" basis. The minimum PMV OC level that
is consistent with the Aa1 rating is 6.5%, of which
the issuer should provide 0.0% in a "committed"
form. The minimum PMV OC level that is consistent with a Aaa rating
is 14.5%, of which the issuer should provide 0.0%
in a "committed" form. These numbers show that Moody's
is relying on "uncommitted" OC in its expected loss analysis.
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 Global Covered Bonds
Monitoring Overview", published quarterly. All numbers in
this section are based on Moody's most recent modelling (based on
data provided by the issuers as of 30 June 2016 for AIBMB and EBSMF and
as of 31 March 2016 for BOIMB).
TPI FRAMEWORK: Moody's assigns a "timely payment indicator"
(TPI), which measures the likelihood of timely payments to covered
bondholders following a CB anchor event. The TPI framework limits
the covered bond rating to a certain number of notches above the CB anchor.
For each of these programmes, Moody's has assigned a TPI of Probable.
Factors that would lead to an upgrade or downgrade of the ratings:
The CB anchor is the main determinant of a covered bond programme's rating
robustness. A change in the level of the CB anchor could lead to
an upgrade or downgrade of the covered bonds. The TPI Leeway measures
the number of notches by which Moody's might lower the CB anchor before
the rating agency downgrades the covered bonds because of TPI framework
constraints.
Based on the current TPI of "Probable", the TPI Leeway
for the programmes of AIBMB and EBSMF is 1 notch. This implies
that Moody's might downgrade the covered bonds because of a TPI
cap if it lowers the CB anchor by 2 notches, all other variables
being equal. Based on the current TPI of "Probable",
the TPI Leeway for BOIMB's programme is 2 notches. This implies
that Moody's might downgrade the covered bonds because of a TPI
cap, if it lowers the CB anchor by 3 notches, all other variables
being equal.
A multiple-notch downgrade of the covered bonds might occur in
certain circumstances, such as (1) a country ceiling or sovereign
downgrade capping a covered bond rating or negatively affecting the CB
Anchor and the TPI; (2) a multiple-notch downgrade of the
CB Anchor; 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 August 2015.
Please see the Ratings Methodologies page on www.moodys.com
for a copy of this methodology.
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 credit rating action on the support provider and in relation to
each particular credit 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 credit rating action,
and whose ratings may change as a result of this credit 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.
John Hogan
Asst Vice President - 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
